Lawyers, accountants look to build business from downed financial walls

Just three days after financial deregulation became law, New York law firm Sullivan & Cromwell named H. Rodgin Cohen, a powerful banking lawyer, as chairman. The announcement had been expected for months, but the timing seemed symbolic of what law firms are doing to gear up for the new law.

Many major law firms and accountants with financial services clients expect a big increase in work because of the reforms, which break down barriers between banks, insurers and investment houses.

“There is a substantial increase in demand for lawyers with experience doing M&A insurance work,” says John Lindsay, a recruiter at Major Hagen & Africa in New York.

Along with the opportunities for these firms will come more competition and more poaching of clients. For instance, law firms, many of which have traditionally specialized in either insurance or banking, are beginning to look at each other’s markets as a source of new business.

The impetus is the repeal of the Glass-Steagall Act, a Depression era law. New laws could spur the next wave of combinations and alliances in the financial services industry. Accelerating the pace is an accounting rule change due at the end of 2000 that will make acquisitions more expensive.

So far this year, law firms have advised on $156 billion in financial industry combinations. Wachtell Lipton Rosen & Katz has worked on the biggest transactions, ranked by dollar volume. It has been involved in 13 deals worth $62 billion.

For the lawyers, a large merger or acquisition can generate multimillion-dollar fees. And while firms have discounted a number of legal services to generate business, mergers and acquisition work is still a “top-shelf” item at most firms.

Law firms are preparing to capture those fees. Cadwalader Wickersham & Taft, which has had a Wall Street client base, recently formed a banking practice. Debevoise & Plimpton, which has a strong insurance practice, says it plans shifting more of its associates into its banking practice. And banking powerhouse Shearman & Sterling says that it plans to add lawyers with insurance expertise.

“Most of our clients are interested in offering insurance products and are looking for legal advice,” says Jonathan Weld, a partner at Shearman.

Mimicking the convergence in the financial industry, Sullivan & Cromwell merged its banking lawyers, insurance lawyers and asset management lawyers into a financial services practice with 75 lawyers.

“We have had a lot of meetings with clients to review the new laws,” says Mr. Cohen. “More business will occur, and we are well-positioned for it.”

Accounting firms, too, are adding consultants to steer financial institutions through a rising number of mergers. BDO Seidman plans to add 10 consultants to its team of 50 who work in the financial sector.

“It’s a tremendous opportunity for professional services firms,” says Rocco Maggiotto, who heads PricewaterhouseCoopers LLP’s financial services practice. “Each of our clients wants to know what this means to them.”

more one-stop shopping

It may make sense for professional services firms also to get bigger fast. “The idea of one-stop shopping for professional services may be very appealing for some of the large clients,” says Charles Maddock, a legal consultant at Altman Weil Inc. “The work may be moving toward multilocation firms with a lot of scale.”

Still, there’ll be a battle for the work. The largest financial institutions are busy building in-house investment banking and law practices. Commercial banks are even providing merger consulting services.

In the merger that formed Citigroup, all the investment banking work was done in-house. And so far this year, legal work for 20% of the deals involving financial institutions was done in-house.

Not everyone, though, expects an immediate windfall.

Peter Demmerle, head of the insurance practice at LeBoeuf Lamb Greene & MacRae, expects more mergers of insurers, but thinks it will be rare to see a marriage of a bank and an insurer. Most insurers aren’t big enough to acquire a big bank, and banks see insurance as a lower-margin business.

As a result, LeBoeuf, which has as many as 150 lawyers who work on insurance matters, isn’t planning any major structural changes.

That doesn’t mean Mr. Demmerle doesn’t see more demand for legal services. “The work is going to come from firms wanting to form more alliances, not mergers,” he says.