So much for the humbling of the City. Our annual Global London special 2014 finds that the number of lawyers employed at the top 50 foreign firms in the Square Mile has finally and comfortably broken its 2008 high, with over 4,500 lawyers working across the group after a 6% hike in numbers.
There are now 1,364 partners working at the top 50 international firms in London, a rise of 3% on last year, with the group internally promoting 50 partners. The five fastest growing firms by headcount were King & Spalding, Proskauer Rose, Morgan Lewis & Bockius, Ropes & Gray and Cravath Swaine & Moore.
The latter firm’s UK headcount growth reflects the wider trend for capital market-centric advisers to expand their US benches in London to handle European demand for New York-law financing. The number of foreign-qualified lawyers across the group increased from 673 last year to 762, a rise of 13%. Firms to increase their ranks of foreign lawyers in London included US leaders such as Latham & Watkins, Simpson Thacher & Bartlett, Shearman & Sterling and Cleary Gottlieb Steen & Hamilton.
And in the post-Lehman world, London is now less about grand schemes and expensive investment – these offices are often profitable in their own right. The top ten largest City offices of US-bred parents collectively generated over £1bn in fees last year, having on average increased their UK billings by 9%, and have made 34 lateral hires since last February. Furthermore, in a striking number of cases, major US firms have seen faster growth during 2013 at their London practices than in the US, notable at firms including Shearman & Sterling, Latham & Watkins, Dechert, White & Case and Weil, Gotshal & Manges.
For all the froth of the go-go years, back in the boom it was rare that foreign law firms with any substantive investment in UK law achieved profits anywhere near their home market. That dynamic is changing and will have profound implications for the London profession. With the message getting back to partners in the US that heavy City expansion doesn’t have to mean profit dilution, there will be yet more investment.
US advisers have already established strong beachheads, built up local knowledge and, through trial and error, worked out the practice lines that play best to their strengths, generally a mixture of private equity, funds and leveraged finance on the transactional side and global investigations, restructuring and arbitration at the contentious end. With the message getting back to partners in the US that heavy City expansion doesn’t have to mean profit dilution, there will be yet more investment.
There’s nothing clever about this game plan and there has been plenty of luck behind it. Currency movements, trade flows, direct investment, the development of cross-border enforcement and the vogue for tapping US investors – all of these have moved in favour of American advisers since 2008.
In some cases, well-established product lines with an American flavour are being slickly sold in Europe as cutting-edge services despite pretty run-of-the-mill documentation. That may irritate UK rivals but City firms should be more realistic about the ground that has been surrendered and the existential threat they are facing.
US firms have taken their advantages and higher profits to recruit the many talented but individualistic partners who no longer feel they fit into the institutional beasts of the City. The same factor underlines the increasing prominence of boutiques in recent years, a breed where in litigation, serious players are developing.
London is moving into a fascinating period and unique position in the global legal market – the scale of New York, but with a far more global outlook and a place where competing ideas and models battle it out. Into this contest you have the emergence of alternative models and a fresh drive for innovation, but for now the great game is defined by the two power blocs of US and UK firms. In London at least, currently only one side is advancing.
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