US law firms have begun setting up sub-prime litigation teams. The same phenomenon may be about to happen here.
It’s been on the horizon ever since investors started losing out on mortgage-related bonds, and sub-prime litigation is finally banging down the door.
Barclays is sueing Bear Stearns over the collapse of two hedge funds. Goldman and Morgan Stanley, plus assorted other Wall Street firms, are said to be the targets of legal action relating to the sale of mortgage bonds, and the Wall Street Journal says Merrill Lynch has been charged with fraud.
Sensing an opportunity in the offing, law firms are positioning themselves to cash in. The Times reports that City law firms are ditching their historic unwillingness to sue investment banks (who are, after all, lucrative clients). And The Economist reported last month that US law firms have been “rushing to set up dedicated sub-prime practices”.
Tom Custance, head of dispute resolution at London law firm Fox Williams, says it’s only a matter of time before the same thing comes to pass this side of the Atlantic. “This is a more urgent issue in the US right now, but I’d be very surprised if it doesn’t come up over here as well.”
When it does, he predicts there will be new legal roles for people familiar with securitization techniques.
Bleak future for securitization lawyers
Could they be filled by securitization professionals who’ve been culled by banks? Only if they are also lawyers with knowledge of litigation issues, says Custance: “Someone who’s had some contentious experience in private practice before working on an in-house legal desk in a bank would be interesting.”
However, one lawyer-turned-banker says the return journey would not be particularly palatable: “Not many people stick around in a law firm because the hours are long and the work is tough and you don’t get a bonus. The only real bonus is partnership – and few people get that.”
Meanwhile, legal recruiters say demand for lawyers to work on the day-to-day business of securitized transactions is rather weaker than it once was.
“There are some law firms who are trying to be opportunistic and hire structured finance partners with very specific experience, and also structured finance lawyers who have missed out on partnership this year, but many firms are no longer hiring in this area,” says Siobhan Lewington at Fox Rodney.