The Firms That Were Offered Bailout Love
We mentioned yesterday that Simpson Thacher has been chosen to advise the government on the massive $700 billion bailout plan. They were chosen on Friday and are already racking up billable hours on it.
Six other firms were approached by the Treasury, but only two expressed interest. Zach Lowe at the American Lawyer reports:
Cleary Gottlieb Steen & Hamilton confirmed Tuesday that it was one of the six firms the Treasury Department considered as candidates for a role as lead adviser on the $700 billion bailout plan.Only two of those six firms pursued the work that eventually went to Simpson Thacher & Bartlett.
Four of the six law firms have confirmed that the Treasury reached out to them: Simpson, Cleary, Davis, Polk & Wardwell, and Wachtell, Lipton, Rosen & Katz. The two others, including the firm the Treasury turned down, remain unidentified. Two of the most likely candidates — Sullivan & Cromwell and Latham & Watkins — would not comment on the matter. A third, Shearman & Sterling, has not responded to messages.
Lowe tracked down a lawyer at one of the firms that rebuffed the Treasury. The lawyer admitted it was “prime work,” but that they feared not being able to represent “regular clients on the program.” In the cost-benefit analysis, the potential billable hours to financial services companies clamoring for bailout money must outweigh the government possibilities.
But Simpson Thacher is not sweating it:
Richard Beattie, chairman of Simpson Thacher, says the Treasury did not put any pressure on the firm to drop clients and that the firm is not concerned about losing business.“They did not say that,” Beattie says. “It’s ridiculous. We represent JPMorgan Chase and would not give up a client like that.”
AmLaw reports that Simpson’s other financial clients include Washington Mutual (now part of JPMorgan Chase), Lehman Brothers, and AIG. Given that list, we can see why the government is the more attractive client at the moment.
Cleary Confirms It Rejected Lead Adviser Role on Federal Bailout Plan [American Lawyer]
Simpson Thacher Wins Treasury Sweepstakes, Four Firms Decline [American Lawyer]
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You would think that Treasury would have reached out to firms that did more securitization and derivatives work than these...
FIRST to say:
F
I
R
S
T
Even the government doesn't want
SkaTTTen
but S&S? They don't belong in that list...
To 1: No. STB are going to work on banks "nationalization" - purchase of equity stake by the Treasury in financial institutions - and not auctioning MBS. It has nothing to do with securitization but for ability to evaluate properly the balance sheets of banks (which is the work of auditors and financial advisors).
At least 20% of STB's revenue came from those three last year. The other firms passed because they weren't as tied to the dead wiehgt as STB is/was, and didn't need the business as badly. I don't care what Beattie says - this was STB's own version of the bailout.
Screw Vault, the true hierarchy of firms
T1: WLRK
T2: S&C, STB, CSM, DPW
T2.000001: Cleary
T3: Litigation firms
Ahh, I see. I was thinking of the wrong type of work.
Thanks #4.
#1.
Too bad on L&W - was looking forward to getting involved with this.
Does anyone know to what extent Federal judicial law clerks can do pro bono work during their clerkship? Is it a total prohibition or a limited prohibition?
Really?
I thought for sure all the work would go Paul Hastings.
Surely STB will not be the only firm advising Treasury on this? Will there be trickle down to other firms as well?
STB takes DPS, CGSH and S&C's table scraps. I guess its pretty easy not to get conflicted out when all of your clients have ceased to exist.
Can someone explain how the $250 billion injection of capital into the 9 banks this week fits into the TARP? I see DPW and Simpson worked with the FED on this plan. http://amlawdaily.typepad.com/amlawdaily/2008/10/davis-polk-simp.html
Also, if DPW is concerned with conflicts, how is this different from taking on the $700 billion program?
6 = insecure STB associate
donde esta skadden? Is it the end of the world?
Why did the Gov not even ask Skadden?
9 - It depends.
Generally you cannot practice law, but there are some exceptions for pro bono and similar work. Also, your judge may nix any outside legal work without any exceptions.
15&16 - we don't know that they did not, read the post - it says two firms are still unknown.
#5, 20% of STB's revenue does not come from Lehman, Wamu and AIG. Lehman alone didnt make up more than 3% of STB's revenue and AIG and WAMU are maybe 3% combined. Now, STB would maybe have some trouble if Blackstone and KKR went down Lehman style; however, that's not the case.
Representing the government is not all about billables; it is about prestige. I do believe the other firms werent able to take the work due to conflicts and STB got the work because it represents less of the still-alive banks/institutions that will take part of the bailout. At the end of the day, I think getting the government will be a win for STB overall.
19 - its not a win if everyone else declines to take it.
#20 the other firms declined to take it because of conflicts, not because they wanted to decline. I am sure if they didnt have conflicts they would have thrown themselves at the idea of representing the government in this historical event. It is a win for STB overall.
wow let me count the ways this site sucks now
11 - It will trickle down to other firms in that they will work for banks who try to get money from the treasury (but really the 6 firms the gov asked to rep the treasury will likely take 99% of that work). The reason it's such jackpot is that STB now gets to be in on 100% of the 700B worth of deals.
5 - Agree this is huge for them. I this gets them through the temporary dip while the people at Lehman, WaMu, and the third one get settled at their new companies and about the time the bailout is over the former clients will be sending STB work from new clients.
20 - really just being asked is a win for all 6. Who the Government considered for the largest and most important transaction in history shows who the truly best corporate firms are.
While I will not go as poster 6, but that the Gov didn't even consider hearing from the 7th+ best firms in the country shows that there is a clear line between these and the rest.
STB's representation of AIG was limited to its independent directors. The firm's largest clients are probably KKR and Blackstone, which, when the dust settles, will be the only remaining independent players with substantial amounts of capital. Combine that with the prestige of working the TARP program, and I see a lot of upside potential here for the firm.
notwithstanding 18's observation, it does seem like skadden's been missing out on most of the work coming out of this financial mess. if anyone has any info indicating otherwise, please do share.
24 - it doesn't necessarily mean they are 'the' best. they are probably the best of the firms who are heavily involved in the financial markets. if this was a litigation dispute you can be sure they would have contacted the top DC lit shops like W&C, Cov and WilmerHale.
Cadwalader handled the RTC in the early nineties. Where's CWT now?
Cadwalader handled the RTC in the early nineties. Where's CWT now?
where is cravath in all of this? i don't think i've seen them mentioned once in this whole credit crisis...except for a small bit of work in london, i think
25: KKR and Blackstone will be unable to fund/finance the large going private transactions of the past. No bank will lend/finance $15+ Billion transactions in this market. It may be dead for the next 10 years.
Another of STBs biggest clients is JPM, meaning all WaMu-related work is still with the firm.
14 = didn't get an offer from STB
Cravath's ass is sitting unwiped on the this one. Someone must be wiping Cravath's ass, right?
This is tremendously good news for Simpson. Enough to make me regret choosing DPW over Simpson.
If you have an offer from STB and Skadden, which is the better one to take right now?
@31: If you think private equity is dead just because they can't pull the same financing tricks, you're sorely mistaken. KKR and Blackstone are still sitting on billions and billions of dollars and will still be aggressively finding opportunities to invest that money. There may be fewer leveraged transactions, but there will still be plenty of legal work.
37: I agree. Places like K&E will be successful because they handle smaller private equity deals. STB's clients will need to handle smaller deals as well. My point was that the "large going private transactions" cannot happen in this market.
-31
35 - Don't regret anything. This is jsut one part of a lot of moving pieces, and DPW passed on it voluntarily. DPW have had their hands in many of the other aspects of the bailout, and as others have pointed out here - their clients still exist (unlike STB).
38--
Everybody knows PE will be different in the evolving market. That has no relevance as to whether it will be a player in the new market.
There will be a void left by I-Banks switching to commercial and leaving the riskier transactions, and I think you'd be foolish to assume that void will be left empty. KKR and Blackstone have already moved to snatch up M&A advisors from Lehman in the Asian markets as reported by the WSJ a few weeks ago. Given how much capital PE is sitting on right now, and given that void, I don't think there is any doubt that PE will be playing a major role in whatever direction the new market will take.
40 is completely right.
PE, unlike I-Banks, buys companies, not mortgage backed securities. So the losses they will see is part of the entire market (systemic risk?). What they do have is a SH!T load of $ that they are not spending because we have not hit bottom yet. Some economist say that while stuff if trading at 25% of face value 1/3 is due to a liquidity crisis and 2/3 is due to the assets being overvalued to begin with...
So take away: Those with money (ie PEs) once the markets settle will make a KILLING and their law firms will be flushed with work.
36
Of the elite firms Skadden and STB are two of the most different firms there are (maybe Skadden v. DPW being more different).
Skadden:
WORK: While they do get some of the big deals (despite not getting much recently), due to size 95% is mediocre deals.
PEOPLE: Due to it's size it has to reach further into the classes of the elite schools so it ends up being a lot of mediocre people who go there because it's the only elite firm they got. (I kid you not in my interview I asked a guy who just lateraled in why he chose them and he said that it was the only one that would take him.)
FUTURE: As comments above have noted, it doesn't seem to be jockeying for good positioning.
STB:
Work: as the bailout shows, 5th in line, but still gets nice scraps.
People: universally agreed upon as the "nicest" people in big law.
Future: I am with the people who said they would take a short run hit (not anymore with the bailout deal), get back the work flow from the old clients at new companies and explode once PE starts making moves again.
Don't get me wrong, there are better firms (S&C, DPW, Cravath), but STB is close enough to understand why someone would make a personal choice to go there over the others.
#39, please refrain from saying that the clients of STB no longer exist. You are referring to three maybe four clients of STB (Lehman, WAMU and possibly either AIG or Wachovia), which account MAYBE for 3% of STB's aggregate net revenues.
Some of the main clients of STB remain to be healthy private equity firms and others that maybe will not be able to finance huge LBO transactions in the next months but will play a huge role in the new financial environment that will be created post-crisis. The investment banks (now commercial banks) will not longer be able to take the type of financial risks that they were accustomed to (due to regulation as commercial banks) and the private equity/hedge funds firms will be doing the cutting edge transactions of the future. There will be plenty of legal work from those type of transactions.
#39, please refrain from saying that the clients of STB no longer exist. You are referring to three maybe four clients of STB (Lehman, WAMU and possibly either AIG or Wachovia), which account MAYBE for 6% of STB's aggregate net revenues.
Some of the main clients of STB remain to be healthy private equity firms and others that maybe will not be able to finance huge LBO transactions in the next months but will play a huge role in the new financial environment that will be created post-crisis. The investment banks (now commercial banks) will not longer be able to take the type of financial risks that they were accustomed to (due to regulation as commercial banks) and the private equity/hedge funds firms will be doing the cutting edge transactions of the future. There will be plenty of legal work from those type of transactions.
Sorry, changed 3% to 6%,
#33 and #34
Simpson earned $100 million in revenues from Blackstone in 2007
#42 - Thanks for the info, it was very helpful.
- 36
42 - Check your facts. As of the first half of this year, Skadden has advised on 6 out of the top 10 deals. So, as of recently, they don't just get "some" of the big deals but a majority of them.
http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=am6Uw2Um5rcA
42 - Check your facts. As of the first half of this year, Skadden has advised on 6 out of the top 10 deals. So, as of recently, they don't just get "some" of the big deals but a majority of them.
http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=am6Uw2Um5rcA
I have to say, I got a real sexist vibe at Cravath. Spent an entire day interviewing there and didn't meet one woman, other than the floozy who guided me around the office like a seeing-eye dog. Probably going to have to turn their offer down as a result and take Wachtell instead.
Where do people get the idea that Simpson has "lost" more clients to this crisis than other firms? Yes, Simpson did some work for Lehman and the banks that have been acquired. But that's only because a top firm like Simpson does some work for ALL of the biggest players in all of the most important markets. I'd worry very little about Simpson---I think they are much better positioned than almost all other firms.
What's the breakdown of PE v. commercial and I-banking revenue for STB? How can three giant clients account for only 3-6% of revenue?
(Honest question)
What's the breakdown of PE v. commercial and I-banking revenue for STB? How can three giant clients account for only 3-6% of revenue (per this post)? PE, Bankruptcy, Lit, et al, cover the rest?
(Honest question)
53: For STB these are not "giant" clients, but three of 40-60 clients with the same amount of work. Three significant STB clients are BX, KKR and JPM, and still they are less than 10% each. Also, even when there are not gigantic deals, there is still litigation (involving the same PE actors) and funds formation for PE clients. Like any other V10 firm , STB is often hired just to do one deal (e.g. Mars/Wrigley) without long-standing relationship with a client, and such engagements account for at least 20-40% of work.
http://obamaisscum.blogspot.com/
48/49
Check your sense of "recently". We are saying the same thing Skadden did great months 1-6 (I would go further back and say have been in on important deals for years). But that still doesn't don't respond to my point (purposely probably) that in the past few months, when the shit has really hit the fan and the world economy has become desperate, Skadden has been on the side lines (In sports terms: sure you've been a starter in regular season, but in the championship where every play counts, you're on the bench)
42
Why did you write that Simpson was "5th in line"?
That's quite a misreading of the media reports.
Your remark-- your misreading-- implies that Treasury approached one firm and it declined; moved on to the next firm, which declined, and so on and so forth, until finally Simpson, the government's 5th choice, said yes.
The government requested applications-- simultaneously-- from 6 firms. 4 declined to submit. 2 submitted, one of which was Simpson.
Oh the wonderful world of Skadden bashing. . . How fun. Skadden should be doing something right to have so many haters. I will choose them if they offer.
No. 3 "but S&S? They don't belong in that list..."
They are more connected than you think. E.g. Bob Mundheim, former high ranking treasury official (and once the dean of Penn Law School as well as once the head of Fried Frank).
No. 3 "but S&S? They don't belong in that list..."
They are more connected than you think. E.g. Bob Mundheim, former high ranking treasury official (and once the dean of Penn Law School as well as once the head of Fried Frank).