The bargain-basement sale of Bear Stearns to JPMorgan Chase brought out some of the biggest names in the legal profession.
Sullivan & Cromwell; Skadden, Arps, Slate, Meagher & Flom; and Cadwalader, Wickersham & Taft represented Bear Stearns in its sale, subject to shareholder approval, to JPMorgan Chase for $236 million, or $2 a share. Wachtell, Lipton, Rosen & Katz represented JPMorgan.
But whatever fees this handful of firms collects and whether more will be generated by potential shareholder litigation, the corporate bar at large is mourning the passing of a major investment banking client that only recently generated rich billings.
Investment banks have long been the bulwarks of the leading New York firms’ client lists, and the main reason for their high levels of profitability. While other corporate clients have moved aggressively to slash legal bills, investment banks have continued to offer their favored firms a stream of “premium” and “full-rate” work.
Firms that regularly earned such fees from Bear Stearns now face competing again for such work at JPMorgan, which has typically relied on its own stable of firms, most notably Simpson Thacher & Bartlett.
Mel M. Immergut, the chairman of Milbank, Tweed, Hadley & McCloy, said previous waves of consolidation had not always resulted in firms being usurped. Milbank was the regular outside counsel for the Chase Manhattan Bank prior to acquisition in 1996 by Chemical Bank and then by JPMorgan in 2000. Immergut said the firm’s work for the combined entity had increased rather than diminished over the years.
“Firms that have been doing well with the organization that was acquired should still get work,” he said.
Bear Stearns used a number of firms, but perhaps no lawyer was as closely identified with the bank as Cadwalader partner Dennis J. Block. A decades-long confidante of former Bear Stearns Chairman Alan “Ace” Greenberg, Block represented the bank or its clients in a number of major transactions. Several large deals in which Block and Cadwalader represented pharmaceutical giant Pfizer also involved Bear Stearns as the company’s financial adviser.
It may be difficult for Block, who did not return a call seeking comment, and other Bear Stearns stalwarts to build a similar relationship with JPMorgan.
“It’s one less player for firms to chase after,” said a mergers and acquisitions partner at a large non-New York firm who asked to remain unnamed. He said Bear Stearns, itself something of an outsider on Wall Street, had a reputation for being more open toward hiring less-established firms than the other major banks, which tend to hire the same elite New York firms again and again for top-level work.
Notwithstanding the bank’s hiring in this instance of Wachtell, the partner said, JPMorgan is generally perceived as a Simpson Thacher client, just as Goldman Sachs & Co. is seen as a Sullivan & Cromwell client.
“That makes it more difficult for a firm to approach JPMorgan Chase for work, knowing they might bang their heads against Dick Beattie’s wall,” he said, referring to Simpson Thacher’s longtime chairman.
Robert Profusek, an M&A partner at Jones Day, agreed that the death of Bear Stearns could have a negative effect on those firms that once worked for that bank. But he said that law firms now should be more concerned about the effect on them of the same forces that led to Bear Stearns’ collapse. “That’ll be much, much worse,” he said.
M&A and other major transactional work is expected to grow scarcer in the coming months. The severe downturn in mortgage-backed securities, the cause of Bear Stearns’ downfall, has already led to layoffs and buyouts at some firms.
The last major collapse of a Wall Street bank, that of Drexel Burnham Lambert in 1990, also presaged turmoil at law firms, with layoffs taking place at Latham & Watkins and others.