A Matter Of Law In I-Banking
Some legal eagles who crossed into investment banking are finding now is a good time to get back into law practices
By Joshua Hamerman April 17, 2009
Seeking a more secure working environment, better ways to serve clients, or additional assignments in certain sectors, some investment bankers who started out as lawyers have been drifting back to law firms.
Perhaps the most high-profile move came last Dec. 12, when James Sprayregen rejoined Kirkland & Ellis as a partner in its restructuring practice. He had been co-head of U.S. restructuring at Goldman, Sachs & Co. since 2006. Before his investment banking move, Sprayregen spent 16 years at Kirkland, where he eventually became leader of the restructuring group.
Meanwhile, in September, Paul Aronzon rejoined Milbank, Tweed, Hadley & McCloy as co-practice leader of the financial restructuring group following two and a half years as head of restructuring advisory services and co-head of investment banking at Imperial Capital. Prior to decamping for Imperial, Aronzon was a partner at Milbank Tweed for 17 years.
In 2007, Harvey Miller left Greenhill & Co., where he was a managing director and vice chairman, after almost five years to rejoin Weil, Gotshal & Manges, where he founded and built the business finance and restructuring department.
For Sprayregen, it was the prospect of more restructuring mandates that called him back to Kirkland. "Goldman Sachs is a great firm and I'm glad I was there, but as I watched the restructuring cycle develop -- with the credit market in the situation it was and remains to some extent, and with the calls I was getting from numerous potential clients and law firms asking about my availability -- it got me thinking towards the latter part of the fourth quarter about the macroeconomic situation, the restructuring world's situation, and my own personal situation," he says. "As I sat there and talked about it, I determined the restructuring cycle we're in is going to be one of the longer ones and with credit markets, at a minimum, incredibly tighter if not shut from time to time, my skills as a lawyer would better suit me as well as my clients. I felt I could be more accretive to restructuring situations by taking my lending hat off."
Ironically, when asked by IDD in a 2007 interview if he missed the courtroom, Sprayregen responded: "Not really. Every now and then a tad when you had that really fun argument, but I don't miss the 99.9% of the work it takes to get to that point" (see related story).
Today, Sprayregen, who has not seen the inside of a courtroom since he rejoined Kirkland, is advising on restructuring mandates in a variety of sectors, including retail, trucking, packaging, paper, auto, media, chemicals, and real estate.
In another high-profile move, Lewis Steinberg is joining Linklaters in June as head of the U.S. tax practice and co-head of U.S. operations. Steinberg has left UBS, where he was a managing director and head of the investment banking division's global strategic solutions group. Prior to starting at UBS in 2005, he spent 21 years at Cravath, Swaine & Moore, where he worked his way up to co-head of the tax department.
"Bankers have been very much in the public eye, especially over the last three to four months, and that often becomes a topic of conversation whenever you see a client," Steinberg says. "It's difficult to walk into a room with a CEO, CFO, business development head, or a board without you becoming the story, because people want to talk about your bank, bankers in general, the latest comments from a variety of politicians, bankers' responsibility for the financial crisis, or executive pay. The client is legitimately interested in what's going on in your profession and in Washington and Albany, and that's a distraction from what's supposed to be on the table, which is how we can help the client."
Lawyers, on the other hand, don't "become the story," he says, and therefore may have more credibility in clients' eyes. Even in today's politically charged environment, attorneys "still have the trust of clients and can sit down and deal with client concerns without having to deal with what clients have just read in newspapers."
Just as many bankers are moving away from Troubled Asset Relief Program-funded institutions to boutiques like Greenhill or Moelis & Co., professionals with law backgrounds have the option of relocating to a different kind of boutique -- law firms. "Bankers who were lawyers can take their skills and go to a private law firm instead of a banking boutique, where they can dedicate themselves to clients without the constant attention and publicity they had at large publicly traded companies," Steinberg says.
Private law firms also offer more stable compensation at a time when large banks are under pressure to change compensation structures. "I never went into banking because I thought I'd make better money -- I was well-compensated as a lawyer, but I wanted to take my skills and use them in a different environment," Steinberg says. "What's different now is that large bulge-bracket banks find it difficult to potentially pay their employees the value created by their employees because they are subject to a lot of public scrutiny by politicians. It's a difficult environment, and I'm not sure I would want to be in a situation where I can't get compensated for the value I produce -- not because I'm greedy, but because I want my compensation to depend upon economics, not politics."
Law firms provide an advantage because they are private institutions and partners make as much or as little as the institution earns. "We bear the equity risk of the institution, and if we create value, the institution will thrive," Steinberg says. "That's the difference -- as a lawyer you're a part owner, and as a banker you're an employee. In this environment it's tougher to be an employee of a large government-funded institution like a TARP bank versus being a part owner of an institution in which you have equity ownership."
Deborah Rivera, founder and president of the Succession Group, a recruitment firm, has spoken with some investment bankers in their 30s who are considering law school. "They feel a career in law wouldn't have the same highs and lows, and would offer more stability," she says. "It's a transferable skillset with the same level of intellectual stimulation."
However, law firms, like investment banks, have been cutting jobs. Linklaters recently announced plans to lay off 120 lawyers, while Latham & Watkins has cut 190 attorneys.
"There have been a lot of job cuts in law firms that dealt with Wall Street, so most people would have to come in with expertise in workouts and restructurings, or be seen as a rainmaker because of their position in the industry," says John Challenger, chief executive officer of Challenger, Gray & Christmas. "These are not ripe pastures to be hunting in right now, but there's no question that a very successful lawyer who became successful on Wall Street, like Sprayregen, is going to be in demand because as a rainmaker he's a big centerpiece, showcase attorney that can draw the banking world to the firm."
Lawrence Braun, a partner and former corporate practice group co-chair at Sheppard, Mullin, Richter & Hampton, says it is rare for anyone who leaves the law profession to return because "the sale of hours is very difficult." Braun came back to Sheppard Mullin in 2001 after leaving the firm for Barrington Associates, which is now part of Wells Fargo. Ironically, Braun later advised Barrington on its sale to Wells.
While the return of law-educated investment bankers to law firms may not be a full-fledged trend, bankers with law backgrounds have easily transferable skill sets.
When Steinberg first arrived at UBS, he reported to the firm's then-joint global heads of investment banking, Kenneth Moelis (who left to start Moelis & Co. in July 2007) and Robert Gillespie (who left UBS in September 2008 and joined Evercore Partners as a London-based senior managing director this past February). Moelis hired Steinberg, and promised him he would be able to grow his horizons.
"Kenny and his colleagues wanted to create an internal tax expertise, and the hook for me was when Kenny said, 'I'll give you an enhanced set of financial skills because you'll be working every day as a banker,'" Steinberg recalls. "Just as Kenny said, I've learned things as a banker that I'll bring back with me as a lawyer. I have more developed financial skills than I had four years ago, but I also have something else -- I've been, in essence, a client, so I understand what clients are looking for and can present that to them much more crisply."
At Cravath, Steinberg worked with Robert Kindler, who later became global head of M&A at JPMorgan and is now vice chairman of investment banking at Morgan Stanley, and George Bilicic, now head of the power, utilities and infrastructure group at Lazard.
As a banker and lawyer, Steinberg counseled clients and helped structure M&A transactions, which involved analytical problem-solving and presentation abilities. One major difference, though, is that attorneys can offer legal opinions that bankers cannot. Lawyers have attorney-client privilege, and can discuss certain topics only when non-attorneys like bankers are out of hearing distance. Therefore, it isn't uncommon for lawyers to ask bankers to leave the room when offering legal advice to client CEOs and boards, Steinberg says.
"At the end of the day, senior lawyers and senior investment bankers are trying to assist companies and other stakeholders with getting companies and balance sheets restructured," Sprayregen says. "I think [working as a banker] has made me a better lawyer, and given me a much better understanding of things I didn't know I didn't know. I have a better understanding of how the capital markets and investment banking business work, and how a number of practical and financial aspects of capital structures can be modified or compromised in better ways."
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James Sprayregen
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