The Lawyers: Heroes and Renegades
Banking continues to get more legally complex. New laws and tougher enforcement measures keep cropping up at every turn, and institutions that want to expand–be it through mergers, new geographies, or alternative products–must pass muster with an alphabet soup of regulatory agencies first. And then there are the investors. Class-action suits against U.S. corporations are on the rise, and in today’s Enron-charged environment, it seems that everyone is only one misstep away from being the latest casualty.
Add it up, and good legal advice has never been more important–both for getting things done, and for safeguarding against various liabilities. While most banks have either in-house lawyers or local firms to handle the more mundane aspects of the business, even the biggest banks need hired guns when the going gets rough. The question is, who do you turn to?
There are literally hundreds of law firms serving the banking community, and most aren’t shy about talking themselves up in an effort to win your business. Picking the winners is an inexact science. Yet a handful seem to rise above the pack, due mostly to a combination of specialized skills, connections, and reputation.
Figuring that bankers themselves know who’s best, Bank Director researched M&A deals from 2001 data supplied by SNL Securities to come up with 10 firms that are among the most active bank advisers in the country.
The list includes traditional Wall Street powerbrokers, Washington boutique firms, and some upstarts far from the East coast. While all understand the business and pride themselves on providing good customer service, their styles, approaches and specialties often differ. We talked with each of them recently to get a better handle on what makes this crop of top law firms tick.
Arnold & Porter
Number of offices: 7
Representative clients: National Commerce Financial Corp.; PNC Financial Services; State Farm Insurance Co.
Key contact: A. Patrick Doyle, head of financial services group
Financial institution partners: 22
Fee structure: “Billable hours with an occasional success fee; fixed fees on very complex transactions.”
Number of deals in 2001: 6
Value of deals in 2001: $2.43 billion
Website: www.arnoldporter.com
Arnold & Porter made our list thanks largely to the M&A activity of one big client, BB&T Corp., which in 2001 completed three of the industry’s 11 largest acquisitions. But the Washington, D.C.-based firm earns its bread and butter by helping clients navigate the bowels of the regulatory process to push forward with new products or geographies.
“The most challenging part of the job is coming up with a reason to get the government to do what you want them to do for your client,” says A. Patrick Doyle, head of the firm’s financial services group. “The government lawyers are every bit as good as we are. You can’t play hide-the-ball with them. So you have to make arguments that are right on the law and anticipate their concerns: ‘What precedent would be set? What would Congress say?’”
With 22 partners working on financial services law, Arnold & Porter is up to the challenge. The firm got its start in Washington shortly after World War II, ready to capitalize on the plethora of regulatory agencies set up by the Roosevelt administration. Its financial services practice began in the 1960s, and took off in the 1970s, due largely to political connections. Among its former partners is John Hawke Jr., now comptroller of the currency, who returned from a stint as general counsel for the Federal Reserve Board in 1977, just as a wave of new regulation and consolidation was hitting, and later rose to firm chairman.
Hawke “was a known commodity, so a lot of people came knocking on the door,” says Doyle, 53, who joined the firm in 1983 after holding posts with the Federal Home Loan Bank Board and the OCC.
Today the firm boasts seven offices and more than 200 financial services clients, including M&T Bank, National Commerce Financial Corp., and PNC Financial Services. It specializes in complex minutiae, including structuring difficult transactions and advising banks through sticky enforcement proceedings, such as CRA- and examination-related problems. It also is helping financial services companies assess the convergence opportunities presented by the 1999 Gramm Leach Bliley Act.
More than half of Arnold & Porter’s partners are litigators, and the firm has earned a reputation for taking on cutting-edge work. Charles Neale, general counsel for National Commerce, tells of the time in 1997 when his Memphis-based company was seeking approval to launch a joint venture thrift with a supermarket chain. Neale’s staff did most of the work itself. “But issues arose where we needed someone in Washington who knew the regulators and could argue our case,” he recalls. “Arnold & Porter got it done where maybe I couldn’t. They know the players and are conversant, chapter and verse, with all of the regulations.”
Among the firm’s crowning achievements: its 1998 efforts to help State Farm Insurance Co. land a federal savings bank charter. The insurer wanted technically to have one office, and use its agent network to accept deposits. “There were questions about federal branching laws, how the CRA requirements would work, state law implications,” Doyle recalls. “It was a very complicated, extraordinarily challenging transaction.” And one that, after 15 months of negotiation, ultimately was successful.
All of this has reduced the firm’s reliance on M&A fees. Indeed, as merger activity languished in 2001, Doyle’s practice produced its best revenue year ever. This year, the pace is even stronger. “M&A is important to us,” he says, “but it’s not the engine that drives us.”
Bracewell & Patterson LLP
Headquarters: Houston
Number of offices: 11
Representative clients: Sterling Bancshares; Prosperity Bancshares; Southwest Bank of Texas
Key contact: William Luedke IV, head of financial institutions practice
Financial institution partners: 6
Fee structure: “Mostly billable hours, but also will use caps or risk-based incentives.”
Number of deals in 2001: 13
>Value of deals in 2001: $435 million
Website: www.bracepatt.com
Deep in the heart of Texas, there was once a small law firm with its eyes set on being a big player. Doing so, its partners figured, would require building a respectable banking practice from scratch. Such was the case in 1973, when Robert Clarke, then a young partner at Bracewell & Patterson, was asked if he’d like to run the firm’s new banking section. “I said, ‘I’d love to do it, but we don’t have any bank clients,’” he recalls. “And they said, ‘Well, you’ll just have to go out and get some.’”
Clarke, a former comptroller of the currency and now a 60-year-old senior partner, succeeded beyond all expectations. Today, the Houston-based firm ranks as one of the most active bank legal advisers in the country. Last year, it lent a hand on 13 M&A deals, valued at $435 million. It’s also kept busy with issues ranging from IPO and subchapter S filings to walking bank boards through regulatory minefields and the finer points of employment law.
The key to Bracewell’s success, says William Luedke IV, head of the firm’s six-partner financial institutions practice, is its culture. The firm, which has about 45 attorneys who devote significant time to banking issues, focuses on making good hires and approaches the business in a decidedly amicable way. “We look for people who are not only smart, but collegial and well rounded. Do they have a sense of humor? Are they good people to be around?” he explains. “It’s much better, for us and our clients, to work elbow-to-elbow with someone who can relate well to other people.”
This approach has served Bracewell just fine. The firm’s client list includes global giants, such as Bank of America, and smaller banks and thrifts from across the nation. Its biggest M&A deal last year was advising Central Bank Shares Inc. of Orlando on its $80 million sale to Naples, Florida-based FNB Corp.
But much of its business comes from a host of fast-growing institutions in its home state, including Sterling Bancshares and Southwest Bank of Texas. Prosperity Bancshares, a $1.3 billion institution based in Houston, is typical. The company used Bracewell for its initial charter and has called on its advice for an IPO, various forms of litigation, and more than a dozen acquisitions since.
“What I like about them is that our cultures match,” says Prosperity CEO David Zalman. The company has something of a workaholic reputation. “If we want to work on the weekend, they’ll work on the weekend. And if we’re not happy with the fees we’ve been charged, they’ll discuss it with us.
“It’s a family-like relationship. Sometimes we get mad at each other, because we’re working together so closely. But no one gets their feelings hurt,” Zalman adds.
While aggressively advocating for clients is part of the work, Bracewell’s partners make sure they don’t get carried away. “We believe that by being gentlemanly, and advocating your position calmly and with good support–not with screaming and finger pointing–is the way to go,” says Luedke, 50. “That, in our minds, is the hallmark of good service.”
If there’s a downside to the business, it’s that M&A activity has been so strong in the Lone Star state that Bracewell keeps losing clients. Providing aid with new charters fills the pipeline, but doesn’t quite keep pace. Not to worry, says Clarke. After all, he remembers a day when the firm had no banking clients at all. “We must be doing something right,” he says, “or we wouldn’t have the relationships we have.”
Elias Matz Tiernan & Herrick
Headquarters: Washington, D.C.
Number of offices: 1
Representative clients: Banknorth Group Inc.; Coastal Bancorp; Hawthorne Financial Corp.
Key contact: Timothy Matz, partner
Financial institution partners: 15
Fee structure: “Billable hours.”
Number of deals in 2001: 8
Value of deals in 2001: $769.2 million
www.emth.com
Timothy Matz is uncharacteristically low-key, (some might call it realistic), about his firm’s capabilities. Sure, Elias Matz Tiernan & Herrick is good. Its client and deal numbers consistently verify that. But ask the managing partner to differentiate his Washington, D.C. firm from its rivals, and he’ll admit that, at least when it comes to M&A, there isn’t a lot of magic involved. “There are certain protocols that everyone follows–certain things you give and don’t give–and everyone knows what they are,” explains Matz, 58. “It’s almost cookie-cutter, because the profession has developed a set of standards.”
But there is something that makes Matz somewhat unique among banking attorneys: He’s both an active bank investor and bank director himself. Among his holdings: nearly 30,000 shares in First Community Bancorp of Rancho Santa Fe, California, where he also serves as a director. That, he argues, provides a perspective you just don’t get dotting i’s and crossing t’s for other people’s banks. “As a director, it’s more of a direct business situation. The concerns and inputs are much more personal,” Matz says. “I find it to be very interesting, and I think I’m a better lawyer because of it.”
Clients agree. Elias Matz has been advising Hawthorne Financial Corp., an El Segundo, California thrift, since 1995. CEO Simone Lagomarsino says the firm’s expertise in banking law is supplemented by Matz’s own personal experience–and his investment in the company. “He brings us both a legal and a business perspective,” she says. “It’s the value-added part of the relationship.”
Elias Matz was started by a group of former government lawyers in 1971 to capitalize on what its founders knew was a coming wave of mutual thrift conversions. Over time, it has assisted in about 300 conversions, but also has evolved into a full-service banking firm, advising on capital-raising, regulatory, and merger activities, among others. In 2001, the firm advised on eight M&A deals, valued at $769.2 million.
Despite the changes, its roots remain firmly planted in the thrift industry. Its biggest clients include Banknorth Group Inc., a Portland, Maine banking company that got its start as People’s Heritage Financial Corp. (a thrift), and $1.8 billion Hawthorne.
In 1996, Hawthorne’s portfolio of multifamily residential mortgages had gone sour and the firm was badly in need of capital. Elias Matz helped raise the equity with a complicated mix of notes, senior debt, warrants, and preferred stock that allowed the company to preserve some important tax benefits. Matz, sensing a good opportunity, bought some of the equity himself.
A few months later, the firm found itself arranging a similar package for First Fidelity Bancorp in nearby Irvine, California, and Matz again purchased some equity with many of the Hawthorne investors. “It was a replay–another sick bank with the same southern California problems.” Indeed, the relationship was so close that the thrifts shared two directors.
This March, the two companies, both healthy–and both still Elias Matz clients–decided to merge. But it wasn’t ordinary. Both boards had to do without those two shared directors. “With the common ownership and directors, we had to ensure everything was done at arm’s length,” Matz explains. The law firm, too, was forced to make a choice, opting to advise First Fidelity. “As the acquiree, it needed more representation,” he says.
Not to worry. Lagomarsino assures that Hawthorne will remain a key client once the deal is closed. Unlike many firms, most of Elias Matz’s clients tend to be acquirers–a fact that has helped the firm flourish. “We haven’t lost many clients,” Matz says. “If anything, we’ve picked up market share.”
Jenkens & Gilchrist PC
Headquarters: Dallas
Number of offices: 9
Representative clients: Baylake Corp.; Pacific Capital Bancorp; Eurobank
Key contact: Peter Weinstock, financial institutions group leader
Financial institution partners: 11
Fees: “Billable hours.”
Number of deals in 2001: 16
Value of deals in 2001: $367.4 million
Website: www.jenkens.com
As the experience of Jenkens & Gilchrist shows, numbers can sometimes be deceiving. In 2001, the Dallas-based law firm advised on bank deals valued at a combined $367.4 million, making it look like little more than a middling player. Only one of its deals, the $82.5 million sale of Amarillo, Texas-based Tejas Bancshares Inc. to Wells Fargo & Co., even ranked among the top 50. Looked at in terms of number of deals, however, Jenkens rises to the top of the class, its 16 transactions making it the industry’s most active law firm.
Peter Weinstock, group leader of the firm’s 11-partner financial institutions practice, isn’t bothered by those who don’t consider his firm to be among the giants. Indeed, he considers it something of an advantage. “We offer the best of both worlds,” says the 41-year-old Weinstock. “We have the client sensitivity of a firm in the middle of the country, but the deal sophistication of an East Coast firm.”
At Jenkens, M&A has formed the foundation for what has evolved into a nationwide, full-service practice. The firm first began advising banks on sales and acquisitions about 30 years ago, and it made a mark in the late 1970s as one of the first firms to establish a competency in engineering one-bank holding companies.
Today, the firm prides itself on providing what Weinstock calls a “soup-to-nuts” menu of services. Jenkens is considered a leader in helping banks convert to subchapter S status, and it has aided clients with everything from fending off hostile takeover attempts and buying troubled assets to defending against money laundering charges.
Clients run the gamut, from smaller institutions like $852 million-asset Baylake Corp. in Sturgeon Bay, Wisconsin, to $3.6 billion-asset Santa Barbara, California-based Pacific Capital Bancorp and the Bank of China. Minnesota banker Carl Pohlad is a long-time client, as was Don Powell, a former Amarillo, Texas banker and now chairman of the FDIC.
Creativity and longevity are Jenkens hallmarks. Four years ago, for instance, the firm helped Eurobank, a privately held commercial bank with 17 branches in Puerto Rico, fend off a rival’s attempt to buy out some shareholders. The bank has since grown to nearly $720 million in assets and recently needed to raise an additional $25 million in capital. The answer: a trust-preferred issuance.
Since the money was technically raised by a subsidiary, not a holding company, it qualified only as tier 2 capital. Jenkens helped flip the subsidiary into a holding company, winning approval from Puerto Rican tax officials and transforming the funding into tier 1 capital. “It was a very complicated transaction, but they guided us through it very thoroughly,” says Rafael Arrillaga-Torrens, Eurobank’s CEO. “They’re very knowledgeable.”
Similar innovations have come in acquiring problem assets, where Jenkens’ attorneys devised a template for making sure both buyer and seller are happy. “When you’re dealing with a problem bank, the sellers always think the assets are better than the buyer,” Weinstock explains. The solution is a structure that pays the seller more if the assets perform well, while shielding the buyer from much of the risk. “The sellers wind up receiving a fair price, regardless of what happens,” he adds.
Such efforts leave the firm well positioned to work on bread-and-butter M&A deals, providing legal due diligence and advice that address everything from control issues to tax and accounting implications. The firm negotiates for clients aggressively, but also employs a “realistic” approach. “We consider ourselves can-do lawyers,” Weinstock says. “We’ll negotiate hard to a point. But at the end of the day, we won’t risk a client losing a good deal over a theoretical legal issue. The most important thing is to get deals done.”
Muldoon Murphy & Faucette LLP
Headquarters: Washington, D.C.
Number of offices: 1
Representative clients: Roslyn Bancorp; Connecticut Bancshares; Provident Bank (Baltimore)
Key contact: Douglas Faucette, head of banking and financial services group
Financial institution partners: 15
Fee structure: “Flexible; a combination of billable hours and success.”
Number of deals in 2001: 8
Value of deals in 2001: $1.42 billion
Website: www.mmf-law.com
In a regulated industry like banking, it’s sometimes said, all roads lead to Washington. Muldoon Murphy & Faucette has taken that notion to extremes in rising to the top ranks of banking law firms. The firm has just one office, in Washington, D.C., and its 15 partners are intently focused on the financial services industry.
“We’re kind of like the local courthouse lawyers,” says partner Douglas Faucette, head of the banking and financial services group. “If you have a local issue, you hire the local courthouse lawyer, because he knows the judges and the precedents and the decision makers. With banking, Washington is the local courthouse.”
Muldoon Murphy was launched in 1968 to serve financial institutions, and most of its partners have spent time with one federal regulatory agency or another. The result, Faucette says, is a firm with a “regulatory sixth sense” that knows better than most how to get things done for its clients.
This is especially important in banking, he says, where many regulator decisions are based more on “practice” than on precedent. As “merit regulators,” agencies such as the Federal Reserve or FDIC rely less on precedent and more on personal and proprietary decision making. Deciphering the code often requires a deft touch–and some connections. “It’s not enough to be a business lawyer who can structure a transaction,” says Faucette, 56. “You need to understand the lore as much as the law.”
A typical Muldoon Murphy client is a $2 billion to $4 billion bank, such as $2.5 billion Connecticut Bancshares in Manchester, Connecticut. But bigger institutions turn to the firm, as well. “They’re a very bright group of attorneys who, in their boutique way, know our business and have solid connections with the regulators,” says R. Patrick Quinn, general counsel for Roslyn Bancorp, a $9.4 billion thrift on Long Island that regularly uses the firm to advise on M&A deals and securities filings.
Perhaps most telling of its expertise are nonbank clients, including GE Capital Corp., Ford Motor Co., and an unnamed grocery store, all of which hired the firm to help charter de novo banks. Such clients come to Muldoon Murphy because it knows the regulatory landscape, and it isn’t shy about shooting holes in an idea that won’t pass regulatory muster.
The same blunt approach colors the firm’s M&A activities. In 2001, the firm advised on eight deals, valued at $1.42 billion. Its biggest transaction was as lead counsel for Staten Island-based Richmond County Financial Corp. in its $779 million sale to New York Community Bancorp.
Faucette says the most difficult part of the job is ensuring that everyone emerges from a deal happy. That means sometimes advising clients to give on smaller issues–and even pay up a bit more–so that an acquirer is viewed as being fair. “The next time that buyer approaches a target, the first thing the target will do is ask the last target about their experience,” Faucette says. “Success is about being effective. You have to get the deal done, and make sure enough is left on the table so the client doesn’t hurt its reputation.”
Silver Freedman & Taff LLP
Headquarters: Washington, D.C.
Number of offices: 1
Representative clients: Charter One Financial Inc.; MB Financial Inc.; Hudson River Bancorp
Key contact: Robert Freedman, partner
Financial institution partners: 11
Fee structure: “Billable hours or fixed fee.”
Number of deals in 2001: 9
Value of deals in 2001: $577 million
Website: www.sftlaw.com
Barry Taff likes to tell the story of the two midwestern banks that wanted to do a merger of equals. Attorneys on one side wanted to nix the deal, saying it would violate the board’s fiduciary responsibilities. The investment banks, eager to get the transaction done, recommended that the banks talk with Taff’s Washington, D.C.-based firm, Silver Freedman & Taff. After a quick review, Taff not only concluded that the merger could proceed; he convinced the holdout law firm of the deal’s validity and got it done.
The story says something about Silver Freedman’s reputation and also illustrates its partners’ view that providing good service means more than offering up mere legal advice. “If you’re just a lawyer, and not a business advisor–someone who can facilitate the closing of a deal–then you’re not going to be in the big leagues,” says Taff, 56.
Adds partner Robert Freedman: “You’ve got to make the transaction happen. To do that, you’ve got to bring a little extra business expertise. Because we’ve been around so many transactions, we understand the analytics and the social dynamics of dealing with people on the other side.”
Silver Freedman was founded in 1969 to serve thrifts and has since grown into one of the highest profile boutique firms for financial institutions of all kinds by drawing on hard-won knowledge to find creative solutions to vexing problems. It was the first law firm to engineer a mutual-to-stock conversion for a thrift, and it is considered a leader in helping thrifts flip to bank charters.
Earlier this year, it performed the largest such transformation for Charter One Financial Inc. “For anything that involves the regulatory world, they’re our primary legal firm,” says Rick Neu, the Cleveland-based company’s chief financial officer. “It doesn’t matter what the topic is, they always seem to find the right answer.”
That’s because Silver Freedman’s 11 partners come mostly from the ranks of bank regulatory agencies. While they dabble some in areas like corporate and securities law, and venture capital, the primary focus has been, and remains, banking. M&A is a big part of the business. In 2001, the firm advised on nine deals, valued at $577 million. Among those deals: the $175 million merger between Chicago banks MB Financial Inc. and MidCity Financial Corp.
Mergers of equals are among the firm’s strong suits. Taff says such deals are delicate because of the social issues. “No one is really acquiring,” he explains. “They’re more like partnerships, and you really have to put yourself in the other guy’s seat and accommodate their needs.”
It also has a reputation for helping clients avoid big tax payments on gains reaped from big deals. “You need to design structures within the rules that can meet people’s economic expectations without having tax detriments,” Freedman explains. Asked to expand on the concept, he demurs. “It would be almost a road map for the IRS,” he says. “Let’s just say we come up with creative solutions.”
Simpson Thacher & Bartlett
Headquarters: New York City
Number of offices: 7
Representative clients: J.P. Morgan Chase; Washington Mutual; Associated Bancorp
Key contact: Lee Meyerson, partner
Financial institution partners: 20
Fee structure: “Discussed individually with clients.”
Number of deals in 2001: 5
Value of deals in 2001: $26 billion
Website: www.stblaw.com
For six months in 2001, the attorneys at Simpson Thacher & Bartlett were at the center of the banking universe. As lead counsel for Wachovia Corp., they had to simultaneously manage a merger with First Union Corp. and fend off a complicated hostile bid from SunTrust Corp. They also were advising Washington Mutual on its acquisition of Dime Bancorp and representing BancWest Corp. in its acquisition by BNP Paribas Group. In total, those deals–the three biggest mergers in banking last year–were valued at nearly $21.3 billion.
Being in the middle of big-dollar deals is nothing new for Simpson Thacher, one of the oldest and most respected of the big New York law firms. Founded in 1884, it has a long history with the banking industry, advising on the 1961 merger between Manufacturers Trust Co. and Hanover Bank. Today, it counts the likes of J.P. Morgan Chase & Co., the descendant of that and other deals, among its steadiest clients.
That experience doesn’t dampen partners’ enthusiasm for big, high-profile transactions. The Wachovia deal began as a friendly merger between in-state rivals, but turned into a heated battle with SunTrust, which itself wanted to acquire Wachovia. The maneuvering became intense. SunTrust’s lawyers attempted to exploit a loophole in Wachovia’s bylaws to hold a special meeting and pack the board with its supporters. In response, attorneys for the two North Carolina banks got the state legislature to change a law and close the loophole.
“We’d go from a lobbying fight one day, to being in court the next, then reviewing an investor presentation,” recalls Lee Meyerson, the Simpson Thacher partner in charge of the deal. “It’s the ultimate role for a lawyer. You’re really the general, looking ahead as you negotiate the agreement, figuring out if the board can approve it, what process directors need to be brought through and how it can be sold to shareholders. And then it’s, ‘How does all that affect my litigation strategy? Will it be used against me in court?’”
That his team won the day, Meyerson says, is a testament to Simpson Thacher’s depth. The firm takes an integrated approach to its dealings, bringing tax, benefit, regulatory, and other disciplines together. Few deals are ever won in a courtroom, he explains. But litigation skills have to be strong and combined with public relations finesse and common sense to get deals closed.
“There are lawyers who, for ego reasons or otherwise, think they have to show their client that they’re the roughest, toughest junkyard dog around,” says Meyerson, 46. “What clients really want is a lawyer who’s constructive and reasonable and gets a deal done–not somebody who comes in and breaks furniture trying to win every possible theoretical point.”
Also at a premium is due diligence. Meyerson says M&A activity is slow these days, as major acquirers digest previous deals or try to revive depressed stocks. In the post-Enron environment, banks also are worried about accounting issues. As a result, law firms are devoting more time to investigating board minutes, reports, and agreements, trying to sniff out problems that aren’t yet public.
Simpson Thacher’s experience, Meyerson says, will carry the day. “It takes a while to build a team with the skills we have. Once you do, it’s neat to watch them in action.”
Sullivan & Cromwell
Headquarters: New York City
Number of offices: 12
Representative clients: Wachovia Corp.; New York Clearinghouse; U.S. Bancorp
Financial institution partners: 12
Fee structure: “Based on a range of factors. Not a percentage, nor on a pure hourly basis.”
Number of deals in 2001: 9
Value of deals in 2001: $22.1 billion
Website: www.sullcrom.com
There’s a reason why Sullivan & Cromwell has found itself in the middle of virtually every hostile or groundbreaking bank deal in recent memory: few, if any, other firms possess the breadth, skills, and desire to fight a multifront war. The New York firm, one of the blue bloods of Wall Street, not only prides itself for having managed some of the most complex and controversial bank deals of recent years, the partners seem to get a charge out of it.
“There’s a fascination with those types of deals,” says H. Rodgin Cohen, the firm’s chairman and long-time head of its financial institutions practice. “They’re so high-profile and so all-consuming. You have to eat, sleep, and drink them, morning and night.”
Founded in 1879, Sullivan & Cromwell played key roles in the formation of Edison General Electric Co. and U.S. Steel Corp. near the turn of the last century. It became active in the banking arena in the 1970s, and today boasts a client list that includes some of the industry’s biggest players. Indeed, the firm has played a role in 10 of the 15 largest bank M&A deals ever, including last’s year’s biggest, First Union Corp.’s $13.6 billion merger with Wachovia Corp.–a deal that was challenged by another Wachovia suitor, SunTrust Corp.
Hostile deals are appealing, says Cohen, 58, because there are so many issues at once. “It’s like multidimensional chess. Litigation comes to the fore. There’s a constant battle with the SEC. The other side is attacking your filings and vice versa,” he explains. “You really have to be thinking a number of steps ahead on several different chessboards at once. Often the winner is the one who doesn’t make the last mistake.”
Transactions that break new product or regulatory ground, such as Mellon Financial Corp.’s 1994 acquisition of mutual fund giant Dreyfus, present their own sort of stimulating challenges. At the time, a bank had never owned a fund manager. Congress, fearful of a federally insured institution doing so, held hearings. “People were saying it couldn’t be done, but ultimately the deal was approved,” Cohen recalls. Managing the legal end of such deals, he adds, “is like a high-wire act.”
There’s also a swagger among partners when it comes to negotiating the regulatory system. As the law firm of choice for the New York Clearinghouse, a trade association of 12 large banks, and a host of large players, Sullivan & Cromwell gets a chance to tackle many emerging issues first. “At the risk of sounding somewhat immodest,” Cohen says, “I frankly don’t believe we have a peer firm.”
Smaller financial institutions couldn’t be blamed if they were scared off by Sullivan’s size and reputation. In fact, however, the firm spends much of its time working with community banks, including Cullen/Frost Bankers in San Antonio and FirstMerit Corp. in Akron, Ohio. Take away its top three deals in 2001 (the firm also advised on Dime Bancorp’s $5.2 billion acquisition by Washington Mutual and RBC Financial’s $2.3 billion purchase of Centura Banks), and the remaining six transactions were valued at a modest $1 billion, or about $170 million each.
“A number of us grew up in smaller towns,” says Cohen, who was born in Charleston, West Virginia and joined Sullivan & Cromwell in 1970. “We know that small banks can be just as much fun as a large bank, and just as interesting.”
Vedder Price Kaufman & Kammholz
Headquarters: Chicago
Number of offices: 3
Representative clients: ABN Amro North America; Wintrust Financial; MAF Financial
Key contact: Daniel O’Rourke, financial institutions practice leader
Financial institution partners: 10
Fee structure: “Billable hours with minimum rates.”
Number of deals in 2001: 6
Value of deals in 2001: $2.11 billion
Website: www.vedderprice.com
It was just before Thanksgiving 2000, and ABN Amro North America was in the final stages of acquiring Michigan National Corp. from National Australia Bank. Dan McKay, the lead attorney representing ABN Amro for Vedder Price Kaufman & Kammholz, was called away to Chicago for firm business. A problem? Hardly. Without flinching, another partner, Daniel O’Rourke, made the trip to Detroit instead, seamlessly wrapping up the negotiations. “The group at Vedder Price is very good,” says Willie Miller, chief legal officer for ABN Amro. “Any one of them can step in and pick up the ball.”
The story illustrates the team-style approach Vedder Price takes to what its partners see as a highly competitive business. “You don’t have battle ribbons on your chest for deals that don’t close or dissatisfied clients,” says O’Rourke, the 55-year-old financial institutions practice leader. “It’s all about the transactions our firm has closed, and we consider it a team sport.”
Vedder Price was born during America’s industrial heyday, and made hay itself representing the giant steel and manufacturing companies that called the Midwest home. The economy changed, and so, too, did the emphasis of the Chicago-based firm. In the early ’90s, it morphed into more of a general corporate and litigation law practice, and cobbled together a strong financial institutions practice by making opportunistic “lateral” hires of partners from rival firms.
Today, Vedder Price is known for its 10-partner financial institutions practice. Its clients are decidedly midwestern in nature, including the likes of Wintrust Financial Corp., PrivateBancorp, and MAF Bancorp, all based in Chicago. But what has vaulted it near the top of the industry has been its relationship with ABN Amro, which also calls Chicago its U.S. home. Its biggest deal last year was the Dutch company’s $1.95 billion sale of Uniondale, New York-based European American Bank to Citigroup.
ABN Amro built its U.S. presence via acquisition through the 1990s, focusing much of its energy on Chicago. Several times, it wound up across the table from Vedder Price, which was representing acquirees. The firm’s style turned heads, says ABN Amro’s Miller. “They provided outstanding advice, both from a legal standpoint and from a businessman’s point of view, and helped get the deal done,” he says. After one particular deal, Miller says, “We said the next time we get involved in an acquisition, we want them on our team.”
O’Rourke says taking a competitive approach is in line with his clients’ mindsets. Once, he says, banking was a collegial affair, built on loan participations and risk-sharing. Today, “banks are competing hammer-and-tong at every level of their operations,” making bear hug letters and hostile offers more commonplace. This desire to win infects the legal representatives in negotiations. “When we’re going up against Sullivan & Cromwell or Skadden Arps, it’s professional,” he says. “But there’s always a lot of head-butting going on, too.”
Wachtell, Lipton, Rosen & Katz
Headquarters: New York City
Number of offices: 1
Representative clients: Bank of America, GreenPoint Financial, Commercial Federal
Key contact: Edward Herlihy, partner
Financial institution partners: 6
Fee structure: “Discussed individually with clients.”
Number of deals in 2001: 2
Value of deals in 2001: $18.8 billion
Website: www.wlrk.com
Edward Herlihy readily admits to a disconnect between the world’s perception of his law firm’s place in the world, and his own.
By most any objective measure, Wachtell, Lipton, Rosen & Katz is considered one of the legal profession’s heavyweights–the kind of firm that represents big clients in big transactions. Yet despite the reputation, Wachtell’s partners say they view their New York-based firm as more of a boutique. “We’re small by anyone’s standards,” says Herlihy, who heads the financial institutions practice. “We stick to our knitting and haven’t expanded into esoteric areas.”
So which is it? Perhaps both.
In 2001, Wachtell was involved in M&A deals with a total value of $252 billion, including five of the 10 largest corporate transactions in America. Just two bank transactions were among its work, but they were the two biggest–representing the sellers in both the First Union Corp./Wachovia Corp. marriage and Dime Bancorp’s sale to Washington Mutual.
That’s par for the course. Wachtell, in business for 35 years, regularly sits near the top of legal rankings on M&A, and is regarded by much older rivals as prime competition.
Beyond dealmaking, Wachtell has earned a reputation for taking on the unusual and sensitive. Its rise to prominence was sped along by helping big-name companies, including the old Bank of America and State Street Corp., rebuff hostile bids.
More recently, the firm was called upon to help conduct an investigation of fraudulent trading activities for the boards of Allied Irish Bank and its U.S. subsidiary, AllFirst Financial. The final report pulled no punches, asserting that senior management failed to understand and oversee certain trading operations, and recommending a major reorganization that included the release of AIB’s stateside CEO.
It gets these assignments, says Herlihy, 54, because of the quality of the firm’s staff. Banks are “sophisticated users of legal talent. They don’t hire law firms so much as they hire good lawyers.” Conversely, the firm’s status is enhanced by such work, allowing Wachtell to be selective in choosing its clients. “If a client has a problem, and they’re honest, decent people, we consider them,” he says.
Size, Herlihy assures, doesn’t matter. The firm, which has only one office, includes the likes of Commercial Federal Corp. and GreenPoint Financial Corp., two good mid-sized institutions, as clients. It also serves banks with market caps of $100 million or lower.
Big or boutique, a law firm’s true worth is determined in the final outcome. “The rewards come in helping navigate through the process and getting everyone comfortable and feeling good about either proceeding or not proceeding with a transaction,” Herlihy says. “We feel good about the results we produce.”
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