This piece is a couple years old but I wanted to post it as I'm pretty sure the era the writer memorializes is gone for good, never to return.
From Legal Week:
Scott Gibson charts the rise and fall of the elite investment bank lawyer
The past 20 years have seen the position of the in-house lawyer change beyond all recognition, from being a poor relative to its private practice cousin to an alternative, and increasingly compelling, career path for high-achieving associates on partnership track. The gravitational pull of working in-house for private practice lawyers is well known and shows no signs of diminishing: in 2010 alone the number of solicitors working in-house in commercial roles swelled by nearly 8% – almost all drawn in from commercial law firms.
No sector of industry has been as hungry for elite law firm talent, nor as successful at attracting legal stars to move in-house, as investment banking. From the late 1990s investment banks were the employers of choice for hundreds of top City law firm lawyers. Not only were the banks able to offer the usual lifestyle and proximity-to-business benefits associated with working in-house, they also offered work quality equal to – and sometimes better than – magic circle law firms, together with better pay.MORE: Endangered species - the rise and fall of the elite investment ...
At the time of writing, the economy is in its second post-Lehman state of flux and investment banks, in large part given the blame for this state of affairs by politicians and the public alike, are in the cross-hairs of governments and regulators around the world. Although this may be good news for regulatory lawyers in the short term, in the longer term regulatory changes and political pressure will likely simplify investment banking products and restrict the activities investment banks can undertake.
This restriction on business, together with the increased costs arising from enforced infrastructural and organisational changes, increased capital charges under Basel III and potentially increased taxes, is likely to make these organisations less remunerative and therefore less compelling for elite transactional law firm lawyers on the partnership track.
Lawyer numbers
From the mid-1990s, the combination of a benign regulatory environment, cheap credit and mispriced risk spawned a proliferation of complex, often highly leveraged debt and equity-linked financial products by investment banks. Whole new service lines rapidly became mainstream, as did proprietary trading (where the banks traded on their own account rather than on behalf of a client). The result was rapid growth in the London operations of investment banks and the number of lawyers employed by them.
During this period, the high-performing investment bankers prized top-flight transactional lawyers who were considered integral to deal making in real time through their ability to speed up the decision-making process, increase management options and, of course, minimise legal risk. Tangible evidence of the importance of lawyers to the revenue generating process was the number of them who sat alongside the bankers on the trading floor.
Between 1997 and 2007 the sheer scale of hiring was phenomenal and the number of lawyers at leading investment banks (Goldman Sachs, Morgan Stanley, Merrill Lynch, JP Morgan, Credit Suisse, Deutsche Bank, UBS, Citigroup and Lehman Brothers) increased tenfold. This was matched by similarly dramatic growth at scores of other banks – predominantly subsidiaries of large European and Japanese commercial and retail banks or insurance companies (such as Nomura, Royal Bank of Scotland (RBS), Dresdner Kleinwort, Barclays Capital and BNP Paribas). All of this was to the consternation of City law firms, which were regularly bled of expensively-trained legal talent, contributing to annual attrition rates of more than 30% in many departments.
The growth in lawyers was by no means confined to the banks’ legal departments, and often dozens of transactional lawyers would be permanently based on the trading floor in transaction management departments which sometimes appeared to duplicate, and even rival, legal departments in scope and responsibility. To add an additional gloss, occasionally lawyers would be hired and paid directly by the front office banking team, anxious to have their own creature assist them in steering their legally risky project through the central legal and compliance departments.
Banks and money
Because many investment bankers were themselves sophisticated users of legal services, they were appreciative of high-end legal input. This in turn was reflected in the compensation of lawyers who, through bonus payments, were paid significantly more on average than those in law firms or their peers at retail or commercial banks.
In the early 2000s, leading investment banks in London often paid their transactional lawyers a base salary of about 10%-15% less than that paid at magic circle law firms but, due to the high bonus payments at banks, about 20% more overall at every level up to law firm partnership. As law firms responded throughout the 2000s by increasing base salaries and bonuses, so too did most investment banks and, by 2007, base salary offers at banks for junior and mid-level lawyers were similar to those at magic circle law firms with the added benefit of significant (often in excess of 50%) guaranteed bonus payments. As a result, investment banks were able to outbid virtually any class of law firm for lawyers below equity partner level.
The hike in compensation of lawyers was not limited to premium investment banks – second or third-tier banks, anxious to break into the premium ranks, saw a dramatic hike in pay of their lawyers. Banks such as BZW (which became Barclays Capital), having embarked on a hiring spree of top investment bankers in their drive to enter the global elite, essentially had to build a 100-plus lawyer team in London from scratch in order to provide the skillset and nimbleness demanded by their front office. Similarly, other banks found that, in order to attract top legal talent, they were often having to pay a slight premium over and above the elite names simply because they did not have the cachet of being a ‘bulge bracket’ bank.
Such was the market rate for transactional lawyers at investment banks that even once cutting-edge product lines eventually became commoditised, the lawyers servicing them were still able to enjoy compensation levels markedly above those at magic circle law firms. This favourable compensation differential also extended to non-transactional lawyers such as technology, employment and litigation specialists who, although hired in far fewer numbers, were also able to benefit from the banks’ largesse.
Work and opportunity
The banks’ attractiveness was not confined to money alone, and lawyers would very often find themselves working on the most innovative work before law firms were even involved, as new frontier financial products were created and developed in-house. The proliferation of new products, new geographical markets and novel business lines meant that bank legal departments were constantly able to provide new opportunities and work types for their better lawyers who might, through a mix of talent and serendipity, gain rapid promotion and the approbation of the bank’s management team.
Such individuals, with proven track-records and prepared to leave their comfort zone, might commonly find their roles and responsibilities changing every 18 months as they made their upward progress through the bank.
With such compelling arguments for joining an investment bank, and with law firm equity partnership becoming steadily harder to obtain, it is easy to see why so many City lawyers considered investment banks a career Utopia.
After the hubris, the fall...
