Allen & Overy is the London banker’s solicitor of choice, so when its senior partner offers a view on the future of the banking sector it’s probably worth listening. Especially when that view seems some distance away from the platitudes offered by the politicians about the success of the bank bail-out.
David Morley, who used to run the firm’s banking practice before becoming managing partner, was interviewed in the London freesheet City AM. On the future of the banks, he has three things to say:
- it is “political inevitability” that there will be greater regulation in the banking sector.
- that the winners from the crisis have become bigger and have gained market share. US government data says that more than 100 banks have disappeared because of the crisis. So, “risk is now more concentrated.”
- “People talk about some banks being to big to fail. But there is a case for saying that some banks out there are too big to save if they went under. It is a puzzle how to solve this dilemma.”
In the interview there’s also an interesting systemic perspective on the crisis (my reading, not his), which reflects, in a way, Chuck Prince’s defining phrase, “But as long as the music is playing, you’ve got to get up and dance”.
Morley observes it became clear in 2006 – before the crisis – that there was too much easy credit floating around: “It is easy to say that now. We were all involved and share some of the responsibility. But it is difficult for a lawyer to make that point to a client.”
And that’s probably where I part company. Lawyers are professionals (they have to pass exams to become lawyers) who therefore have a duty to their clients not only in the short term, about the benefits of a particular deal, but also in the long term as well. In fact, along with accountants, they are exactly the people who are in a position to say that there are risks in pushing ahead. But there’s an incentive problem here; City advisers earn their big fees from deals, not from suggesting that it’s in people’s best interests to stay out of them.
A lawyer could “make that point” to a client. But probably not a lawyer who is running a City law firm which turns over a billion pounds a year and whose equity partners take home around a million pounds each.
The picture at the top, from the website of Foster and Partners, shows the Allen & Overy head office in Bishop’s Square, London.