The wrong side of the law

Fancy lawyers at elite Wall Street law firms are having a tough time of it in Asia these days. But while the conservative white-shoe firms pack their bags and head home, a new breed of bolder US firms are doubling their efforts to crack the Asian market for legal services.

Jones Day, a firm which traces its routes to Ohio, is one such upstart. The firm has poached three partners in ex-Japan Asia this year - a fair number for a firm with around 20 partners in Asia-Pacific. The latest of these is Jeff Maddox, a securities lawyer drafted in from Clifford Chance's Hong Kong office. Jones Day tends to focus on corporate rather than investment banking clients and for Maddox, who specializes in advising issuers on New York securities law, this is a neat fit.

"The strong strategic focus here on Asian corporate clients is very important to me," he says. "These companies are the global market leaders of the future and will be accessing international capital markets with increasing frequency and utilizing increasingly complex financial tools."

In May the firm hired M&A specialist Steven Goodman from Denton Wilde Sapte, a British firm, and coaxed projects lawyer Bruce Schlumberg from Californian firm Orrick Herrington & Sutcliffe in January.

Meanwhile white-shoe outfits such as Cravath, Swaine & Moore and Simpson Thacher & Bartlett have closed offices and pushed lawyers back to the US. They are victims of a narrow focus on headline-grabbing securities offerings and cross-border M&A advice - the only work that pays enough to cover their fees. Dewey Ballantine, a mid-tier New York firm, has also closed its office this year.

But for US firms with more rounded practices there is much to be optimistic about, particularly in China. As with so many business opportunities in this huge nation, the evidence is startling. Foreign direct investment reached $52 billion in 2002 according to an AT Kearney survey - $22 billion more than the FDI into the US. Yet that vast amount of investment is ploughed into China with what would normally be considered reckless disregard for legal protections: the leading global directory of lawyers, Martindale Hubble, lists just 1,733 practitioners in the whole of China - about as many as there are in Anchorage, Alaska.

Even by Chinese standards there is vast potential for the growth. And Jones Day is not the only US firm to recognize this, though it might wish otherwise: when Paul Hastings, a San Francisco firm, opened its Shanghai office this month it accompanied the news with the announcement that the managing partner would be Mitch Dudek, head of Jones Days' Shanghai office. "Most firms don't view China as viable," says Dudek. "You rarely see offices of 20 lawyers, but Paul Hastings understands that you have to get to critical mass; you have to have people on the ground close to where the deals are being done."

And there are plenty of deals to be done. Another exciting opportunity that Paul Hastings hopes to capitalize on is China's bad loans. To put the scale of the problem into perspective, South Korea's $51 billion in non-performing loans took two years to clean up. Estimates for China's NPLs range from $350-750 billion, and the legal regime to cope with them is much less sophisticated than in Korea. "I've been trying to extrapolate out how long this business can last and there's no end in sight," says Greg Wells, a Paul Hastings lawyer in Shanghai. "The only conclusion I've come to is that this represents a wonderful opportunity for us and our clients."

The hire of Neil Campbel from Sidley Austin Brown & Wood in May was made partly in response to this potential new market. Campbell developed a prominent securitization practice while at Brown & Wood and the opportunity to cross-sell this advice to Dudek's mainland client list could create a formidable team.