These are difficult times for everyone in the markets. Are they difficult times for Allen & Overy as well?
Roberts: Yes and no. Yes in that we are not doing what we have done for almost my entire professional career, which is to go on an ever-expanding upward track. No, if you look at it objectively, in that we have marginally increased our turnover for the year ending April 30th 2003 in our Asian offices [Hong Kong, Tokyo, Singapore and Bangkok]. So we are very lucky. There are firms that have clearly had significant downturns in turnover and we have not. The finance practice has generally maintained itself well, especially on the more general banking side. Either people want to borrow money, or they can't pay it back, and either way we will be involved somehow. Debt capital markets are more temperamental and equity capital markets have been hit quite significantly. Three years ago our corporate department was our biggest department in Asia, now it has been taken over by banking.
What is the most profitable practice area for you?
Roberts: Generally the swing department is corporate. If there is a lot of corporate M&A activity then everything is buoyant. If it is down then it really has an impact on pricing. Banking is much more stable in terms ofearnings: it does not have the wild swings. Litigation tends to be reasonably profitable, but it also does not have the wild swings.
Given the current moves to give regulators more teeth in Asia and the rest of the world, how do you see this affecting your business?
Roberts: My background is in general banking and on the whole that area is remarkably free from regulatory over view. But clearly one of the growth areas for us will be in dispute work in regulatory enquiries. We could be acting for the regulators, the banks or even the individuals being investigated. It clearly is going to be a growing area of business from a litigation point of view.
So are the Sarbanes Oxley laws and the new securities regulations going to do for the legal community what Y2K did for IT Consultants?
Roberts: I think it will throw up some work, but I suspect not as much in Asia as in London and New York where you have the headquarters of big financial institutions. It will be less so here where you are dealing with subsidiaries.
One of the practice areas that differentiates Allen & Overy in Asia is your derivatives practice. Why has that grown and been so successful?
Roberts: It is very difficult to get good derivatives lawyers. It is a relatively narrow field. It is very technical and not a field at which you can throw hundreds of junior lawyers. People need to be trained and that training does not take five minutes. Therefore it is naturally advantageous if you have two or three good people in that area working for your firm. You can gain a critical mass and you get a good practice. We are lucky in Hong Kong, Singapore and Tokyo, in that we have got good lawyers who we have brought out from London and their success breeds on itself.
What makes a good derivatives lawyer?
Roberts: Attention to detail mainly. Derivatives are not a dramatically complicated area: the documentation is relatively short. But you do need to know a lot of the thinking that goes behind it such as set off, netting, all the cross border issues as well the regulatory issues and market practice. It is done very much on standard documentation but the honest answer is that many of the players don't actually understand the legal fundamentals of derivatives.
Many of the modern derivatives started to be developed in the late 70s and early 80s and have come on since then. But quite honestly there are very few legal concepts that are new: they may be packaged differently and new people might be doing them. But with futures for instance, they were trading rice futures on the Osaka rice exchange many centuries ago. The Romans had futures and forward contracts for the sale of wheat. There were multi currency bonds being sold at the end of the nineteenth century by all the big issuers of the time, including the Russians and Chinese. So not much being done now is actually new.
You are talking yourself out of a job here. If that is the case, why is there still a need for top end legal advice then?
Roberts: Because you need to understand the concepts, how they fit together and how they can be re-arranged.
Talking of new things, what do you think about all the excitement over the rise of China from a legal perspective?
Roberts: There is one clear major limitation, which is that we are not allowed to practice PRC law. Therefore, almost everything we do in China has a cross border element. We would not get involved in a situation between two Chinese entities as we are not allowed to do so and we would not be price competitive with the local firms. There is something to be said for sticking to what you are good at and so we will be sticking to the high-end international side of the business such as large cross border IPOs, project financing, complex derivatives and securities work.
Are you still seeing a continued interest from your clients in putting money into China?
Roberts: There is a lot of hype and there is not as much activity as there is hype. We are at the higher end of the spectrum and if you are going to involve a firm of lawyers such as us then it will involve a substantial amount of money. China is definitely developing but we are being relatively cautious. You could throw a lot of money into it and get nothing back and there is a limit to what we can throw.
You spent a few years in Russia from 1997-2000. What lessons did you learn there that might be applicable to running Allen & Overy in Asia?
Roberts: The first lesson is that it is easy to talk of multi jurisdictional law firms with local and international lawyers working together, but it is a lot more difficult than it looks. There is a lot of training involved particularly when you are employing lawyers from a very different economic and cultural background. For instance I was in one meeting in Russia discussing financial covenants for a loan agreement and one lawyer came out of the meeting and asked why we were talking about profitability so much and what was so important about profits. We had a similar situation with getting a mortgage over a property where after a bit we realized that we could get the mortgage agreement but we could not enforce it Whereas to the western lawyers having a mortgage automatically implied it was capable of being enforced.
So we learnt that you while you might use the same terms, it does not imply the same thing. It taught me that the international business milieu is an Anglo Saxon model conducted in English and I would not have realized that if I had not worked in a very different environment.
You sound quite cautious about things having worked in these hot spots?
Roberts: You can get very excited and do a lot and try to build a practice but, when everyone else is doing that, there is a lot of competition and making money is not all that easy. We need a sustainable business here and that requires a fairly constant degree of profitability. Without profits we cannot invest in technology, in training nor in recruiting the best lawyers.
