For Philadelphia law firms with a large European footprint, the surprising aftermath of the Brexit vote in June was that there wasn't much of an aftermath.
London financial markets took a hit but soon recovered, with the exception of the British pound. Consumer spending in the United Kingdom remained high, the employment market robust, and predictions of an imminent recession proved, as Mark Twain might have said, greatly exaggerated.
But that feeling of calm is dissipating. British Prime Minister Theresa May delivered a dose of shock therapy in an Oct. 5 address to her fellow Tory party members in which she set a date certain for the start of the British pullout from the European Union, and reiterated that there would be no retreat from the Brexit-backers' key demand – an end to the free flow of immigrants from EU nations.
Paris and London are making pitches to London-based financial institutions that the time has come to move to the continent. And last week, a survey of British law firm leaders published by The Lawyer magazine found that 70 percent agreed that "Brexit is a potential risk to firms' financial well being."
This is no mere academic exercise. Three of Philadelphia's largest firms -- Dechert LLP, Morgan, Lewis & Bockius LLP, and Reed Smith LLP -- have large London offices and an extensive presence on the European continent. London as the land of milk and honey for American law firms now is looking like a tougher slog as clients contemplate moving operations out of the U.K. and halt planned expansions until the dust settles.
"We are all feeling a little less confident," said Tamara Box, managing partner for Europe and the Middle East at Reed Smith, which has a 150-lawyer office in Philadelphia. "I am a financial-services lawyer, so there is an incredible amount of uncertainty that comes with this. Asset managers of any kind of authorized institution will now have this question: Do I need the U.K. anymore?"
Yet there are all sorts of conflicting signals. Box said deal activity came to a crashing halt after the Brexit vote. Since then, however, merger-and-acquisition activity has picked up, both in the U.K. and on the European continent. In both places, acquisition costs have declined as currency values dropped off, more precipitously in the U.K. but also in the eurozone.
The difficulty is that no one has any idea now what kind of deal the Brits will have negotiated with the now-28-member European Union once the process is complete in 2019. This is a problem not only for law firms, but also for their clients. I reported in September that Philadelphia companies that use London as a gateway to the 500 million-person European market now face the dilemma of not knowing how or even if they will be able to market products from operations in the U.K. to the remaining EU countries once the U.K. finally does leave.
A typical quandary was described by Kathy J. Wyrofsky, president of International Products Corp., a maker of specialty cleaners and assembly lubricants in Burlington, N.J.
The company has a facility in South London, and has used the U.K. as a jumping-off point for selling into the European continent. The question for Wyrofsky and other business leaders is whether the favorable trading terms enjoyed by U.K.-based companies will disappear. As a hedge, she has been looking at an alternative site in the Netherlands should the U.K. lose its trade advantages.
One nation's trade obstacle is another's potential golden opportunity, though. Box said Reed Smith is looking to grow its presence in Germany as businesses eye the continent as a place to relocate. The firm now has 48 lawyers in Frankfurt, the continent's primary banking center, and Munich, Germany's wealthiest city and a manufacturing hub.
Torsten Schwarze, a transactional lawyer at Morgan Lewis who is based in Frankfurt, believes Brexit will result in more work for lawyers in Germany.
"There will certainly be some sort of transfer of business to Frankfurt, especially in the financial industry," Schwarze said. Yet he is advising clients against any precipitous move.
"Currently, my advice would be wait and see what happens," he said. "I think it would not be the right advice for businesses to take quick decisions, especially in terms of transferring businesses."
So maybe the smart thing to do now is not so much, at least until the horizon clears.