Legal Ethics

Two Law Firms that Passed Up Treasury Request: Davis Polk, Wachtell Lipton

Updated: Before the Treasury Department chose Simpson Thacher on Friday to provide advice on acquiring ownership stakes in banks, it asked six law firms for proposals. Only two, including Simpson Thacher, provided them.

Two of the four law firms that didn’t respond were Davis Polk & Wardwell and Wachtell, Lipton, Rosen & Katz, the Am Law Daily reports. A source told the publication that conflicts made it impossible for Davis Polk to take on the job. A Wachtell spokesperson did not give a reason for declining to submit a proposal.

The American Lawyer later identified a third law firm that declined the work: Cleary Gottlieb Steen & Hamilton.

A blog post at Adam Smith Esq. comments on the small number of law firms that are involved counseling banks and government during the Wall Street meltdown, Legal Blog Watch notes. Despite the possibility of conflicts of interest, Wall Street clients prefer to hire the lawyers who have the best qualifications, the blog notes. But conflicts may have made Davis Polk and Wachtell reluctant to advise Treasury, since they represent banks who will be acquired in part by the government.

The Treasury Department is taking equity stakes in nine financial institutions, the Wall Street Journal reports today.

The government will buy preferred equity stakes in Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America (including Merrill Lynch & Co.), Citigroup, Wells Fargo, Bank of New York Mellon and State Street Corp., the story says, citing sources familiar with the matter.

Davis Polk advised Citigroup in its failed bid to buy Wachovia. Wachtell has long represented Bank of America and advised it in its buyout of Merrill Lynch.

But Simpson Thacher also advised one of the banks in which Treasury will take an equity stake: JPMorgan Chase. Other Simpson clients have included Washington Mutual, which was bought out last month, Lehman Brothers and the board of directors for American International Group.

Simpson Thacher chairman Richard Beattie told the American Lawyer there was no pressure from the Treasury Department to drop JPMorgan Chase as a client. “They did not say that,” he told the magazine. “It’s ridiculous. We represent JPMorgan Chase and would not give up a client like that.”

Also set to be announced are plans by the Federal Deposit Insurance Corp. to guarantee bank deposits in accounts that do not bear interest—the kind of accounts typically used by businesses, the New York Times reports. The bailout plan also calls for the United States to guarantee new bank debt for three years.

Updated on Oct. 15 to include information about a third law firm that turned down the work and comments from Simpson Thacher chairman Richard Beattie.

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