If a weekend fire sale, backed by loans from the government, of one venerable U.S. financial institution to another — an institution that was worth $170 a share one year ago but went for $2 a share — is not a sign of economic volatility, then what is? The sale of Bear Stearns to JPMorgan Chase was done over a weekend and completed swiftly before the markets opened the following Monday morning. Over the course of that same mid-March weekend, the U.S. Federal Reserve launched efforts on the Sunday to staunch a worldwide stock sell-off, putting in place a series of emergency measures, including a cut to the interest rate at which it lends to banks, in the hopes of shoring up confidence in the credit markets. But there was no way to cushion the blow as global markets took a tumble and the U.S. suffered another hit. The episode confirmed investors’ worst fears about the fragile state of the financial economy.
And it’s within that environment, in this month’s cover story, “Dare we say the ‘R’ word,” Canadian Lawyer looks at what the next year holds for the legal businesses in this country. It would seem that predictions for the business of law are not as dire as they are for many other areas of business in this country, including the financial and manufacturing sectors. We look at various sectors and how Canadian lawyers predict the future will play out.
In M&A, the main prediction appears to be that while business may slow down somewhat the most noticeable change will be a shift in the players away from financial buyers to strategic and foreign buyers. Prices will come down allowing those other players to get more involved in transactions. Law firms may face slower periods but our experts don’t foresee any precipitous drop in work. In banking and financing, the size of deals may not be as dramatic as in the past few years but there will be much work on the ground. In the Bear Stearns sale, reports say JPMorgan has already set aside $6 billion to cover potential litigation. Commercial real estate and construction in Canada is also seeing a shift similar to that occurring in M&As: the players are changing but lawyers will still have much to do. Perhaps the only area that may see a big rise this year is bankruptcy and insolvencies. In part due to to the Canadian dollar’s strength, and the resulting lowering of competitiveness of some homegrown industries, mixed with general global financial uneasiness, it will be a tough year for many businesses that can’t adjust. On the bright side, however, our experts say most mid-size Canadian businesses have already adjusted and should remain relatively stable.
On top of the general market and business uncertainty, we also see in our report on energy and the environment, “To carbon tax or not to carbon tax,” how environmental issues are going to affect business. B.C. has just introduced a carbon tax, Quebec already has one, but there is no national strategy on whether to impose a Canada-wide carbon tax (not if the Harper Conservatives have their way), a cap-and-trade system, or a combination of the two. What Canadian business doesn’t have right now is any idea which road these regulations will go down — or even when that might happen — which makes long-term planning a bit more of a crapshoot than long-term planning is by nature.
It will be an interesting year for business and the markets, both in Canada and the world, but the good news is that lawyers don’t see doom and gloom for their businesses in these uncertain times.