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Results confirm: law firm business is down

Results confirm: law firm business is down

First quarter results for American law firms confirmed what many in the industry had already realised, business is down.

FIRST quarter results for American law firms confirmed what many in the industry had already realised, business is down. 

According to data from Citi Private Bank's Managing Partner Confidence Index (MPCI), law firm leaders are worried and are getting more worried as the year progresses, reports The American Lawyer

71 percent of the respondents in the first-quarter 2009 MPCI believe that demand for legal services will be flat or down in the next 12 months, compared to 66 per cent in the fourth quarter of 2008. 

The same was true for profits: In the first quarter of 2009, 71 per cent of respondents predicted that 2009 profits would be flat or down, versus 54 per cent in fourth-quarter 2008. 

In addition, Citi's first-quarter 2009 Flash Report indicated that revenues of the 175 firms that provided data were down 3.7 per cent from first-quarter 2008, a period that was not particularly robust. Demand for services at those firms declined six percent from previous year levels. The Flash Report includes results from 71 Am Law 100 firms, 50 Second Hundred firms, and 54 smaller firms.

Citi Private Bank confidentially surveys firms in The Am Law 100 and the Second Hundred, along with smaller firms each quarter, and represents more than 600 law firms in the US and UK. 

These reports, together with extensive discussions with law firm management conducted on an ongoing basis, provide a comprehensive overview of financial trends in the industry and insight into where it is headed.

Dan DiPietr, client head of the Law Firm Group of Citi Private Bank, said most recent data shows that Am Law 100 firms were hit harder than the broader sample: “For them, revenues and demand fell five per cent and seven percent, respectively (versus 3.7 per cent and six percent for the full sample).” 

In fact, Second Hundred firms saw a modest increase of 1.1 per cent in revenues and a smaller drop of 1.8 per cent in demand. It appears that firms with heavy reliance on transactional work and clients who are more heavily weighted in financial services are feeling the financial squeeze more than others. 

Overall productivity (average hours per lawyer) is down by more than eight per cent, because of a slight increase in head count, but a fall in work. Overall, the industry grew 2.5 per cent, but this number would not include the full impact of first-quarter layoffs, The American Lawyer reports.  

However, on a more positive note, expenses in law firms are down, 4.5 percent (which can be mainly attributed to falls in associate bonuses). With further good news on expenses expected in the second quarter of 2009-due to the layoffs implemented in the earlier two quarters, meaning margin compression should lessen. 

As for demand, when Citi compared a group of 105 firms, in fourth-quarter 2008 and first-quarter 2009 they found that demand in first-quarter 2009 was up slightly-about 0.3 percent. DiPietr suggests that this is an indication that things may have hit bottom, “but it also tells us we're not seeing a strong and speedy rebound”. 

He added: “It will be a somewhat worse year for the broad industry than 2008 was, and the top firms will again underperform, as they did in 2008.”

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