Hildebrandt Baker Robbins and Citigroup’s Citi Private Bank division just issued a joint Client Advisory, which among other things, predicts that revenue (and profits) at large law firms will be flat to ever so slightly up for 2010.
The report also identifies a number of trends observed in 2009.
Hildebrandt is one of the largest and best known business consultancies to large law firms. Citibank’s Private Bank provides financial services to some of the largest firms in the country. We’ve blogged about their excellent client advisory reports in the past (e.g., here).
Among some of its key general findings are:
- Its no surprise that 2009 was a horrible year for law firms, but the report calls it “the worst . . . in at least the past half century.”
- there were some hopeful signs in Q4 2009, but there is “little prospect of a robust recovery” for 2010 and, when the recovery does begin, it will be “quite gradual.”
- over the next several years, the “fundamental economics of legal practice” will be re-evaluated and significantly changed.
Some key specific observations and predictions include:
- Demand for large law firm services fell 4% in 2009 (contrasted with the period from 2001-07 during which demand increased by 4% each year).
- At the same time, clients increased pressure to obtain discounts, fee caps, and alternative fee arrangements, which caused realization rates to decline.
- Collectively, 5,259 large law firm lawyers were laid off in 2009, which amounts to 4% of the total NLJ 250 lawyer population and nearly 9% of the total associate population; in 2008, these firms increased their lawyer population by 4%
- In addition to payroll, firms did quite a bit of cutting on the expense side (a 5.6% reduction in 2009, which contrasts with 9-10% yearly increases in prior years back to 2001).
- Q4 of 2009 showed some signs that the market has bottomed out (M&A, general corporate, tax, capital markets, and real estate practices showed some improvement)
- Profits per equity partner (PPP) were essentially flat in 2009, which contrasts with a 3% drop in 2008 and 11.5% (average) yearly increases between 2001-07.
- Because the recovery will be “quite gradual” and because of expected continued pressures to keep fees low, “law firm revenues will be flat to only slightly higher for 2010.”
- Law firms will need to continue cutting expenses – one of the only places left is among its partners — they need to thin their non-equity partner ranks and weed out marginally performing equity partners
- PPP in 2010 will be flat to up by, at most, 5% on average
- The first 100 firms on the AmLaw 200 list of largest firms will continue to be harder hit by the economy than the second 100 firms and some regional firms