Last week we wondered whether conditions in the stock and credit markets might lead to layoffs or affect bonuses. The situation has continued to deteriorate, particularly in the credit market. Now others are starting to join us in the rampant speculation about layoffs.
From the NYT’s DealBook:
The current turmoil in the credit market has some law firm leaders predicting future layoffs of associates, according to The Legal Intelligencer.
Those who would be most likely to receive pink slips are those working in what have been the most lucrative practice groups over the last four years or so — structured finance, real estate and corporate mergers and acquisitions.
“Future layoffs are a realistic possibility, and they would come in the areas of corporate finance and real estate,” Duane Morris’s chairman, Sheldon Bonovitz, told The Intelligencer. “This is by reason of the turmoil in the debt markets, which has made finance of many transactions in the pipeline problematic or not feasible.”
So, what do you think — are layoffs coming?
More discussion after the jump.
From the original article in The Legal Intelligencer:
With this dip in the economy and a potential credit crunch, some law firm leaders are predicting layoffs in what have been the most lucrative practice groups over the past four or so years — structured finance, real estate and corporate mergers and acquisitions.
Others say an economic downturn is an opportunity for bankruptcy and litigation practices and corporate attorneys will just adapt.
While the law goes in cycles and corporate attorneys could focus on workouts when times are tough, Bonovitz said he thinks times may call for more drastic measures, and there is a “significant risk of layoffs.” He was, however, quick to point out that Duane Morris was not in that position, because it has focused on becoming highly diversified and hasn’t been too involved with the public debt markets.
Bonovitz equated the current economic picture with two other dramatic market turns that affected the legal industry.
The first, he said, occurred in the early 1990s with the savings and loan scandals. The second was in 2002 with the burst of the dot-com bubble, Bonovitz said.
Not everyone can envision this current cycle becoming so grim. Consultant Peter Zeughauser of the Zeughauser Group in Orange County, Calif., said most firms have learned their lesson from the early 1990s and earlier this decade and have become more conservative in their hiring practices.
“I would be surprised if there was any kind of a wave of layoffs,” he said.
Firms are at a war for talent and often can’t find enough corporate attorneys.
“I can’t even imagine a firm laying off an M&A lawyer,” Zeughauser said. “It’s beyond comprehension.”
In the late-1980s the savings and loan market was white-hot, he said. In the late-1990s, the dot-com boom had endless support despite the fact that the companies weren’t showing any earnings, Kalis said.
If law firms have created business models around subprime lending activities, then they didn’t learn the lesson, Kalis said.
Drinker Biddle & Reath Chairman Alfred Putnam said corporate work would naturally lag if the economy takes a downturn, but he hasn’t seen that yet. He said he couldn’t predict where the industry would be in a few months, but he hasn’t had any distress calls from clients yet.
“Plainly there’s a lot of layoffs going on in the financial side of the world,” Putnam said.
So will there be layoffs, or have firms learned from past mistakes? We think that any layoffs will likely be temporary and isolated to certain areas, and those attorneys will get rehired in other areas or eventually back into the same areas fairly quickly. But let us know what you think.