That seems to be the theme of this very interesting article, by Ben Hallman and Aruna Viswanatha, in the current issue of the American Lawyer. It echoes the problems we discussed back in this post, concerning the $70 million malpractice suit filed against Cadwalader, in connection with the firm’s mortgage-backed securities practice.
Here’s an excerpt from the American Lawyer piece:
Even scarier for Debevoise, and for all firms with big private equity practices, was the fact that no new deals were popping up to take the place of those that were stuck. Those fears are shared by lawyers who work on mortgage-backed securities, a market that has completely shut down.
The fears are well justified for both groups, and for any lawyer whose business is linked to the availability of easy credit. In June there were nearly $100 billion worth of private-label mortgage securitization issuances. The next month, they were half that. “There’s always an element of cyclicality,” says Paul, Weiss, Rifkind, Wharton & Garrison structured finance partner Jordan Yarett, “but the implosion of credit is somewhat shocking.”
Indeed. More depressing discussion, after the jump.
Private equity work, which has been a significant contributor to record law-firm profits, is also drying up:
On the private equity side, dealmaking volume for the first half of 2007 was twice what it had been over the same period the year before. Then August came, and the markets took a long vacation. Announced private equity deals for the month totaled just $5 billion, down from $45 billion the year before.
But things are still worse for the structured-finance types:
“These [practices] are incredibly profitable for law firms because they only require one or two partners on top, and a dozen or more attorneys underneath just churning these things out,” says a partner at another Am Law 100 firm who does securitizations. “It’s almost like a massive tort litigation case: document-intensive, and not a lot of negotiation.” But when the pipe is empty, these practices suffer for the same reason that they are profitable: It takes lots of bodies to roll these offerings out the door, and that leaves lots of lawyers with potentially little to do in a drought.
This is a good summary of this practice area. Cadwalader in particular has been dominant in this area — and has the associate-to-partner leverage that is needed for these transactions. But like all forms of leverage, like margin loans for stock purchases or high-risk mortgage for real estate purchases, associate-to-partner leverage can be brutal in a
Some shops might be even worse off than CWT:
Firms like Cadwalader, Wickersham & Taft, which handled $106 billion worth of mortgage-backed securitizations as underwriter’s counsel in the first half of 2007, as much as the firm did in all of 2006, are insulated to some degree with countercyclical practices, like bankruptcy. (Cadwalader did not return calls seeking comment for this story.) But smaller niche firms are more vulnerable. About half of McKee Nelson’s 200 lawyers, and almost forty percent of Thacher Proffitt & Wood’s 350 attorneys, work in structured finance.
Our favorite part of the article? The shout-out to ATL:
[S]ome people are in for a tough year. According to an internal memo obtained by the blog Above the Law, Kilpatrick Stockton announced raises for all associates-all, that is, except those who work in capital markets.