More Woe Ahead for Private Equity and Mortgage-Backed Securities Lawyers?
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 downtown downturn.
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.
Good stuff. You can read the entire article, which also includes an assessment of the private-equity market, over here.
Brother, Can You Spare a Tranche? [American Lawyer]
(22) Comments
first!!!!
The Beverly Hills TT strikes again!
what about hedge fund lawyers?
Gives some credence to the persistent rumors that Latham is going to do some layoffs.
Hedge funds are still buzzing.
Contacts at CWT said there were partners making snide comments about associates needing those 2k hours to see a penny in bonus money, and being thankful to keep their jobs. Its not like CMBS lawyers can just join fin restructuring, although the partners will be fine. The last time the cycle turned, a huge chunk of CWT associates didn't get their bonuses while most other top firms paid out to all associates.
As yourself why CWT is the only top top firm with a hard hours line. BEcause they are a bunch of cheap, greedy piglets.
CWT = Cadwalader, for any 2Ls considering open offers.
"associate-to-partner leverage can be brutal in a downtown."
did you mean "downturn"?
“As yourself why CWT is the only top top firm with a hard hours line.”
Not to defend cwt, but im not sure this is correct. Last year the avg associate billed about 1850 hours, but bonuses were given to 97% of all associates (including first years). Essentially, everyone got bonuses except for a few associates who the firm was probably trying to get to leave.
2:56. How did the firm arrive at the average?
For example, consider an associate that left during the year. Typically, after putting in your notice (or most likely, as soon as you land the other offer), I'd imagine your billable average goes way do.
If the average includes a pro rata share of these types of individuals, your firm may be able to claim the "average associate" bills 1850, but in reality, the "average associate that is there for the entire 12 months" bills 2000.
Great pub for Kilpatrick Stockton!
I don't buy CWT averaging anything under 2200. Anything else is total bs.
"For example, consider an associate that left during the year."
Id imagine that they prorate it. About a third of the firm leaves every February/march, so if they didnt prorate, the avg billilable would be closer to 900.
Either way, there is really no way that 97% of associates reached 2000 hours. Most first years, who probably make up about 15% of associates dont hit 2000. I know plenty of people who didnt hit 2000 and got a bonus.
CWT is not a top firm. They are a mediocre firm with deceptive partner profits. The way they boost the numbers is by offering rainmakers from other firms the opportunity to eat what they kill - which does very little good for the other partners, but does boost their am law numbers. Also, they are selective about grades while having zero prestige so they are basically filled with people with good gpas who got no offers from other firms (i.e. total douches). If you are a 2L avoid it.
"Also, they are selective about grades while having zero prestige so they are basically filled with people with good gpas who got no offers from other firms (i.e. total douches). If you are a 2L avoid it."
LOL. Selective about grades? They essentially give offers to everyone in the bottom 20% at top 14 schools.
what do you mean by partner to associate leverage? Does this mean just having a higher ratio of associates to partner because people aren't making partner?
"Essentially, everyone got bonuses except for a few associates who the firm was probably trying to get to leave."
I'll take your word on that, but the last time the market slowed down a bit, they hardballed that 200 hour line, enforced their 50 hour cap on pro bono and articles, and screwed huge numbers of associates out of bonuses when their purported "peers" gave bonuses to basically everyone.
In a sellers market they have little leverage to pinch the GAs, even rumors of a buyers market will have that pack of hyenas smelling blood and counting every red cent they can squeeze from the souls of their unfortunate associates.
CWT is shite
3:40 -
Partner to associate leverage relates to the ratio of partners to associates. The lower that ratio (i.e. more associates per partner) the greater the leverage. It may be related to people not making partner, but with up-or-out policies, probably not much. Rather, big firms hire many associates they never intend to make partner in order to increase the leverage. Great leverage means greater proifts per partner (more profits generated by worker bee associates, less equity partners with whom to split the cash). From the associate side it means less contact with partners, more time dealing with stressed out senior associates who (if they're still around) have delusions of making partner and take out their frustration on you.
It has been stated on other threads, but Kilpatrick Stockton's capital markets group was making more money than everyone else. Then the other groups got a raise and so everyone is making the same thing.
It's not like the capital markets group got "held back." Instead the rest of the firm got a social promotion.
In 2005 -2006 CWT gave bonus to almost everybody. Before that they enforced the 2000 hr cut-off with few exceptions and also dinged people for other reasons. very cheap firm with massive turnover.
CWT hires read like the sh*t list of no-offers from every other firm in NYC.
Here at one of the top law schools, friends don't let friends join Cadwalader.