Biglaw

More Private Lenders Could Help Law Firms

By  
on

In this weekend’s piece about the White & Case business model, the New York Times noted the law firm, cash-on-hand business model. Yesterday, Kash wrote:

Law firm dons partners generally get loans from banks at the beginning of the year to pay overhead — rent, associate salaries, etc. As the year goes on, they (hopefully) collect massive fees from clients, paying off the loans (and paying themselves out). Apparently, this is how your local ice cream truck driver — or maybe cupcake truck driver — operates his business as well.

Obviously, the model doesn’t work when banks aren’t willing to lend. But today Am Law reports that JPMorgan is poised to step up its law firm lending practice. The move could result in additional lines of credit open to law firms:

JPMorgan Chase is beefing up its profile in lending to the legal industry. The bank has hired the former head of Citigroup’s law firm group.
Lester Pataki, who led the legal industry specialty group in Citi’s private bank arm, is joining JPMorgan as the national practice leader and chairman of its law firm group, the bank announced Monday. JPMorgan says it hopes to capitalize on Pataki’s strategic skills to help it boost its presence in the area.

Isn’t JPMorgan one of the banks that is doing relatively okay? You can almost hear management committees all across the law firm landscape saying “Gimmie, gimmie, gimmie.”
More details after the jump.


Am Law reports that Citigroup has long been the leader in law firm lending:

While no league tables exist of law firm lenders, the generally acknowledged pecking order ranks the single largest lender to law firms as Citi, which has been in the business for more than 35 years. It claims relationships with more than 650 law firms and 38,000 attorneys in the United States and the UK. Other banks over the years, such as Wachovia and SunTrust, have poached talent from Citi in order to build up their own arms tailored toward the legal industry.

Sponsored

If JPMorgan makes a concerted effort to enter this field, law firms could be the winner.
But are law firms good bets for bankers?

Bankers at competitors say they have been kept busy lately thanks to capital calls, which have forced some partners to take out loans. That said, banks have in the past year been dealt blows by the meltdown of some of the nation’s top law firms. The four AmLaw 200 firms that have fallen — Heller Ehrman, Thelen, Thacher Proffitt & Wood, and WolfBlock — all collapsed in part because of issues with their long-term debt or credit lines.
None of those four firms are known to have borrowed from JPMorgan. (Most, except for WolfBlock, turned to Citigroup; Wolfblock turned to Wachovia.) But JPMorgan has not avoided all law firm defaults. New York IP boutique Morgan & Finnegan fell into bankruptcy in March owing the bank $3.82 million of a $6.37 million letter of credit the firm drew down, its Chapter 7 papers show.

Come on banks, don’t worry about the past. The Biglaw model is strong!
JPMorgan Beefs Up Law Firm Group Leadership [Am Law Daily]
Earlier: The End of Biglaw?

Sponsored

Topics