More Private Lenders Could Help Law Firms
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 firmdonspartners 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.
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?
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Comments
First! The recesssion is OVER!
JOKE
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Thats a DEALBREAKER!
Does Marcus Epstein bank at Chase? You can tell us, Elie, we know you found bank statements when you were sifting through his trash.
Mystal, how are your sweater puppies doing today?
Borrowing on a LOC to pay overhead is stupid and greedy, and results in firm implosions when collections fall off. How dumb are these firms?
Why not hold back more in reserve during the second half of the year to pay for budgeted expenses, rather then pay 100% of cash profits out?
Cash flow 101.
10 - Because that kind of smart budgeting would mean partners would have to cut back on spending for their 3500 sq ft wives and would have to forego buying that third Lexis SUV...
I have 4500 sq ft duplex wife.
suck on my prestige.
Are you going on record, Elie, saying you want to radically overhaul America's culture? Are you suicidal? On your racial separatist blog, "The Black Side," you said you disagree with Marcus' following comment. Please explain.
"Diversity can be good in moderation—if what is being brought in is desirable. Most Americans don’t mind a little ethnic food, some Asian math whizzes, or a few Mariachi dancers—as long as these trends do not overwhelm the dominant culture."
KASHasslobsters for everyone!
The One
You can almost hear Elie MysTTTal sitting across the table (looking at a jelly donut) saying "Gimmie, gimmie, gimmie."
15,
HAHA I Love It!
As for this increased availability of lending to law firms, you associates should be jumping for joy...perhaps now we will not see as much of a need for layoffs and pay-cuts since firms will be able to get through the first quarter on credit...
Always the voice of reason-Denny Crane
WHO IS LOUIS ZACCARELI?
Elie, sorry I'm mean sometimes. Let's cuddle. I get the backside. Lovels
Stop being so mean to Mystal and just give him what he wants, a nice pearl neckalce and a jelly donut.
I am offending myself. Would someone care to moderate me?
and a Bavarian cream pie
I miss some of the older trolls...like the guy who used to talk shit about the CWT 5th year associates...whatever happened to him? Or nervous T-10 1L?
Denny - short term stay of execution while the money flows in from the LOC...until the bank calls for repayment and a borrowing certificate based on financials, and then the ax falls harder than ever.
Proper spelling is "Gimme, gimme, gimme", not "Gimmie, gimmie, gimmie".
Go on.
#10 - Some firms don't draw on an LC, and you're right: it's a good way to ensure that a firm does not get into a cash crunch. The problem is that it's a terrific way to ensure that each individual partner gets into a cash crunch. So you can either have the enterprise borrow (usually at a much lower cost of capital, and with far fewer hassles), or you can make every partner manage a hugely cyclical cash flow by him/herself.
Most firms are actually pretty responsible with their borrowings relative to their equity base, but yes, in a severe upheaval (either a dropoff in business or a huge partner defection) sometimes that debt becomes a millstone. However, in most instances where a firm blows up because of too much borrowing, it's not because of the revolver or L/C that helps manage cyclical cash flows. It's because the firm took on too much term debt to finance an expansion (Heller) or a stupid ancillary business (Brobeck and its disastrous real estate play).
#10 - Some firms don't draw on an LC, and you're right: it's a good way to ensure that a firm does not get into a cash crunch. The problem is that it's a terrific way to ensure that each individual partner gets into a cash crunch. So you can either have the enterprise borrow (usually at a much lower cost of capital, and with far fewer hassles), or you can make every partner manage a hugely cyclical cash flow by him/herself.
Most firms are actually pretty responsible with their borrowings relative to their equity base, but yes, in a severe upheaval (either a dropoff in business or a huge partner defection) sometimes that debt becomes a millstone. However, in most instances where a firm blows up because of too much borrowing, it's not because of the revolver or L/C that helps manage cyclical cash flows. It's because the firm took on too much term debt to finance an expansion (Heller) or a stupid ancillary business (Brobeck and its disastrous real estate play).
I give up already. Frog or banana? Maybe both?
I miss them too, 22.
* sigh sniffle sniffle sigh
Bring back the BUTT CHEEKS guy!
if i come to this site expecting to read something of moderate interest, and i rely on that expectation to the detriment of the 30 seconds it takes to scan this crap and realize that elie's still stuck, so to speak, on the cupcake story, and i bill at $X/hour, can't i make a rstmt 90 claim for the (1/120)x($X) that i'm losing.
22 - I second that emotion. And to quote the great Steve Sanders - let's P-A-R-T-Y!
Heller's problem wasn't an inability to make payments on its credit line, it was that a mass defection of partners allowed BofA and Citi to call the entire line immediately, which they did (for no apparent, pressing reason), which caused the firm to collapse.
This is absolutely stupid. JP Morgan Chase is already pretty heavily involved in the legal lending area, they just have not had a focused practice group. 90% of the Amlaw 200 has as much debt as they want. Of the 30 firms that I deal with, only one has had any trouble getting its debt requirements fulfilled.
What is happening right now though, is that tighter covenants and higher pricing are becoming the norm in the market, and JP Morgan's appearance isn't going to change that, since they are the biggest enforcers of higher pricing in the market.
Law firm lending is still an extremely profitable venture for these banks and nobody is leaving the sector.
My source in the LA office tells me that Paul Hastings is having problems with their credit line.
One thing I don't understand. The article seems to focus on Chase's effort to recruit "talent" so that they can increase their lending to law firms? A 6-year old that's run a lemonade stand has enough talent to loan money to law firms at the moment.
The reason why postings have fallen off is because guys like the Buttcheeks guy were laid off; obviously, they spent too much time posting drivel like this and not billing enough.
The same goes for the others.
guys in my high school used to ...
never mind.
GIMME GIMME
GIMME GIMME
GIMME GIMME
MORE
This is a really dumb idea. The banks will lose money, lots and lots of money. Guys, don't do this. The lawyers will not pay you back. They spend every dime.
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. credit card