Biglaw, Citigroup, Lateral Moves, Money, Partner Issues, Partner Profits

More Bad News for Biglaw: Waning Confidence of Managing Partners Spells Trouble Ahead

What is the future outlook for Biglaw? The Magic 8 Ball is not optimistic.

Last month, we wrote about a less-than-cheery report from Citi Private Bank’s Law Firm Group, the largest lender to U.S. law firms. The bottom line of that report for law firms: “With weak demand growth and the continuation of expense growth, it is likely that expenses will continue to grow at a faster pace than revenue, squeezing margins and making it tricky to achieve even low single-digit profit growth.”

As we mentioned in Morning Docket, there’s a new report out from our friends at Citi, and it also sounds pessimistic notes. It concerns the confidence levels of law firm managing partners.

What are the powers-that-be in Biglaw worried about right now? Let’s find out….

There’s discussion of the survey results at Am Law Daily and the WSJ Law Blog. Over at Am Law, Sara Randazzo has a nice summary:

The [Law Watch Managing Partner Confidence Index] survey, which covers the second quarter of the year, asked 79 firm leaders about their overall confidence, as well as their confidence in nine specific areas. The answers are plotted on a 200-point index, with 100 representing a neutral opinion and 200 representing full confidence.

For the second quarter, firm leaders put their overall confidence level at 111, a 7-point dip from the first quarter of the year. Seventeen percent of those surveyed said they felt “somewhat worse,” 28 percent said they felt “somewhat better,” and 46 percent said they felt “the same.” Confidence in demand for legal services was also down slightly — from 147 in the first quarter to 144 in the second — but still remained the area in which managing partners expressed the most positive outlook.

Managing partners: they’re just like us! They seem most worried about macro-level trends and the overall economy:

The survey’s economy-at-large metric saw the steepest decline, dropping 19 points to 107. The profit index held steady at 101, and lawyer hiring indices rose by 12 points for equity partners, to 130, and 2 points for associates, to 137.

So that’s good news for lawyers looking to lateral — and for the recruiters who specialize in placing them. Think of it as the silver lining to this cloud. But it shouldn’t come as a surprise; in a legal services market that’s not exactly booming, firms are looking for equity partners who can bring them books of business.

You can check out an executive summary of the survey results, which Citi kindly sent to us, over here. The summary contains historical data, so you can compare where we are today with recent years. Some quick observations:

  • The second quarter’s overall confidence level of 111 — while not amazing, and lower than in the first quarter — is still far higher than it was in the last quarter of 2008 and the first quarter of 2009, when it flirted with 50.
  • Confidence in the economy at large, currently at 107, is also much higher than it was in the last quarter of 2008, when it dipped below 50, and even the third quarter of last year, when it hovered around 75 (perhaps on fears of a double-dip recession).
  • Confidence in demand for legal services, at 144, has remained roughly constant for the past six quarters. This confirms the feeling of many that Biglaw is in something of a holding pattern right now, one that’s neither boom nor bust.

What do these results suggest about year-end bonuses for associates and profit distributions for partners? Unless something changes dramatically in the next few months, my guess is that both bonuses and profits will be roughly flat.

And that’s not necessarily a bad thing. As we’ve said before in these pages, flat is the new up, right?

Citi Report Shows Law Firm Leaders’ Confidence Waning in Q2 [Am Law Daily via Morning Docket]
Survey: Managing Partners Losing Confidence in the Economy [WSJ Law Blog]
Managing Partner Confidence Index: Executive Summary – 2Q 2012 [Citi Private Bank Law Watch]

Earlier: In Praise of Partners’ Prudence: Why the Lack of Spring Bonuses May Have Been a Good Thing
Are We Entering a Double-Dip Recession? If So, What Should We Do?

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