Biglaw Strikes Back: The Rich Firms Get Richer This Quarter

Maybe these raises are helping out some firms.

Successful businessman raining moneyThe Citi Private Bank Law Firm Group’s latest report digests some of the fallout of the mid-year associate salary extravaganza, and while the full impact of that wild time won’t be clear for some time to come, the early indications are that expenses are up, revenue is also up, and Biglaw is distancing itself from other firms.

Revenue grew 3.7 percent at the nine-month point. Billing rate increases of 3.2 percent remain the primary driver of revenue growth as demand (i.e., all timekeeper hours) rose a modest 0.3 percent and the collection cycle shortened by just 0.6 percent.

Expense growth accelerated from 3.1 percent at the six-month point to 3.4 percent for the first nine months. Increased associate compensation helped drive lawyer compensation expense up 4.1 percent, compared to 3 percent at the six-month point.

The analysts behind the report are sticking to their projection of low-single-digit profit growth for the industry.

But the most interesting observation was just how much the rich are getting richer this quarter, even though they were the ones most likely to have joined the associate spending spree:

Grouping the firms based on Am Law 200 rankings, Am Law 1-50 firms saw both the greatest revenue growth (5.4 percent) and expense growth (4.3 percent). This was the only segment to see revenue growth outpace expense growth. Rate growth and a shortened collection cycle were primary drivers, as was the 0.8 percent growth in lawyer demand. Further good news for this segment is that, even with strong collections, they accumulated inventory at a pace that exceeded the rest of the industry, positioning them for a strong end to 2016.

Now that’s just revenue and expense growth, so it doesn’t mean the next tier of firms aren’t still profitable, but with the Am Law 51-100 firms only boosting revenue by 2.2 percent and the Second 100 firms only increasing revenue a whopping 0.1 percent, it appears as though the top dogs are on a better trend line.

So much for all the clients saying they’ll back away from the top firms if associate salaries went up, because the report also suggests that the industry saw around a 3.2 percent increase in billing rates.

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Citi Report: Third-Quarter Growth Slowed [The Am Law Daily]


HeadshotJoe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.

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