Dan DiPietro, client head of the Law Firm Group of the Citi Private Bank, doesn’t think we’ve seen the end of lawyer layoffs. In the American Lawyer, he writes:
Among our 175-firm sample, head count for fiscal 2008 was up 4.5 percent from fiscal 2007. I showed the flash report of our sample to a colleague of mine who lends money to Fortune 100 companies. Her response? “So, Dan, the way law firms make money is to grow head count when demand drops?” This is a neat way of summing up the problem firms faced as they entered 2009–too many lawyers chasing too little work.
But I thought that all the struggling firms have already laid all the attorneys they could afford to spare?
With fairly aggressive layoffs evident in all but the top New York-headquartered firms, the decline in bonuses, and no foreseeable movement in salaries, expense growth will moderate, if not decline. This should net out to a 5-10 percent decline in profits per equity partner from 2008 levels. (After the meeting, several managing partners told me I was still too optimistic. To them and others at top New York firms I say: “Think layoffs.”)
The pessimism expressed at that meeting has been repeated to varying degrees in the 16 regional roundtables that my colleague Cindy Tambourine and I have just completed throughout the United States and in London. To put it simply, the mood in the U.S. outside of New York is grim; in New York it’s grimmer; and in London it’s the grimmest.
After the jump, are there any non-layoff paths to recovery?
Let’s take a closer look at the torches and pitchforks the U.S. Congress is brandishing. As you have undoubtedly heard, Congress overwhelming passed the 90% tax on “things we don’t like.” 85 Republicans joined the fracas, so this is a bipartisan ex post facto effort.
Our sister site, Dealbreaker, has already weighed in on the legality of this tax. (Aren’t you glad law firms didn’t take any government money?) They neatly summarize some of the key legal questions:
The “bill of attainder” test keys off these two prongs:
Is it targeted at specific individuals?
Is it of punitive intent?
So what’s punitive intent? The Fifth Circuit’s SBC Communications v. FCC ruling is about the most direct on this as the Supreme Court hasn’t touched the issue in decades.
We’ve collected some of the arguments, for and against, for your perusal. After the jump, we invite you to take our reader poll.
This isn’t really our beat, but Dealbreaker has the full video of smackdown Jon Stewart gave Jim Cramer on The Daily Show last night. It’s great televisionYouTube.
Granted, Stewart’s grasp of macroeconomics is not great. But it is significantly better than Bill Maher’s (who asked Erin Burnett last week why “growing” was important for the economy). And picking on CNBC over the financial crisis kind of like picking on the ABA for doing nothing to stem the tide of legal layoffs. (Wait a minute, it’s nothing like that. What is the ABA waiting for, the freaking Bat Signal?)
But, if you ever wanted to see what it looks like for a grown man to put his foot up the ass of an annoying man, you’ll enjoy this clip. Part one is below, click over to Dealbreaker for parts two and three:
It goes without saying that the recession is forcing all sorts of Americans to confront the prospect of financial ruin. But lawyers have a particular cross to bear, one that involves a crushing amount of educational debt that was supposed to be serviced by the income from lucrative, highly secure law firm jobs. Now that job security is a thing of a past, there are a lot of lawyers who need a financial makeover. Sunday’s Chicago Tribune provided advice for struggling attorneys:
Aukse Rimas of Chicago is a trial attorney with a big new raise and a promising career. But she is losing sleep over what the recession-wracked economy could do to her.
The 29-year-old is juggling $225,547 in education loans and credit card debt–about three years’ worth of her $75,000 annual salary. She has a modest retirement nest egg and virtually no savings.
Something tells me that the financial experts are going to tell Aukse to spend less money. I haven’t read the full article or anything, but every financial planner I’ve ever talked to essentially tells me “your intelligence profile indicates that you’re too stupid to follow a budget.”
Admit it, you knew this was coming. We’ve got a firm capitulating to the market realities and cutting first-year associate salaries.
McGuire Woods chairman Richard Cullen left a voice mail (!) to his attorneys last night. He let everybody know that the firm was cutting 10% off of first-year salaries, from $160K to $144K.
UPDATE: There is some variation in starting salaries by office. New hires are making $144,000 in Northern Virginia, D.C., Los Angeles, Chicago, and New York, while new hires in Richmond, Charlotte and Atlanta are making $130,500.
But that is not the only cut future McGuire Woods juniors can expect. Cullen also told the firm that the 2009 summer program is being scaled back to an eight-week affair.
Salaries for all the other associates at the firm have been frozen at 2008 levels.
But, and this is important, no layoffs at McGuire Woods.
Richard Cullen did not respond to an immediate request for comment.
For weeks, the ATL commenters have been claiming that “no first-year attorney is worth $160,000!!!!!!!!!!” At McGuire Woods, that is now true. And there are a lot of laid off first years who would gladly take a $144,000 a year job.
We’ve seen a lot of contraction in the legal industry. But now we could start to see serious deflation in the industry.
Cutbacks are hitting every level of Biglaw. Firms have gotten very creative in their attempts to wither cut or control costs. Because of all these rollbacks, weathering the global economic crisis is more challenging than simply holding on to your job — though that is hard enough.
How is the economic crisis affecting people day-to-day? We received an interesting story from a Biglaw staffer that really brings home the daily struggle to make it through this recession:
Last year Dechert sent out that retroactive memo about taking a certain percentage from the attorneys’ bonuses if they didn’t enter their time on time. Well, now they are saying that they are going to do it to the paralegals as well, BUT since most paralegals don’t get bonuses, they are threatening to take five percent from our vacation pay if we don’t qualify for a bonus and if we are late entering our time. I only make about $120 a day (in New York City!), so if the partners, who are making millions, want to take $6.00 from a struggling paralegal, that is just disgusting. …
Do any other firms treat their staff [like this]?
Dechert aside (and for the record, we don’t know if this story is an accurate reflection of Dechert’s policies on this specific issue), what other kinds of everyday, “standard of living” sacrifices are people having to make in these difficult times? Contrary to the popular belief, bonuses and pay raises don’t really go into the “coke and prostitutes” fund.
Are associates reorganizing their debt repayment plans? Are paralegals putting off plans to go back to school, or accelerating those plans? Beyond the dollars and statistics, there is a very real cost to all of the bad economic news.
It’s a new year, and for Biglaw that usually means it is time for firms to go out and get a loan.
Obviously, this year it might be a little more difficult than usual. The American Lawyer is reporting that the credit crisis is coming to a partnership near you:
Law firms, typically considered good credit risks, are now experiencing the toughest and most expensive lending conditions in years. “Even good borrowers, prime borrowers, are having more restrictions and more difficulties than they used to,” says Altman Weil consultant James Cotterman.
Most firms will still be able to get loans to cover their immediate expenses. But to do so they will have to submit to more vigorous financial vetting than they did in the past. And, of course, it’s going to be a whole lot more expensive to borrow money:
Meanwhile, firms that didn’t secure a credit line early last year, and who went looking for it in recent months, discovered that credit wasn’t cheap anymore. “We just took out some lines from several different banks,” says the head of one firm, who asked for anonymity to speak frankly. The firm let its credit lines expire in 2003 and relied instead on capital contributions from partners. The banks used to give the firm credit for free. “Now we had to pay for the lines,” he says.
Rates have doubled, from below 1 percent in 2007 to 2-3 percent today for the top 50 firms, says Andrew Johnman, head of professional services at Barclays plc. “If they need additional money or if they need an amendment to their credit facility, then we reprice it to current market pricing,” he says.
Apparently, banks are worried that additional firms will dissolve like Heller and Thelen. More on that after the jump.
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past seven years. You can reach them by email: firstname.lastname@example.org.
Things have changed recently in Korea – a few of our US and UK client firms are looking, very selectively, for a lateral US associate hire. Until just recently, there was not much hiring like this going on in Korea, since US and UK firms started opening offices there. We have already placed two US associates in Korea in the past month at top firms. Most of the hiring partners we work with in Korea do not actively work with other recruiters.
If you are a Korean fluent US associate in London, New York or another major US market, 2nd to 6th year, at a top 20 firm, with cap markets or M&A focus (or mix), or project finance background, and you are interested in lateraling to Korea to a top US or UK firm, please feel free to reach out to us at email@example.com or firstname.lastname@example.org. Our head of Asia, Evan Jowers, was just in Korea recently, and Evan and Robert Kinney will be in Korea in a few weeks. We are in the process of helping several firms open new offices in Korea (a number of which are interviewing our partner level candidates) and also helping existing offices there fill openings.
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