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Recession batters law firms

Posted by Richard on January 27, 2009

Every cloud has a silver lining:

After upending a succession of U.S. industries, the recession has arrived for U.S. law firms, which have long seen themselves as partially insulated from economic downturns. In December, Thelen LLP, another large San Francisco firm, also shut down for good, citing recessionary pressures. Later that month, Thacher Proffitt & Wood LLP, a 160-year-old New York firm, announced that it was closing. Dreier LLP of New York is dissolving after its founder was arrested for fraud.

After the arrest, all the other partners and associates decided they wanted to spend more time with their families.

Pay cuts and layoffs are becoming commonplace. …

In November, New York legal giant Cravath, Swaine & Moore LLP announced it was reducing year-end bonuses for junior lawyers, and that it wouldn't raise its billing rates in 2009. Latham & Watkins LLP, one of the nation's highest-grossing firms, said in December that associates would not get raises in 2009 — a move followed by many other firms.

"More firms are in a fragile condition than I've ever seen," says William Brennan, a law-firm consultant with Altman Weil Inc. and formerly chief financial officer at two large Philadelphia firms.

Profits, on average, were down 8% to 12% across the industry last year, after 15 years of consistent profit growth, says Peter Haugh, managing director for the Legal Specialty Group of Wachovia Wealth Management.

Throughout the industry, business has dropped off in such key practice areas as mergers, public offerings, and corporate finance. Litigation, often counted on to carry firms through downturns, has become less profitable as clients increasingly settle big cases, forgo lawsuits altogether, or pressure firms to discount their fees, lawyers say. Some practice areas, such as bankruptcy, however, are robust.

Litigation is less profitable — more good news!

Too bad about the bankruptcy business, though.

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