12 February 2009
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Monday 23 Feb 16:17
By Matt Byrne
Cravath Swaine & Moore has spent so long at the top of the US profitability charts - second only to the unique boutique that is Wachtell Lipton Rosen & Katz - that maybe it's suffering from altitude sickness.
Could that explain the Icarus-style 24 per cent drop in average profit the firm posted last week? Or could it be that the days of Cravath and its New York elite rivals being able to charge a hefty premium rate for their services are now behind them?
If it's the latter, that could also explain why Cravath's presiding partner Evan Chesler seems so keen to see the back of the billable hour. In January, Chesler was quoted in Forbes magazine as saying: "The billable hour makes no sense, not even for lawyers".
Certainly if it's the continuation of the billable hour that's to blame for Cravath's figures this year, then yes, it makes no sense for one firm at least.
In 2007, Cravath's PEP stood at $3.3m. Now it's fallen by roughly a quarter to $2.5m.
The subtext behind Chesler's slamming of the billable hour seems clear: now that much of that premium work has disappeared, let's look at different charging structures that might just coincidentally prove beneficial to Cravath.
The demise of the hourly rate is a debate that has run for years. As US legal market commentator Bruce MacEwen put it in a recent posting on his blog, Adam Smith, Esq: "Are we, then, about to witness in some grandiose fashion the 'death' of the billable hour? I see no such incipient revolution."
A bigger question than the unitary cost is surely how Wall Street's top law firms are facing up to their very uncertain future. Or, as MacEwen adds: "How are the Wall St firms going to work if there is no longer a Wall Street as we know it?"
That would appear to be the fundamental challenge, not only for Cravath, but for all of its competitors.
Friday 20 Feb 17:27
By Julia Berris
As expected Shearman & Sterling had a tough 2008. Revenue was down 14.2 per cent to $876m while average profit per equity partner (PEP) dipped by 5 per cent to $1.665m ( 19 Feb 2009).
But Shearman is taking action. Partners and associates have been shifted to busier parts of the network and a hiring freeze has been in place since the beginning of 2008. Both have contributed to a relatively healthy revenue per lawyer (RPL) of $1.02m.
“This explains our good global revenue per lawyer number,” says London managing partner Anthony Ward. “We’re also looking to maximise the opportunities presented by our client base around the world to get more work.”
Ward also points to the fluctuating exchange rate as a factor that has exaggerated Shearman’s plummeting revenues.
“When expressed in US dollar terms revenue is greatly influenced by exchange rates,” he argues. “There has been an approximate 25 per cent drop in sterling as against the US dollar between 2007 and December 2008.”
Friday 20 Feb 10:05
Think Paul Weiss and one generally tends to think litigation powerhouse. But there’s more to the firm than that.
It seems Paul Weiss’ bankruptcy and restructuring group is currently so busy handling investments into distressed companies, smaller private equity deals and asset sales it’s turning away work.
Or, as group head Alan Kornberg puts it, “We’re raging. We’re in the enviable position of being able to choose what work to do.”
In an interview with The Lawyer earlier this week, to be published in full next week, Paul Weiss’ chairman Brad Karp offers a typically restrained view on what he and his partners clearly believe will be a positive year for the firm.
“Our hope is that 2009, like 2008, will be a strong year,” Karp says.
Last month Paul Weiss posted another year of steady, if unspectacular growth. Total revenue was up 6.3 per cent to $692m while average profit per equity partner (PEP) increased by 2.3 per cent to $2.7m. The past three years have seen similarly slow and incremental growth at Paul Weiss.
But Kornberg’s group is currently busy enough it is providing overspill work for some of Paul Weiss’ lawyers outside of the seven-partner bankruptcy group.
“We’re doing a ton of high-profile bondholder work and also handling company side matters,” says Kornberg.
“The split is roughly 40 per cent bondholder. Several of the companies we’re acting for are multinationals plus there are also mandates for foreign clients buying companies that are in Chapter 11.”
The international angle is interesting. Paul Weiss likes to think of itself as a global firm, although in truth that might be more precisely characterised as a firm with global capabilities (via its loose alliance of international friends).
As far as bankruptcy is concerned, the firm only practises it in New York. Still, its US-only approach to bankruptcy doesn’t appear to be a barrier to winning work.
As Karp puts it, “The distressed space has provided enormous investment opportunities for our private equity, hedge fund and financial institutions clients. The asset markdowns have been extraordinary.”
Thursday 19 Feb
By Julia Berris
The demise of the highly leveraged private equity deal sure seems to have hit Simpson Thacher & Bartlett hard.
Earlier this week, The Lawyer revealed a 6 per cent drop in revenue down to $904m and a sharper drop in profit per equity partner (PEP) to $2.48m (17 February).
Of course, the private equity boom had served Simpson Thacher well. As the go-to adviser for Kohlberg Kravis Roberts (KKR) and Blackstone Group, two of the most active private equity houses in the boom market, deals came thick and fast. Up until last year that is.
Times have most definitely changed. The question is, can Simpson Thacher adjust?
“Simpson will be ok,” says one former Simpson Thacher lawyer. “They are pretty good at refocusing and moving lawyers into their litigation department. It’s going to be tough but they’ll survive.”
Tough is an understatement. Private equity activity is unlikely to return to previous volumes any time soon. Simpson Thacher will have to act fast to be able to make it through 2009 relatively unscathed. Be sure that it will.
“We may not see how the firm is reacting but it is,” says a source close to the firm. “It is the type of outfit that works under the radar but makes decisive moves.”
Tuesday 17 Feb
By Matt Byrne
The Lawyer’s rolling Revenue Counter added several members today as more US firms reported their 2008 results.
Paul Hastings, which has a 31 January year end, is probably more pleased than most of its competitors that it managed to post respectable results despite having an extra month of pain.
The firm’s chairman Seth Zachary told The Lawyer that there had been some trepidation internally that the extra month would materially impact the figures as the business environment had become so much worse in the fourth quarter of last year.
“In fact it had very little impact,” Zachary revealed.
In the current market, Paul Hastings’ 1 per cent drop in PEP and a similar rise in revenue looks almost spectacularly good.
Contrast it with Simpson Thacher’s 14 per cent plummet in PEP, or indeed the 15 per cent fall in profit at fellow Wall St elite Davis Polk.
Mind you, partners at Simpson still took home an average of $2.48m last year. That is more or less where the firm was two years ago, before its finances swelled thanks to the phenomenal – and unlikely to be repeated – 2007 fiscal year.
Paul Hastings, helped by a broad practice and a solid international platfor, had a relatively strong year. But it will be the first to admit that in New York at least, it still has some ground to make up.
Thursday 12 Feb
By Matt Byrne
WilmerHale likes to play it safe. It is conservative, cautious, unflashy. Just what you need in a market like this.
The firm has virtually no debt - around $40m on a $955m firm. It is also one of the few US firms that paid bonuses this year and hasn't cut salaries or staff. It's managed this partly by sticking to its watchword of prudence.
In May this year it will be five years since the merger of Wilmer Cutler & Pickering and Hale and Dorr. As Bill Perlstein, one of the firm's two managing partners (the other is Bill Lee) puts it, "it's still a work in progress."
But although the progress may be slow and steady, it appears to be getting there. One of the benefits of any merger should be that the resulting firm has greater breadth, depth and diversity of practice groups. In the good times that means you don't see such dramatic increases in profitability, but it also means that when times are bad there's a cushion.
WilmerHale, best known for dispute resolution and regulatory practices never did have much in the way of private equity or high yield debt practices. Consequently the firm has been less exposed to the ravages of the downturn than others.
Nevertheless, back in 2007 both Bills had a hunch that things were about to go sour. So they cut back on the firm's summer associate class, from 125 to 95 and didn't replace a number of lawyers when they left the firm.
"It left us in a situation with not a lot of excess headcount in 2008," says Perlstein. "We cut back in 2007 and got the benefit in 2008."
Elsewhere there were some backroom expenses still to be taken out of the merged businesses, even four years in.
With the help of the firm's first executive director Scott Green (hired in 2007 from Weil Gotshal & Manges) and Norma Edmiston (the chief financial officer brought in from Orrick Herrington & Sutcliffe), by the end of 2008 WilmerHale's expenses stood at $2m below what they had been 12 months previously.
It may not sound much. It might not make headlines. But that's the way WilmerHale likes it.
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