US booming – but for how long?

The past 12 months have been kind to the top 20 US firms – that is, unless you’re Coudert Brothers.

The past 12 months have been kind to the top 20 US firms – that is, unless you’re Coudert Brothers.

More than half the firms in the top 20 recorded revenue hikes of 10 per cent or more. More importantly for keeping up the golf club membership, profit per equity partner (PEP) was, in certain cases, up even further. O’Melveny partners hit a milestone when PEP burst through the $1.5m (£855,000) mark last year, rocking up at $1.6m (£941,000) by Christmas. Not bad for a firm that has been on an aggressive hiring spree during 2005, with raids on Wilson Sonsini and McDermott in the US and Ashurst and Norton Rose in the UK.

Shearman partners will be even more delighted. The firm’s woes in the US are well documented. If these aren’t to continue for much longer, then it was vital it started getting profit moving in the right direction. A 20 per cent increase to $1.4m (£798,000) is a good start, but the firm still lags way behind where it needs to be if it’s going to attract top talent in New York and hang on to the stars it already has.

Skadden will also be chuffed with breaking through another psychologically significant barrier. Making in excess of $1.5bn (£856m) is always good news.

Bakers and Latham swap second and third places on revenue, although Bakers’ 30 June year-end means that its Coudert hires aren’t included in its figures.

McDermott is the biggest loser in terms of revenue. It falls three places, from thirteenth to sixteenth, with revenue rising just 7 per cent, from $745m (£425m) to $799.5m (£456m). If we were feeling generous we’d round that up to another important breakthrough. But we’re not.

Citibank’s report on legal heads in 2005 and 2006 is particularly enlightening. Citibank, which supplied data to Hildebrandt from 146 US firms, is the chief banker to the US legal market. If anyone knows what’s going on with US firms’ finances, it does. The report contains what Citibank calls “a warning sign” that there are declining realisation rates among the 30 most profitable firms in the US. There are also, it says, “flat” realisation rates among other firms, “a trend that may signal increasing discounts in response to client pressures or, in some instances, clients insisting upon multiple-year rate schedules”.

In other words, the battle for the premium rate work is only going to get tougher in 2006. It starts now.