Magic circle cautiously optimistic for growth despite economic stagnation

Law firms are predicting muted results and a sustained lull in the markets following a disappointing second half to the financial year.

One senior corporate partner at a City firm said he expected the magic circle to post flat turnover, with those just outside it posting slight increases. However Allen & Overy (A&O) managing partner Wim Dejonghe said he expects his firm to post at least a small revenue increase.

“I think we’re looking at single digit growth,” said Dejonghe, speaking about the firm’s 2011-12 year end numbers. “Our first-half results were strong but we said we were expecting the second half to be patchy, and that has proved to be right.

“At the moment we’re looking at maintaining close relationships with our partners and being cautious on the costs side. We’ve been in this kind of market for the past three or four years and this is a longer downturn than any one is used to. But, given the spread of our geography, we never have spectacular growth or drops and that’s going to stay the same in this market. There’s a pretty steady flow of revenues but we’re going to have to get used to quieter markets.”

In the wake of job-cutting announcements from Herbert Smith (30 April 2012) and Linklaters (8 December 2011), Dejonghe added that A&O had no plans to restructure its partnership or cut staff but would continue managing its equity (28 November 2011).

Likewise, Slaughter and May’s executive partner Graham White said that his firm is in good shape to weather the drop in activity.

“We’re a much more cautiously structured firm than some of our competitors and I think we will stay that way,” said White. “Our gearing has always been pretty low and we never expanded significantly in partner or lawyer numbers. I’m by no means complacent but I think our model has borne up quite well in these economic conditions.”

That said, White confirmed that, in his opinon, firms were looking at a dull few years in terms of transactional work.

“It’s the first downturn of this duration or severity in recent memory,” said White. “In many ways it’s very reminiscent of the 1970s when the oil crisis caused the economy to plunge into recession abruptly after 25 years of sustained growth. And if you look at the 1970s as a precedent, it took five or 10 years for there to be any significant recovery. So I don’t think we’re going to see any significant pick up in the market over the next couple of years, though I’m no economist, and no better at predicting the economy than any other layman.”

Clifford Chance’s managing partner David Childs was more upbeat in his assessment of the firm’s performance in 2011-12, however.

“Overall, the year has been more positive than we might have anticipated during some of the more difficult economic periods of the past twelve months,” said Childs. “Offices in growth markets have been performing well, but we’ve also been busy in the US and in a number of our European offices, particularly in terms of financial regulation and litigation.  While there’s still a lot of uncertainty in the market, the upward trend in activity levels looks set to continue for the time being.”