Like the investment banks that last month paid out record bonuses just as they reported unprecedented levels of mortgage-related writedowns, the US law firm figures that have started to emerge have an element of unreality about them.
Weil Gotshal & Manges‘ PEP up by 100 per cent? Okay, this is only the London end, but at a time when one of the firm’s core markets – private equity – has crashed, it is remarkable.
According to Sullivan & Cromwell banking titan Rodgin Cohen, “generally the biggest problem on Wall Street is the demand for neck braces, because of the whiplash in the market”.
Most US firms report on a calendar year, and with the first half of 2007 having enjoyed the biggest private equity-led corporate boom for five years, it would surprise no one if firms such as Weil, Simpson Thacher or Wachtell all made record profits last year.
But like the banks, the figures The Lawyer publishes in this issue come in the same month that other firms (notably Cadwalader Wickersham & Taft) laid off significant numbers of their lawyers.
The bottom line? Trepidation.
The US market has just been through a period when everything was working. Capital markets? Strong. M&A? Booming. But then in the second half of the year came the dislocation. Firms that were heavily into cranking out derivatives and securitisation deals suffered as their businesses hit a wall. Those with more balanced portfolios didn’t feel the pain so badly. It was always likely the market would see that variance in the 2007 results.
Law firms have become used to posting 15-20 per cent increases each year. Many felt it was a matter of right. It’s not.
Weil’s and White & Case‘s London figures point to a transatlantic divide in terms of confidence. As a New York partner says: “Generally people in the US are more nervous than in the rest of the world about the state of the economy. In New York there’s a very high degree of uneasiness.”
The US economy has been slowing down longer than the UK’s. But both the dollar and sterling are now slowing against the euro and Asian currencies.
The upshot is that we are in one of those times when the future looks a little murky, a little uncertain. And that makes people, and law firms, nervous.