Citi's midyear law firm review: good news/bad news

Citi Private Bank’s Law Firm Group has issued its midyear report on financial trends in the legal industry, which includes some speculation about its future direction. In summary, Citi characterizes as the law firm world as “shrinking toward growth.”

Bad news:

• • During the first half of 2010, revenue was virtually flat


• • Compared with the same period in 2009, demand was down slightly. (“At best, we may have reached a bottoming out.”)

Good news:

• • Net income and profit per equity partner is up


• • Expenses have decreased


• • Productivity up about 4 percent and contribution per lawyer (revenue per lawyer minus expense per lawyer) up almost 20 percent.


• • Billing rates also are up, trending at 4 percent. (albeit lower than the historic 6-7 percent.)

Good news caveat #1: The decrease in expenses and the increase in productivity is largely attributable to layoffs “headcount reductions.”

Good news caveat #2: “[S]ince leverage is declining, rate increases may be artificially inflated because a higher percentage of more senior lawyers with higher billing rates are doing the work.”

Looking forward:

• • Reductions in equity partner head count will continue


• • BRIC nations (Brazil, Russia, India, and China) and emerging markets=growth opportunities.


• • The soft market for legal services is unlikely to change any time soon. (“So the only way firms can grow their revenue is at someone else’s expense”)


• • Although general counsel will likely continue to keep ‘bet-the-company’ work with top-tier firms, they are increasingly willing to diversify their portfolio of legal service providers and include lower-cost alternatives (e.g., offshore legal service providers, virtual law firms)

-posted by brian