Law Firm Revenues Fall Through 3rd Quarter: Survey

By James Armstrong

Law360, New York (November 20, 2009) -- Revenue at most U.S. law firms was down significantly this year through the end of the third quarter, according to a survey by the Wachovia Legal Specialty Group.

The study found firms' gross revenue fell 6.9 percent and their net income fell 6.1 percent through the end of September, the New York Law Journal reported Friday.

New York firms were particularly hard-hit, experiencing a 9 percent drop in revenue through the third quarter, according to the report.

Total hours by attorneys at New York firms fell 10 percent through the third quarter when compared to 2008, the report said. That figure fell only 6.9 percent for the legal industry as a whole.

"What that tells you is there is going to be a lot more riding on the fourth quarter," the report quoted Jeff Grossman, national managing director at Wachovia, which is now owned by Wells Fargo & Co.

Top tier firms — those with profits per partner exceeding $1.8 million — saw gross revenues go down 8.2 percent, the report said.

A study put out earlier this month by PricewaterhouseCoopers LLP found profits at the top 100 law firms in the U.K. fell by 30 percent over the past 12 months.

That study concluded U.K. firms battered by decreased profits and other effects of the recession are skeptical about the prospects for revenue growth.

The U.K.'s top 10 firms fared better than those in lower tiers, seeing a decline of roughly 21 percent in profits per partner compared with the previous year.

Still, the average profit per partner at a top 10 firm was £872,000 ($1.4 million), nearly double that of the next tier, at £444,000 ($736,000).

PwC also said business confidence overall is still weak and none of the top 10 firms responded that they were "very confident" about prospects for revenue growth in the next year.

PwC estimated that chargeable hours had fallen by up to 20 percent and warned that some firms are likely to continue with staff reductions in 2010. In some cases, firms' chargeable hours are at levels below those of 2006, PwC said.

The good news is that overseas revenues, very important for larger firms, substantially assisted in this year's currency flow. PwC said three-quarters of the top 10 firms take away more than 40 percent of their total fees from international operations.

Still, those profits are also down from the past, particularly in the Middle East, Central and Eastern Europe and the Far East, the survey said.

The data also indicated a growing trend in outsourcing business support functions such as accounting, HR and procurement as well as traditional areas such as payroll, IT and facilities management.

One positive of the recession, however, is the shift back toward client relationships, though firms must work hard to differentiate themselves from the competition, PwC noted.

--Additional reporting by Liz McKenzie