Monday 30 April 2012 9:22 pm

Legal firms hit by fresh downturn

LONDON’S increasingly embattled legal sector suffered a further blow yesterday, as magic circle stalwart Slaughter and May froze associate salaries and Herbert Smith announced 51 redundancies in its City office. Only second-year associates at Slaughters will see their pay packets rise, though by less than one per cent, while salary bands for the firm’s other qualified lawyers remain static. The pay freezes at Slaughters come on the heels of minimal rises at fellow magic circle firm Allen & Overy, which set the scene for an anaemic round of pay hikes earlier this month when it announced associate salary increases of less than one per cent – well below the average across the private sector. Adding to the misery was Herbert Smith, which said yesterday it would cut just over three per cent of its London staff, with the bulk of lay-offs falling in the firm’s corporate team. The global firm employs 700 lawyers in London, including 164 partners. The firm’s management put the cuts down to a stagnant deal market, but outside sources told City A.M. that given that the firm had already seen several departures from its corporate practice in recent months, the redundancies were surprising. “We have waited in the hope that conditions in transactional markets would improve – but against a backdrop of continuing uncertainties in these markets, we believe now is the right time to address the issue,” said managing partner David Willis. Though the numbers being cut are still a long way off the widespread redundancies seen across the sector during 2008-09, there are also ominous-sounding “partner restructures” underway at magic circle firms Clifford Chance, Allen & Overy and Linklaters, and industry analysts expect more to come. A study last month by RBS’s legal services team predicted that 3,000 lawyers will leave the UK legal sector this year, with a further five per cent of overall headcount needing to be cut in order for margins to return to pre-crisis levels. The survey of 60 senior legal executives also found most to be bearish on the outlook for the rest of the year, predicting flat or falling revenues for their firms. Fee income at the UK’s top 100 law firms increased by 7.2 per cent year-on-year in the three months to the end of January according to Deloitte – but this was down on the 9.8 per cent growth seen in the previous quarter, and law firms bosses have made no secret that they’re expecting a tough second half of 2012. “I’m not surprised by the pay freezes,” said Guy Adams at legal recruiter Laurence Simons. “Law firms are very cautious due to downbeat economic data, as well as pressure from clients who are becoming much more savvy about pricing.” New York firm Dewey & LeBoeuf – which has 140 lawyers in London – is also proving that the US legal sector is far from unscathed. Around 20 partners left the firm yesterday after a weekend that saw its chairman step down and merger talks with Greenberg Traurig end. The firm was last night racing to extend a deadline on more than $75m of its debts.

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