As many as 5,000 lawyers could find themselves out of work next year as City law firms undergo a new round of job cuts, bankers close to the profession have predicted.
Royal Bank of Scotland, which handles the corporate bank accounts of 80 of Britain’s top 100 law firms, believes that the slump in demand for legal services will continue through next year, leading to further drastic cutbacks.
In a report obtained by The Times, RBS’s legal practices group said that the legal market would need to shrink by another 5 to 10 per cent next year if it was to return to the levels of profitability that existed before the financial crisis began.
A host of big firms have slashed their junior ranks this year, led by three of the City’s biggest firms.
Allen & Overy cut 450 staff worldwide, while rivals Clifford Chance and Linklaters made more than 200 employees redundant in London alone. Headcount across the sector fell by about 15 per cent in 2008-09, RBS said.
Many firms failed to react quickly enough to the downturn, perhaps underestimating its length and severity. Another wave of job losses is now likely as those firms adjust their headcount in line with lower work levels, RBS said.
That will lead to a fresh dent in profits at many firms. Partners’ earnings at the firms worst affected by the crisis plunged by up to 50 per cent last year.
Jeremy Black, associate partner in the professional practices group at Deloitte, which audits many of the top law firms, said that profits would fall again at many firms next year.
“The majority of law firms have found the last quarter very tough,” Mr Black said.
RBS is forecasting that the legal market will remain sluggish until at least the end of next year.
Britain’s 100 biggest law firms employ about 49,000 lawyers.

The Times

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One of America’s biggest law firms is defying the turmoil in the commercial legal market with plans to build a London office of more than 200 lawyers within three years.

Greenberg Traurig, the tenth biggest law firm in the United States, with 1,800 lawyers and revenue of $1.2 billion (£754 million), has hired Paul Maher, a highly regarded dealmaker who was formerly vice-chairman of Mayer Brown, another big American firm, to build a City office.

Mr Maher, 50, born into a working-class family in North London, rose to become one of London’s top mergers and acquisitions lawyers and a senior executive at Mayer Brown, where he earnt more than £1 million a year. He left the firm in April after he was passed over for the role of chairman.

He had planned to set up his own firm in London, holding talks with private equity investors about funding his start-up costs, but he decided to join Greenberg Traurig instead after he was persuaded that its senior partners’ global ambitions fitted with his own.

Since July, Mr Maher has recruited 30 lawyers, some from Mayer Brown and some from White & Case. He expects to have 50 by the end of the year and said that the London unit would need to recruit 200 lawyers within three years to reach “critical mass”. That would make it one of the five biggest offices for an American law firm in London.

Lawyers at rival firms said that the move was a huge gamble at a time when others were cutting back in London and profits were plummeting.

Mr Maher told The Times that he had been given a broad remit to expand and planned to turn the traditional City law firm model “on its head”.

In a rare move, Greenberg’s American partners allowed Mr Maher to put his name above the door, calling its London office Greenberg Traurig Maher (GTM).

Its lawyers will be paid depending on performance rather than seniority, with a smaller ratio of junior fee earners to partners — some City firms employ as many as seven associates for every senior lawyer — and increased use of flexible working.

“We’re taking every aspect of a law firm and turning it on its head,” he said. “Do we even need offices in the City? Could we have everyone working from home, or should we put them all in Luton? I don’t just want photocopiers with views of the Thames.”

Mr Maher also hinted that GTM would become one of the first City law firms to float when new rules allowing external investment in law firms come into force in 2012.

He said that the traditional law firm business model had been rendered obsolete by the downturn and the “golden age” of City firms was over.

The Times

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