Slow financial start for US law firms in 2015

By Des Cahill

12 May 2015 at 07:44 BST

Large law firms had a slow start to 2015 with modest revenue growth and flat demand in the first quarter, compared with the same period last year.

US law firms are having to innovate and demonstrate value to clients ymgerman

According to the report, market conditions for US law firms are stabilising at much lower growth levels, with managing partners focused on structuring their firms around their clients, innovating wherever possible, and showing clients how their firms are different from their competitors. The report found that law firms were divided into two groups — those with strong brand-name transactional practices, or firms who have demonstrated value to their clients by offering quality work at the right price, while creating a well-managed cost structure to maintain or improve their margins. Firms who have failed to progress at the same rate have not done so for a variety of reasons, the report says, whether ill-conceived growth strategies,  an over dependence on litigation or the use of expensive leverage models.The survey by  Citi Private Bank Law Firm Group in association with Hildebrandt Consulting, covered a range of US law firms in the AmLaw 50, 100 and 200. Commenting on the findings, Gretta Rusanow, senior client adviser at Citi Private Bank's Law Firm Group, said '2014 was the strongest year the legal industry has seen in the post-recession period and firms are concerned whether those performance levels are repeatable in 2015.' 

Pressure on realisation

However, the report cautioned that there was still  'pressure on realisation, driven by alternative fee arrangements and pre-negotiated discounts to the published hourly rate. In 2013, realisation for the industry was 85.1 per cent, remaining far below the levels we saw during 2002-07, when realisation averaged 92.5 per cent. As an indicator of the expected change in the current year’s realisation, in the Citi 2014 Law Firm Leaders Survey, 46 per cent of large law firms reported that realisation had declined during the first five months of 2014. While this is better than the 49 per cent who reported a decline during the same period in 2013, it still represents a significant proportion of large law firms continuing to face pressure on realisation.'

Winners and losers

The report predicts a reasonably slow revenue growth of four per cent which, together with a greater control over costs growth, suggests 2014’s margins will increase and profit growth will be stronger than that seen in 2013. The authors of the report contend that some firms will probably approach pre-2008 levels of profit growth, but overall the industry will grow in the 5-6 per cent range. At the other end of the scale there will be losers as well as winners. Source: Citi Private Bank Client Advisory Report 2015


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