Economic crisis: Law firms weather a changing climate

By Pat Milhizer

For most of this decade, law firms surfed a wave of unprecedented growth.

Many firms posted growing revenues and profits for six years in a row. Corporate transactions helped fuel the business boom as lawyers negotiated and structured the multimillion- and billion-dollar mergers, acquisitions, and leveraged buyouts.

Starting salaries ballooned to new heights, as the top-ranked law school graduates could expect to earn around $160,000 as first-year associates.

That was then.

In the middle of last year, the legal-market bubble started showing signs of popping, especially when banks stopped lending the big bucks needed to close corporate transactions.

That credit crunch was enough to cause economic headaches. Factor in failing banks, the subprime mortgage crisis, the highest national unemployment rate in 14 years, and shrinking 401(k)s — and it’s a financial mess that has been called the worst since the Great Depression.

It seems like everyone’s hurting, and law firms have felt the pain, too.

Some have resorted to layoffs, and lawyers are trying to find a bright side — better known as billable hours — in the months to come.

”We’re looking at a 2009 that is going to be pretty flat in terms of the legal market,” said Jim Jones, managing director of Hildebrandt International, a legal consulting firm.

Nevertheless, firms are finding new legal avenues to drive down.

Just as there’s plenty of work to go around when times are good, somebody with a law license is needed when the economy slumps and Corporate America has to figure out what to do next.

And Doug Faucette’s phone won’t stop ringing.

”There’s a lot of action here now, and it’s kept a lot of people busy,” said Faucette, a Washington partner at Locke Lord Bissell & Liddell, who heads the firm’s financial institutions practice.

”I’m fielding calls all day. I can’t get away from the chair. And we got another 100 people doing the same thing,” Faucette said.

He’s referring to the firm’s new Troubled Asset Relief Program Group, which is a response to Washington’s $700 billion taxpayer-funded plan to jumpstart the economy.

As far as legal trends go, these task forces are the latest craze.

The Troubled Asset Relief Program that was approved by Congress in October comes with a Capital Purchase Program.

Under that initiative the U.S. Department of the Treasury will purchase up to $250 billion of senior preferred shares in financial institutions, meaning that the government will loan money to banks so that they can resume normal lending to businesses and consumers.

Counseling companies

At the time of this writing — shortly before the Nov. 14 deadline for financial institutions to apply for the money — attorneys were counseling companies on the pros and cons of participating.

”A lot of these companies who don’t think they qualify yet, qualify already. An insurance company who owns a bank will qualify because it’s a bank-holding company,” Faucette said.

”Existing clients are very interested in whether they qualify. They first started out, ‘Not me. I don’t want government money.’ Then they thought about it, and on second thought, it’s not a bad deal,” Faucette said.

As lawmakers continue this effort to help the economy, attorneys will be busy.

”The TARP program is a huge pool of money that will allow people to do some new transactions by selling assets or receiving capital injections through sales of preferred shares,” said Hays Ellisen, a New York partner and co-chair of TARP task force at Katten Muchin Rosenman.

In the big picture, the TARP plan ”is part of a changing landscape that a lot of firms are looking at and adjusting their practice during this credit crisis,” Ellisen said.

”We formed our TARP task force because we think we have a lot of clients and potential clients affected by the TARP, and so we have been doing a lot of client advisories … there’s a lot of different ways clients want to participate and we’re ready,” Ellisen said.

Defense work heats up

Along with the Treasury’s package, the changing economic and political climates could mean more work for white-collar criminal defense attorneys who represent companies, corporate officers, or directors under investigation by the U.S. Securities and Exchange Commission or the U.S. attorney’s office.

In general, the investigations would focus on financial fraud, stemming from insider trading or a company that misrepresented financial information to the public.

”As we see a restructuring of some of the regulatory bodies and who has responsibility, you’re going to find [federal regulators] are going to be a lot more aggressive,” said Phil Stern, a partner in Neal, Gerber & Eisenberg.

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