Citi Survey: Law Firm Leaders Lose Optimism in Q3
Confidence among law firm leaders slipped in the year's third quarter, according to a recent poll by Citi Private Bank's Law Firm Group, landing at what law firm group chairman Dan DiPietro calls a neutral-to-sanguine level.
"There's still a lot of caution in the market," DiPietro says. "I think there’s a growing understanding that what the environment was the last couple years will probably be the environment we’re stuck with for the foreseeable future. Firms frankly are not depressed about that. . . . I just think it’s a sober and clear-eyed look at what market conditions are."
The latest industry pulse comes from Citi's quarterly Law Watch Managing Partner Confidence Index, which plots responses from a series of questions on a 200-point index, with 100 representing a neutral opinion and 200 representing absolute confidence. This time around, the bank surveyed 72 firms, including 27 in The Am Law 100, another 21 in The Am Law Second Hundred, 22 firms that Citi describe as niche, and a pair of firms in the United Kingdom.
The overall confidence level in the third quarter dropped 10 points from the previous quarter to 103, the lowest level recorded by Citi since the third quarter of last year.
Law firm leaders' expectations for profits and revenues also fell in the third quarter. On the profit side, 39 percent of respondents project profits to decrease or remain flat in the next year, 42 percent expect growth below 5 percent, and the remainder estimate growth between 5 percent and 10 percent. (The overall confidence level for profits dropped 9 points to 86.) DiPietro says that's roughly comparable to his team's own projections; Citi started the year expecting single-digit profit growth for 2013 but has since scaled that back to expecting profits to be flat.
When asked about revenue, 30 percent pegged growth for the next 12 months at between 5 percent and 10 percent, while 35 percent estimate less than 5 percent growth, 32 percent say it'll decrease or remain unchanged, and an optimistic 3 percent plan for growth greater than 10 percent. Managing partners expect some of that revenue growth to be eaten up by expenses; the majority of respondents say expenses are rising.
"There’s just this continuing overhang of uncertainty that has been depressing demand growth in the industry," DiPietro says.
Of the 10 indexes that go into the overall confidence measurement, only two rose: those measuring law firm leaders' expectations for hiring associates and equity partners.
DiPietro said it surprised him that some law firms are considering increasing head count in those two areas, but that he had at least one possible explanation: "Even though there’s significant excess capacity—meaning too many lawyers chasing too little work—I am hearing the concern that there aren’t enough midlevel associates."
Call it the one bright spot of the recession's lingering effects.