Q1 data indicates law firms could struggle in 2012

Thomson Reuters News and Insight| Reporting by Erin Geiger Smith

April 17 (Reuters) – Law firms’ billable hours grew modestly for the first quarter of 2012 compared to the same time period last year, but rising expenses could complicate firms’ financial prospects as the year unfolds, according to data compiled by Peer Monitor.

The Peer Monitor Index (PMI) measures the quarter-over-quarter change in the factors impacting law firm profitability, including billing rates, demand, productivity and expenses. Demand for law firms, as measured by hours billed, increased 1.5 percent over the same period a year ago. AmLaw 100 firms, experienced a similar increase in demand, while AmLaw 200 firms saw an overall increase of 2.3 percent, according to Peer Monitor.

Direct expenses for firms rose six percent, while overhead expenses grew 3.6 percent. Those higher costs can be offset somewhat by the fact that billing rates increased the same amount as overhead expenses. Prior to the recession, rates rose an average of six to eight percent, Peer Monitor said.

The growth in expenses can be attributed partly to the fact that firms cannot continue to put off certain purchases, such as technology upgrades, even though the industry continues to struggle through the slow recovery, Peer Monitor head Mark Medice said.

Peer Monitor is a Thomson Reuters product.

Several practice areas saw an uptick in the amount of work during the first quarter, as compared to last year. Labor and employment work rose five percent, while capital markets-related work rose six percent. Intellectual property litigation also saw a slight increase. General corporate work, however, fell six percent. There was a small decline in demand for litigation and real estate services as well.

For AmLaw 100 firms, the biggest growth areas were patent-related intellectual property work and capital-markets work. The biggest declines — all less than five percent — were in structured finance, real estate, general corporate work and bankruptcy.

Data due at the end of June could provide a clearer picture for 2012, Medice said. “The first half of the year will often set the tone for where things are going to go. Q2 will be really important to indicate what kind of year we’re going to have.”

(Reporting by Erin Geiger Smith)

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