Biglaw Trouble: Big client fee savings are bad for biglaw

Big savings in legal fees for big clients is really bad news for biglaw. There are perhaps revenue drop50 US law firms grossing over $1 billion per year and the gross legal product, last time I checked, was a little under $400 billion. Just from the natural downturn in big cases (given a downward shove by recent changes in patent law, declining big bankruptcy work, etc.), and other legal breadwinners (like merger activity or serious government regulation), theres going to be billable hours trouble, especially for big firms that need to gross millions per day just to survive.

Heres a recent story about Bank of America saving a substantial chunk of $10 billion in legal fees (and related expenses, plus judgments, fines, and settlements). Their best year in a decade is credited, more or less entirely, to legal expense savings.

The US investment banks have bounced back to bumper profits after putting crisis-era litigation costs behind them

Bank of Americas profits more than tripled in 2015 to the highest level in nearly a decade as legal bills fell.

The US-based lender made a $15.9bn (11.2bn) profit in 2015, up from $4.8bn in the previous year, despite a 2pc fall in revenue to $82.5bn, thanks largely to lower lawyers fees and fewer fines.

The article implies that other big banks are having a similar experience.

Meanwhile, there are multiple reports of trouble brewing at big law firms. Heres one, and another, and another. Once a firms health is questioned in the press, its usually just a matter of time before all their rainmakers and most profitable hourly grinders are out the door.

Clients should be careful to check their incoming bills and insist on client-friendly retention terms: firms, and the timekeepers within, may be increasingly desperate to scoop up every crumb they can find. Less vigilant clients or entities like insurance companies or losing opponents who pay the bills of others, will be prime targets. (We call them soaker clients. My firm performs legal bill reviews and other services to help anticipate or solve these problems.)

Source: Morgan Stanley and Bank of America profit as legal bills fade