Law firms are cutting back hiring, and in some cases trimming headcounts in groups that work with mortgage-backed securities, structured finance, capital markets and real estate.
Reacting to slowed business from Wall Street clients, some New York law firms have laid off associates for the first time since 2001, Bloomberg News reported. Earlier in November, The Wall Street Journal's Law Blog said legal recruiters across the U.S. are suddenly doing less "lateral associate" hiring, in which experienced associates switch employers. In both cases, the downturn primarily affects capital markets and real estate-related work. Just as on Wall Street, some observers predict law firms will use the slowdown to cull their bottom 5 percent of performers.
"Clifford Chance, the world's highest-grossing law firm, dismissed six senior associates who worked on mortgage-backed securities in its structured finance practice on Nov. 5," Bloomberg says. "At least two other firms asked associates, or salaried lawyers, to take sabbaticals or switch departments, a move that often precedes job cuts."
The story goes on to identify those two other firms as New York-based Thacher Proffitt & Wood and Washington-based McKee Nelson. Both have large structured finance practices: about 40 percent of the lawyers at Thacher Proffitt, for example. "About a dozen" lawyers there moved from structured finance to other practice areas, chairman Paul Tvetenstrand told Bloomberg. The firm aims to reduce associate ranks through attrition, but might fire people as "a last resort," he added.
Similarly, McKee Nelson has switched lawyers from capital markets to tax and litigation practices. It's also asking associates to take unpaid or partial-pay "sabbaticals" or severance packages, but has yet to fire anyone.
Major law firms with large structured finance practices include New York's Cadwalader, Wickersham & Taft, San Francisco's Orrick, Herrington & Sutcliffe, and Chicago's Sidley Austin. Each declined comment for Bloomberg's story. However, other top-tier firms including New York-based Cravath, Swaine & Moore and global firm Morgan, Lewis & Bockius, downplayed concerns that the slowdown will prompt them to lay off associates.
The Wall Street Journal quotes a Chicago legal recruiter saying that "some mid-size and larger firms very suddenly put searches on hold" or cancelled them altogether. Those searches involved lateral associate hiring in finance, banking, private equity and real estate.
Meanwhile, business and hiring among law firms remains brisk in areas such as litigation, bankruptcy and regulatory work.