Confidence edges up again from spring low point

Confidence continues steady recovery, but partners are still expecting the return to growth to be slow and far from assured while sentiment improves on Europe and US. Jeremy Hodges reports

Law firm business confidence has recovered for the second quarter in a row with more than half of partners now expecting revenue growth at their own firms over the next 12 months.

Legal Week's latest quarterly business confidence survey found that 58% of partners expected revenue growth at their own firms over the next 12 months. This includes 18% who believe that income will grow by 5%-10% and 8% who expect growth to reach double digits. Only 13% of responding partners reckoned that revenues will contract over the next 12 months.

While the numbers are a shadow of the revenue projections typical during the boom, the figures show confidence among business lawyers has improved substantially since a low point six months ago. In April, only 22% of respondents were forecasting growth and 37% expected income to fall.

Anthony Ward, London managing partner of Shearman & Sterling, commented: "We are feeling more positive about the next quarter than we have at any point over the last three quarters. From a law firm perspective things do look better than they have done for a long time, though there remains a lot of uncertainty about 2010."

Partners are slightly less bullish when forecasting growth across the UK top 50 as a whole, despite indications that the transactional market is creaking back into life.

The majority of respondents believe that there will be limited revenue growth across the top 50 in the next year (39%) while a further 36% think that it will remain static. Only 3% predict double-digit growth, roughly the same number as three months, ago and 15% of partners still believe that the next 12 months will see the top 50 contract in terms of revenue growth. However, confidence on this measure has sharply risen over the last six months, with 52% of Big Question respondents expecting income to fall across the group back in April.

Lovells managing partner David Harris said: "I am not convinced that improving market sentiment will necessarily translate into a faster recovery. It will be more gradual than that and we could be in for a volatile period. A lot really hinges on what happens over the coming weeks - the performance between now and mid-December will be a pretty good indicator as to how the rest of the financial year will pan out."

Tim Jones, London head of Freshfields Bruckhaus Deringer, commented: "I do not think the pick-up will be quick enough here for us to see top 50 revenue growth. There are still a few months to go yet and the risk is that the restructuring work will slow down before the recovery work kicks in."

Internationally Asia continues to be singled out as the best performing region (50%) - a sentiment that appears to be backed up by a string of high-profile initial public offerings carried out in Hong Kong in the last few weeks.

Harris added: "There are real signs that not only sentiment but activity levels have increased in the [Asian] region, leading to more capital markets and other corporate work. The downturn has been less severe in Asia and it seems to be coming out of recession ahead of other major markets."

The main regional beneficiaries of rising sentiment were the US and Western Europe, cited by 21% and 12% respectively, both well up on the previous quarterly survey.

The UK fared less well with just 7% predicting a strong year, while Central and Eastern Europe, CIS and Russia were cited by 8% of respondents. The Middle East and Africa recorded the worst results with just 2% of partners believing that the region will experience a recovery in the next 12 months.

Litigation was once again seen as the top investment priority by partners with 55% citing it as the most important practice followed by restructuring and insolvency and corporate with 31% of the vote each.

Intellectual property is the practice area at the bottom of the pile with just 7% of respondents singling it out for investment. Real estate, which has been one of the hardest hit areas over the last two years, was cited by 10%.