The Unpredictable States of America

What can you tell from the numbers emerging from America’s largest law firms as this year’s ‘reporting season’ gets under way? The obvious conclusion - aside from the fact that the uncertain economic climate is already having some impact - is that it is going to be the most unpredictable, interesting year that the world’s largest legal market has produced in a long, long time.

After four years when peer group firms have posted broadly similar growth rates and profitability, the 2007 numbers are already varying widely between firms. So while Cadwalader and Howrey have seen falls in partner profits, the chalk-and-cheese pairing of Latham & Watkins and Dorsey & Whitney have managed substantial growth to the bottom and top lines.

Nor is geography giving much clue to performance, aside from the fact that West Coasters look to be holding up a little better than East Coast rivals and that it’s going to be another underwhelming year for DC’s finest.

Turning to the headline results, Cadwalader unsurprisingly got attention as the first major practice to show a fall in partner profits but given the firm’s extreme exposure to the mortgage-backed securities market and high relative profitability, a 6% fall in PEP is a good result.

The firm has also wisely opted to use its moment of vulnerability to make an expensive hire, with the recruitment of Latham’s private equity head, Ronald Hopkinson. OK, despite the Carlyle connection Latham isn’t everyone’s idea of a top-tier sponsor firm but it’s a serious appointment from a serious firm. And if there’s ever a right time to splash the cash on a big-name lateral, it is when you need to make a statement (that statement being: ‘we still have ambition and we’ve got a recovery plan besides just hunkering down and hoping for the best’).

But as headline-worthy as Cadwalader has been in recent weeks, Latham’s performance is even more notable. With profits and revenues up more than 20%, the firm has sealed its reputation as America’s most financially-consistent performer of the last decade. While plenty of firms have put in eye-catching growth for a year or two, Latham has managed it for five years straight. This year revenue has risen to just above $2bn, while profits have reached magic circle levels, even swimming against the tide of the ebbing dollar.

(For a local view on whether Latham can overtake Skadden as the US' top-billing law firm, click here.)

However, it seems unlikely that many top 20 rivals will be able to match Latham’s feat, with M&A and securities work tailing off after the summer following a very busy first half. It doesn’t necessary look to be a bad year overall for leading US firms, but if the cliché is that in a busy market anyone can do well, it looks tough enough to painfully separate the winners from the losers. Our sister title The American Lawyer will soon be bringing you in-depth analysis but, in the meantime, legalweek.com will be updating readers as the results come in.

On a marginally related note, those who want to see more international news can check out the new global news section from our sister title, law.com. This will bring Legal Week’s coverage together with news from our stable of US sister titles. Click here to see for yourself.

alex.novarese@legalweek.com