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Nate Raymond, The American Lawyer, November 25, 2008
Simpson Thacher & Bartlett announced smaller year-end associate bonuses Monday, continuing the slashing seen at other elite law firms.
The bonuses, which range from a pro-rated $17,500 for first-year associates to $32,500 for eighth- and ninth-years, matched the reduced rates announced Thursday by Cravath, Swaine & Moore.
'The numbers were essentially half of last year's,' says Philip Ruegger III, Simpson Thacher's chairman. He confirmed the contents of a memorandum that outlined the lower bonuses and first appeared on the blog Above the Law. The memo cited 'the current challenging business environment' as the reason for cutting the bonuses.
Special bonuses -- which last year ranged from $10,000 for second-years to $50,000 for seventh- to ninth-years -- went unmentioned in the memo. Their disappearance followed a trend established in earlier memos from Skadden, Arps, Slate, Meagher & Flom and Cravath."
That prediction comes from the latest report issued by Hildebrandt International, which examines the reasons that law firms fail. 'Recognizing that the legal market is continuing to segment, we expect that we will continue to see a steady number of both mergers and dissolutions, even after the recovery from the current economic downturn,' the report reads.
The report isn't all doom and gloom, though. It concludes that firms tend to fail for several specific reasons, and dissolution can be avoided if leaders are able to recognize those problems early on.
'The seeds of most law firm failures are sown long before the actual dissolutions,' the report reads. 'In our experience, early diagnosis and action can usually prevent the fundamental flaws . . . from deteriorating into full-blown law firm failures.'"
NEW YORK — The latest bailout of Citigroup (C) helped soothe financial markets Monday and could serve as a model for other U.S. banks looking for help with their large portfolios of toxic assets.
The U.S. government late Sunday offered $20 billion for Citi preferred stock, on top of the $25 billion it has already given the bank. But this time, the government also said it will assume 90% of losses from Citi's $306 billion portfolio of loans related to bad mortgages if the losses exceed $29 billion, in return for another $7 billion in Citi preferred stock.
The news boosted Citi shares 58% to $5.95, helped lift other battered financial stocks and triggered a broad market rally Monday in which the Dow Jones industrials surged 397 points to 8443.
NEW YORK — The latest bailout of Citigroup (C) helped soothe financial markets Monday and could serve as a model for other U.S. banks looking for help with their large portfolios of toxic assets.
The U.S. government late Sunday offered $20 billion for Citi preferred stock, on top of the $25 billion it has already given the bank. But this time, the government also said it will assume 90% of losses from Citi's $306 billion portfolio of loans related to bad mortgages if the losses exceed $29 billion, in return for another $7 billion in Citi preferred stock.
The news boosted Citi shares 58% to $5.95, helped lift other battered financial stocks and triggered a broad market rally Monday in which the Dow Jones industrials surged 397 points to 8443.
Analysts say the backstop was essential to calm investors worried that the values of U.S. bank portfolios have been getting worse each passing month. "Persistent downward pressure on valuations of residential mortgage assets are being compounded by falling valuations of commercial real estate and other assets," says Brian Bethune at IHS Global Insight.
Any bank with similar toxic assets in their portfolio now has a chance to ask the government for similar cover. "Bank of America (BAC) can use this template to reduce the risk on Merrill's (MER) portfolio before they close the deal," says Cassandra Toroian, chief investment officer at Bell Rock Capital. BofA declined comment.
For the government, this is a way to stretch the fast-dwindling cash available from the $700 billion bailout fund. "It enables the government to leverage taxpayers' money better," says Keith Davis, financial analyst at Farr Miller & Washington. "This way, you can avoid buying up bad assets, and hopefully not have to bear losses unless the situation worsens."
For the banks, analysts say, this could calm investors by putting a floor on losses from the bad assets. Also, it's like an insurance policy, which the banks might never need to access, Bethune says.
This marked another reversal for the government, which two weeks ago said it would not take any action related to toxic assets, as it had planned, and instead would invest directly in the banks. That news sent financial stocks tumbling. Citi was especially hard hit, falling 60% to $3.77 last week, prompting the bank to ask for more federal help. Now, "If the investors start to go after Goldman (Sachs) (GS) or Morgan Stanley, (MS) you can see them, too, ask for similar government guarantees," Davis says. Goldman and Morgan declined comment.
Image via WikipediaThis economist article refers to firms in the broad buiness sense, but its recomendations and lessons can also be applied to firms in the more targeted, business of law sense:
"Firms that remain standing through a brutal recession will be those that have taken the phrase “cash is king” to heart. Yet there is a risk that in a rush to build up their cash mountains, cuts could be made too fast and too deep when a more targeted approach to surgery is needed. For instance, a recent article in the McKinsey Quarterly points out that technology budgets are a favourite place to make cuts, but indiscriminate chopping will be more damaging than ever before because IT systems are now so tightly interwoven with everything from supply chain management to the determination of pricing strategies.
Another reason for caution is that firms on a cash crusade can all too easily choke off investment in promising new products. That would be a huge mistake because, paradoxically, a recession can be a fantastic time to launch innovations. For one thing, tougher times can make consumers reconsider many of their purchasing decisions, leaving them open to trying something new. For another, a less crowded marketplace makes it easier—and cheaper—to create awareness of a new offering.
Scott Anthony of Innosight, a consulting firm, points out that during the dotcom bust Apple launched its first version of the iPod music player and that in America alone more than ten other “disruptive” innovations started during the same period. Experienced senior executives are convinced that this downturn will produce a new crop of world-beating businesses. In a recent speech to the Council on Foreign Relations, a think-tank, Sam Palmisano, the boss of IBM, said he was certain that he would see new leaders emerging who would “win not by surviving the storm, but by changing the game”.
Firms who want to be winners coming out of the downturn will also need the financial resources to seize any opportunities that arise during it. Interviewed in the Harvard Business Review, John Chambers, the boss of Cisco Systems, a network equipment-maker, said the firm tended to make more aggressive investments during bad times than good ones. When its rivals pulled back from Asia during the region’s financial crisis in 1997, Cisco deliberately increased its presence there, gaining a leading position it has never relinquished. Cisco’s experience is a timely reminder that while having plenty of cash is a powerful remedy in surviving a recession, if it is also deployed wisely it can produce a champion when the downturn ends.
Image via Wikipedia"'If you don't understand the value of cash right now, your clients do. You have to assume it will take longer to collect, so you have to be more rigorous in your collections. You have to make sure you've got cash coming in,'
Image via Wikipedia"There are some firms that would be better credit risks than others," Henderson said. "The thing that makes law firms different from a company that makes products is their ability to offer security for a loan. About all a firm has to offer is their accounts receivable, and a lending institution, particularly in today's market, is going to take a hard look at that."
The legal services sector shed 1,100 jobs in October as contraction in the general economy continued to hit law firm employment, according to figures released Friday by the U.S. Bureau of Labor Statistics (BLS).
Overall, jobs in the legal industry have shrunk 1.1 percent since October 2007, the report says, to 1.16 million employees. Those include not just lawyers but anyone on payroll, including paralegals, public relations specialists, secretaries, and many others. The last time so few people were employed in legal services was in December 2005, according to bureau figures.
"The Western financial system, as we know it, is dead. Not tarnished or cracked. Dead. With its demise go the Anglo laissez-faire financial mechanisms of the Reagan-Thatcher-Kohl era that have held sway for nearly three decades. The American subset, affectionately referred to as “the cowboy experiment,” run by self-centered eccentrics, is at the root of this collapse. After all, New York, not London, had been the creator of new financial products, strategies and entities. We were the innovators. Leverage was the tool. And greed was the measure of success."
The U.S. Treasury Department chose Squire Sanders & Dempsey as one of two law firms that will help handle the $700 billion bailout program. The firm was awarded a federal contract worth about $5.5 million to assist the department with bailout transactions. Four law firms bid on the bailout project.
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