Law Firms Face Challenges in Growing Profits Reports Citi

In a recent Wall Street Journal Blog Article written by Jennifer Smith entitled: Citi: Lackluster 3rd Quarter Bodes Ill for Law Firm Profit Growth, it was reported that law firms will face significant challenges in trying to grow their profits. The folks at Citi Private Bank expect law firms will see even lower profit growth this year on an industry-wide basis than they did in 2011, when they notched a 3.5% gain (paltry by pre-recession standards).

Citi, a major law firm lender, reached that dismal conclusion after analyzing third-quarter performance among 182 mostly large firms. While the results aren’t public, the bank posted a summary over at AmLaw Daily.  Citi identified the following problems in their report:

  1. Law firms are wrestling with weak demand for their services
  2. Law firm expenses continue to grow faster than their revenue

Since the Citi Report only analyzes the performance of a small number of law firms (182 mostly large law firms and there are an estimated 50,000 law firms throughout the United States), the results are “industry averages” and do not reflect the success of those firms who continue to perform well.

What’s even more interesting is that there may very well be some shifting in the way that legal services are utilized.  Corporations may be in-sourcing more of their need for legal services.  Where work is still being outsourced, more of this work may be going to smaller law firms as companies are seeking to avoid the ever rising billable hourly rates of the larger firms.

We at Legal Bistro have our own views on the changes that are taking place in the market for legal services and will write our own article on this topic.

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