Credit Crunch is Limiting Partner Draws
Posted Aug 5, 2008 11:26 AM CDT
By Martha Neil
Worried about a projected decrease in income at major law firms that one expert says could go down by 15 percent from last year, as well as slow payments from clients dealing with a difficult economy, administrators are limiting partners' take-home pay as a belt-tightening measure.
As a result, some partners are turning to interest-bearing bank loans to fund some of their expenses—and at least one firm is helping partners to get $250,000 personal loans at Barclays, reports Bloomberg.
Typically, partners get a $25,000 monthly draw if they earn $1 million annually, according to Andrew Johnman, who is in charge of the U.S. professional services team at Barclays. The rest of the money is generally paid at the middle and the end of the year. But, at the firm that is helping partners get $250,000 personal loans, the midyear payment has been canceled, he says.
Dan DiPietro, who oversees law firm client relations at Citigroup Inc.'s Citi Private Bank, says partner credit-line requests "are up substantially." He says some of the 650 law firms he works with are "exercising tough love,'' cutting partner distributions to encourage them to collect aggressively from clients.
"On an industrywide basis, it has never happened before,'' says Johnman of the reduction in traditional partner draws. "In the past, there has always been enough confidence that profits will come.''