Business of Law

Profits 'a Question Mark' for Law Firms; Up to $50M in Unfunded Pensions a Problem

Rising expenses are putting a damper on law firm profits, according to a survey of 115 law firms.

The survey by Wells Fargo’s Legal Specialty Group found law firm revenue increased 3 percent during the first six months of 2012, compared to the same period last year, while general expenses rose about 6.5 percent. Profits declined 0.7 percent. The Am Law Daily and the Wall Street Journal Law Blog have the story.

The publications interviewed Jeff Grossman, national managing director for Wells Fargo’s Legal Specialty Group. “Profit is a question mark” for 2012, Grossman told the Am Law Daily. “All indicators suggest it’ll be down, but it depends on how firms manage expenses.” The survey results, he told the Law Blog, “were not stellar.”

Firms are facing higher expenses partly because head count is increasing, Grossman told the Am Law Daily. Another reason for this year’s low profits: Firms deferred expenses until this year in an effort to shore up last year’s numbers.

Another issue, he told the Am Law Daily, is underfunded pensions. About one out of three firms surveyed had an underfunded pension liability; a handful of firms were underfunded by $10 million to $50 million. The only way to solve the problem, he said, is to freeze pension plans and cap obligations to retirees.

Despite rising expenses, Grossman said he has not heard of many firms planning layoffs. Nor does he expect a raft of law firm closings, partly because firms are raising more money with capital calls from partners.

Former coverage: “Law Firm Consultant Predicts ‘Absolutely’ More Layoffs and as Many as Five BigLaw Dissolutions” “Why BigLaw Didn’t Pay Spring Bonuses”

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