The Eurozone's economic travails affect law firms' hiring and client base
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When U.S. law firms open offices in Europe or Asia, hires are typically in the international corporate and finance realm, as the firms either aren't allowed to -- or don't want to -- do local litigation work.
The financial troubles of the eurozone have had the expected effect for some firms that said deal flow is restricted, counseling advice is up and their hiring in those regions is cautious.
"Those that have offices in eurozone countries, I think, are subject to what I would just call currency risk," Altman Weil's Ward Bower said.
If the euro collapses, firms would face difficulty, but even if the euro merely continues to be in the "doldrums" compared to other currency, firms billing and collecting in euros have challenges, Mr. Bower said.
Deal work most likely will be down if those firms are serving European clients, but they will get paid a nice price for doing counseling work, he said. While lawyers in London and other European countries tend to bill fewer hours than their U.S. counterparts, they make up for that lower utilization through higher billing rates.
European lawyers typically charge rates equal to the hourly rate of U.S. lawyers, but when converted, they equal much more. While the euro is falling in value, $500 an hour is still less than 500 euro an hour. And firms with London offices that are billing in pounds sterling are earning a nice conversion rate, Mr. Bower said.
As the eurozone makes its way through these economic troubles, Mr. Bower said he doesn't think many U.S. firms will open offices in the region in the short term. But he doesn't anticipate many office closings, either, as U.S. firms have limited exposure in the most deeply affected eurozone countries, such as Italy, Spain, Greece and Portugal, because the offices there are small.
London is home to Pittsburgh-based Reed Smith's largest office, with 350 attorneys. The firm also has a small outpost in Piraeus, Greece, that is focused mainly on the firm's shipping practice. Reed Smith's other European offices are in Munich and Paris.
"The economic troubles in Europe have exactly the impact you think they would," said Gregory B. Jordan, Reed Smith managing partner. "They give people pause in terms of doing transactions and financings."
Clients are calling more frequently, however, when it comes to questions about what they should do if a country pulls out of the eurozone, or what would happen if one of the eurozone countries has a run on a bank.
"It's a lot like the financial crisis in the U.S. a few years ago," Mr. Jordan said. "Certain kinds of work get slower and certain kinds of work become more in-demand."
Reed Smith doesn't have as much exposure on the continent as other firms do that have offices in Spain or Italy, such as bankrupt Dewey & LeBoeuf. Mr. Jordan said his firm was looking at Dewey & LeBoeuf's Italian office this year, but just didn't think it was the right time to make that investment. The firm's hiring overall in the region has become more strategic, Mr. Jordan said.
Morgan, Lewis & Bockius has taken advantage of Dewey's troubles, growing outside of the eurozone in places like Moscow and London. The firm cited the diversification of its practice as cause for its continued growth in an otherwise troubled market.
"The eurozone crisis has obviously had a significant impact on the financial markets in Europe and also has had an effect beyond Europe," business and finance practice leader Charles Engros said in a statement. "Fortunately, our practice in Europe and beyond is balanced and diverse and we have been able to maintain a strong flow of work with our corporate and financial services clients."
While Reed Smith turned down an opportunity in Italy and Dechert hasn't been looking, Pittsburgh's K&L Gates jumped into the market earlier this year with the acquisition of a stand-alone boutique in Milan.
Overall, K&L Gates has about 300 lawyers in Europe, with about 120 of those in the eurozone. The firm has eight offices on the continent, with five of them -- Berlin, Brussels, Frankfurt, Milan and Paris -- in the eurozone. Those eight offices are doing surprisingly well given the financial crisis facing the region.
According to Chairman Peter J. Kalis, revenue in the European offices is up 22.1 percent in the first five months of the year compared to the same period in 2011. Revenue rose 16.7 percent in the eurozone offices.
Mr. Kalis said that growth had little if anything to do with headcount increases. He said the new Milan office, which opened in February, has not yet had an impact on revenue as it is ramping up.
"The thing that you would have thought would dry up, which are a variety of transactional practices, have not dried up for us," Mr. Kalis said.
He said real estate work is strong in Germany and M&A work is strong in Paris. The firm's pan-European finance practice anchored in London and Frankfurt has been "exceedingly strong."
The lesson, Mr. Kalis said, is that in times of turmoil, clients have a need for refined legal services. The question is whether firms are representing the right clients that can actually afford to pay them for their services.
First Published June 25, 2012 12:00 am