April 30, 2008 7:30 AM

Cravath to Expand Through Summer Associates

Posted by Nate Raymond

At a time when several firms are cutting back their summer programs, Cravath, Swaine & Moore is taking the opposite approach, boosting its program’s size by more than 75 percent.

Cravath is bringing in 161 summer associates, up from 91 last year. The additional recruits are part of an expansion plan, says managing partner Evan Chesler.

“We don’t hire laterally, so it’s not that complicated,” Chesler says. “If you’re sitting at the Cravath firm and make the decision that over time you want to be somewhat larger than you are, you start where you must start, which is the recruiting of the summer class.”

While it may seem odd that Cravath is doing this during a recession, the firm is well positioned to make the move. In 2007, the firm posted profits per partner of $3.3 million, and its gross revenue grew 11 percent to $610.5 million, according to Am Law 100 figures released yesterday.

All of last year’s 91 summers received full-time offers, a spokeswoman says. While it’s too early to know how many of those will accept–many are finalizing their decisions now due to clerkships–the firm anticipates 96 incoming associates this fall, according to the spokeswoman.

Chesler says the economy had no bearing on this year’s expanded program. “This is a long-term decision,” he says. “[It] affects the size of our classes one and two and three years down the road, so we made the decision with that perspective in mind.”

The firm currently employs 481 lawyers. Chesler says the firm doesn’t have any specific practice areas in mind that it wants to grow and has no plans to expand out of its New York stronghold or beyond the one branch office in London. This summer’s hires are international, though, with 14 summer associates joining from other countries, including Canada, the United Kingdom, France, and China.

The firm plans to rotate eight of the 161 associates through London’s corporate department for half the summer, the spokeswoman says. The London office has 17 lawyers total.

Cravath doesn’t look to be cutting back on perks either. Among the events anticipated by incoming summers are a party at the Central Park Zoo and several Broadway shows, including Jersey Boys, Young Frankenstein, and Spring Awakening.

http://amlawdaily.typepad.com/amlawdaily/2008/04/cravath-moves-t.html

RPL Ranks 1998-2007

Order the electronic spreadsheet of the 2008 Am Law 100 Firms with change in rank from 1998 to 2007; listed in alphabetical order. Thirty five years ago, Dorothy Fields wrote for the Broadway show Seesaw, “It’s not where you start, it’s where you finish.” And that is an object lesson for law firms, too. In revenue terms, every Am Law 100 firm advanced over the last decade—or it died. The more important measure is how did each firm do relative to its peers. To find out, we ran a simple test. We compared the rankings of the firms on the most important economic measure, revenue per lawyer, between 1998 and 2007. In all, 81 firms from the 1998 list appeared again this year. Twelve died or disappeared into mergers. The rest slipped into the Second Hundred. The results are below. (In the case of merged firms, we tracked the firm from 1998 whose name appears first: Wilmer Cutler merging with Hale and Dorr, we tracked Wilmer; Piper Marbury merging with Rudnick & Wolfe and then DLA, we tracked Piper.) The big winners and losers are listed below. Sometimes, though, consistency is its own reward: especially for Davis Polk (still #4), Cravath (still #3), and Wachtell (still #1).
2007 Firm	2007 RPL Rank	1998 RPL Rank	Change in Rank
Akin Gump	39	73	34
Alston & Bird	66	89	23
Arnold & Porter	28	27	-1
Baker & Hostetler	99	85	-14
Baker & McKenzie	98	98	0
Baker Botts	51	57	6
Bingham McCutchen	32	45	13
Bryan Cave	90	89	-1
Cadwalader	28	32	4
Cahill Gordon	14	9	-5
Chadbourne & Parke	64	20	-44
Cleary Gottlieb	20	8	-12
Cooley Godward	39	40	1
Covington & Burling	35	40	5
Cravath	3	3	0
Davis Polk	4	4	0
Debevoise & Plimpton	7	10	3
Dechert	30	65	35
Dewey Ballantine	38	18	-20
DLA Piper US	47	78	31
Dorsey & Whitney	83	82	-1
Faegre & Benson	90	83	-7
Foley & Lardner	59	76	17
Fried, Frank	22	23	1
Fulbright & Jaworski	70	63	-7
Gibson, Dunn	11	15	4
Goodwin Procter	35	50	15
Greenberg Traurig	66	51	-15
Heller Ehrman	55	60	5
Hogan & Hartson	43	67	24
Holland & Knight	88	96	8
Howrey	61	42	-19
Hunton & Williams	69	67	-2
Jenner & Block	63	51	-12
Jones Day	75	57	-18
Katten Muchin	62	51	-11
Kaye Scholer	25	19	-6
Kilpatrick Stockton	92	91	-1
King & Spalding	51	31	-20
Kirkland & Ellis	10	24	14
Kirkpatrick & Lockhart	86	86	0
Latham & Watkins	17	17	0
LeBoeuf, Lamb	53	69	16
Littler Mendelson	100	93	-7
Mayer Brown	47	32	-15
McDermott Will	33	34	1
McGuireWoods	93	98	5
Milbank, Tweed	6	11	5
Morgan, Lewis	47	63	16
Morrison & Foerster	34	62	28
O’Melveny & Myers	39	35	-4
Orrick	39	48	9
Paul, Hastings	24	42	18
Paul, Weiss	13	20	7
Pepper Hamilton	76	96	20
Perkins Coie	82	80	-2
Pillsbury Winthrop	53	51	-2
Proskauer Rose	27	30	3
Reed Smith	72	91	19
Ropes & Gray	20	16	-4
Schulte Roth	18	45	27
Seyfarth Shaw	86	80	-6
Shearman & Sterling	12	13	1
Shook, Hardy	81	86	5
Sidley Austin	45	27	-18
Simpson Thacher	5	6	1
Skadden	8	7	-1
Sonnenschein	58	70	12
Squire, Sanders	76	93	17
Steptoe & Johnson	45	70	25
Stroock & Stroock	55	36	-19
Sullivan & Cromwell	2	4	2
Thelen Reid	74	57	-17
Vinson & Elkins	37	38	1
Wachtell	1	1	0
Weil, Gotshal	15	13	-2
White & Case	68	48	-20
Willkie Farr	15	12	-3
Wilmer	22	36	14
Wilson Sonsini	43	45	2
Winston & Strawn	50	55	5
Firms ranked by greatest change in RPL rank from 1998 to 2007.
2007 Firm	2007 RPL Rank	1998 RPL Rank	Change in Rank
Dechert	30	65	35
Akin Gump	39	73	34
DLA Piper US	47	78	31
Morrison & Foerster	34	62	28
Schulte Roth	18	45	27
Steptoe & Johnson	45	70	25
Hogan & Hartson	43	67	24
Alston & Bird	66	89	23
Pepper Hamilton	76	96	20
Reed Smith	72	91	19
Paul, Hastings	24	42	18
Foley & Lardner	59	76	17
Squire, Sanders	76	93	17
LeBoeuf, Lamb	53	69	16
Morgan, Lewis	47	63	16
Goodwin Procter	35	50	15
Kirkland & Ellis	10	24	14
Wilmer	22	36	14
Bingham McCutchen	32	45	13
Sonnenschein	58	70	12
Orrick	39	48	9
Holland & Knight	88	96	8
Paul, Weiss	13	20	7
Baker Botts	51	57	6
Covington & Burling	35	40	5
Heller Ehrman	55	60	5
McGuireWoods	93	98	5
Milbank, Tweed	6	11	5
Shook, Hardy	81	86	5
Winston & Strawn	50	55	5
Cadwalader	28	32	4
Gibson, Dunn	11	15	4
Debevoise & Plimpton	7	10	3
Proskauer Rose	27	30	3
Sullivan & Cromwell	2	4	2
Wilson Sonsini	43	45	2
Cooley Godward	39	40	1
Fried, Frank	22	23	1
McDermott Will	33	34	1
Shearman & Sterling	12	13	1
Simpson Thacher	5	6	1
Vinson & Elkins	37	38	1
Baker & McKenzie	98	98	0
Cravath	3	3	0
Davis Polk	4	4	0
Kirkpatrick & Lockhart	86	86	0
Latham & Watkins	17	17	0
Wachtell	1	1	0
Arnold & Porter	28	27	-1
Bryan Cave	90	89	-1
Dorsey & Whitney	83	82	-1
Kilpatrick Stockton	92	91	-1
Skadden	8	7	-1
Hunton & Williams	69	67	-2
Perkins Coie	82	80	-2
Pillsbury Winthrop	53	51	-2
Weil, Gotshal	15	13	-2
Willkie Farr	15	12	-3
O’Melveny & Myers	39	35	-4
Ropes & Gray	20	16	-4
Cahill Gordon	14	9	-5
Kaye Scholer	25	19	-6
Seyfarth Shaw	86	80	-6
Faegre & Benson	90	83	-7
Fulbright & Jaworski	70	63	-7
Littler Mendelson	100	93	-7
Katten Muchin	62	51	-11
Cleary Gottlieb	20	8	-12
Jenner & Block	63	51	-12
Baker & Hostetler	99	85	-14
Greenberg Traurig	66	51	-15
Mayer Brown	47	32	-15
Thelen Reid	74	57	-17
Jones Day	75	57	-18
Sidley Austin	45	27	-18
Howrey	61	42	-19
Stroock & Stroock	55	36	-19
Dewey Ballantine	38	18	-20
King & Spalding	51	31	-20
White & Case	68	48	-20
Chadbourne & Parke	64	20	-44
Firms that moved from the bottom half in RPL rank in 1998 to the top half in 2007.
2007 Firm	2007 RPL Rank	1998 RPL Rank	Change in Rank
Dechert	30	65	35
Akin Gump	39	73	34
DLA Piper US	47	78	31
Morrison & Foerster	34	62	28
Steptoe & Johnson	45	70	25
Hogan & Hartson	43	67	24
Morgan, Lewis	47	63	16
Firms that moved from the top half in RPL rank in 1998 to the bottom half in 2007.
2007 Firm	2007 RPL Rank	1998 RPL Rank	Change in Rank
Chadbourne & Parke	64	20	-44
King & Spalding	51	31	-20
White & Case	68	48	-20
Howrey	61	42	-19
Stroock & Stroock	55	36	-19
(The American Lawyer, May 2008)

April 30, 2008, 11:48 am

AmLaw 100 Rankings: Is the Golden Age of Growth Over?

Posted by Ashby Jones

For a lot of law-firm managing-partner types, today is a big day, as the AmLaw 100 hits their in-boxes. The AmLaw 100, or the American Lawyer magazine’s annual list of the top-grossing law firms for the year previous, represents not only a boatload of work for AmLaw staffers. For law firm heads, it’s a report card of sorts. For law students and lawyers looking to move laterally, it’s a handy reference guide to who’s hot and who’s not. For GCs and other industry watchers, it’s a snapshot of BigLaw as a whole.

And what, looking through the AmLaw 100 prism, do we make of 2007? To Aric Press, the magazine’s editor-in-chief, the year marks the end of BigLaw’s “Golden Age,” a half-decade of better-than-average growth in both revenue-per-lawyer and profits-per-partner. “The great run may be over,” writes Press. “The sharp decrease in deal activity is well-known. And the classic countercyclical practices — litigation and bankruptcy — have not yet lifted all boats.”

Still, the year turned in some impressive numbers. The top two finishers, Skadden Arps and Latham & Watkins, both topped $2 billion in gross revenues and saw increases of some 17% and 23%, respectively.

Some other noteworthy results:

• In the profits-per-partner ranking, New York heavyweight Wachtell Lipton again topped the charts, at nearly $4.95 million. Wachtell was followed by Cravath ($3.3 million); Sullivan & Cromwell ($3.06 million); Quinn Emanuel ($3.01 million); and Simpson Thacher ($2.88 million). The year was especially good for Quinn Emanuel, which saw a 23% jump in PPP.
• Some of the better showings in the gross-revenue department: Latham (revenues up 23.5% over ‘06); Baker & McKenzie (20%); Simpson Thacher (21%); Reed Smith (39%); and Proskauer (22%). On the other end: Holland & Knight (revenues down .2% from ‘06); Heller Ehrman (-3.6%); and Kilpatrick Stockton (-.2%).
• One of our favorite charts is the value rankings, which lists, in order, the firms that need the fewest lawyers to generate $10 million in revenue. Topping the chart was Wachtell (5.42 lawyers to generate $10 million); Sullivan & Cromwell (12.05 lawyers); and Cravath (13.89 lawyers).

LB Readers, the floor is yours.

 

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THE 2008 AM LAW 100: Lessons of The Am Law 100

Thursday, May 1, 2008

The big firms just finished the best five-year economic run since we began keeping records. Now, head count and salaries have outpaced revenue and rates. Is the Golden Age over?

2008

• THE AM LAW 100 2008: Proskauer’s Premium Play
• THE AM LAW 100 2008: Behind the Numbers
• THE AM LAW 100 2008: Thelen’s Return
• THE AM LAW 100 2008: Number Five With A Bullet
• THE AM LAW 100 2008: Shaking Up L.A.
• THE AM LAW 100 2008: The Sky’s the Limit
• THE AM LAW 100 2008: Goodwin’s Procter’s Grand Plan
• THE AM LAW 100 2008: Methodology
• THE AM LAW 100 2008: Stop-Loss
• THE 2008 AM LAW 100: Lessons of The Am Law 100
• THE AM LAW 100 2008: The Giving Tree?
• THE AM LAW 100 2008: Tiering Up
• THE AM LAW 100 2008: No Place for Excess
• The Art of Retention
• Pumped Up

http://www.law.com/jsp/tal/surveys_rankings.jsp

Lessons of The Am Law 100: Is the Golden Age Over?

The American Lawyer
April 30, 2008
It was fun while it lasted. In 2007, The Am Law 100, the top-grossing law firms in the U.S., finished the best sustained growth spurt since The American Lawyer began tracking firm financials in 1984. For the first time, firms showed five consecutive years of better-than-average growth in revenue per lawyer and profits per partner. This Golden Age for law firms has been fueled by surging demand for high-end legal services and unrelenting rate hikes. But now, there are signs the great run may be over.

Copyright 2008 ALM Properties, Inc. All rights reserved.

Page printed from: http://www.law.com

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Lessons of The Am Law 100: Is the Golden Age Over?

Aric Press and John O’Connor
The American Lawyer
04-30-2008
It was fun while it lasted. In 2007, The Am Law 100 — the top-grossing law firms in the United States — finished the best sustained growth spurt since The American Lawyer began tracking firm financials in 1984. For the first time, the firms showed five consecutive years of better-than-average growth in both revenue per lawyer, the key measure of law firm financial success, and profits per partner, the metric that has turned law firm managers into contortionists.

How good was this run? Since 2003, average RPL has increased by $205,000. Before that, it took the firms 10 years, from 1992 to 2002, to improve that much. The relative gain in profits was even more impressive. Since 2003, PPP has jumped by $438,000, to an average of $1.3 million. It took The Am Law 100 firms 15 years, from 1987 to 2002, to make a similar gain.

This Law Firm Golden Age has been fueled by surging demand for high-end legal services and unrelenting annual rate hikes. Partners reaped the benefits of hard work — and of pulling up the ladder behind them. Stoking these gains has been a dramatic slowdown in the naming of new equity partners. Since 2001, the growth in equity partners has been above the 21-year annual average of 3.2 percent only once, in 2003. Last year the average equity partnership grew by 2.6 percent, or almost five partners.

Even in these bountiful times, five was a big number. Thirty-seven firms shrunk their equity partnerships. Four held them flat. And eight increased them by one or two. A handful of firms managed to lose partners and PPP. Notable in that category are Dickstein Shapiro; Heller Ehrman; and Akin Gump (which benefited from a contingency in 2006).

Other highlights from The Am Law 100 report:

Total revenues reached $64.5 billion, an increase of 13.6 percent.

Two firms, Skadden Arps and Latham & Watkins, each hopped over the $2 billion barrier. It took Skadden 51 years to reach the $1 billion gross mark, and eight more to hit $2 billion.

Nineteen firms had profits per partner of $2 million or more, four more than in 2006. Three of the 19 firms each decreased their equity partner ranks by 4 percent last year: Dechert Milbank, and Weil Gotshal. Once again, Wachtell Lipton led the pack, this time with a record-breaking PPP of $4.9 million.

Head count grew by 6.8 percent to 77,816 lawyers. The fastest-growing category was nonequity partners, which now account for 35 percent of all partners. If these growth rates continue, the number of nonequity partners will exceed equity partners by 2015.

The dominance of New York continues. The average RPL of New York firms was $1.1 million, while the average RPL for firms not born in New York was about $780,000, a difference of 41 percent. More dramatically, the average non-New York RPL is now about $15,000 behind where the average New York RPL stood in 2003. The great run may be over. The sharp decrease in deal activity is well-known. And the classic countercyclical practices — litigation and bankruptcy — have not yet lifted all boats. Also, there is a structural indicator that points to weakness. For the first time since the bust of 2001, the growth in head count noticeably exceeded the growth in RPL (in 2002, the two metrics essentially tied.) Coupled to the body count was the much brooded-about associate salary increases last year. Many consultants argue that those costs will be fully felt this year, precisely when demand for high-priced legal help may fall.

Averages and year-to-year comparisons can often prove misleading. To add a little perspective, we ran a series of 10-year trend lines for the big firms. We found that some firms ended more or less where they started. But the story for 59 of The Am Law 100 firms in 1998 was more turbulent. Twelve died or disappeared into mergers. Twenty improved their RPL rank by double digits, while 15 dropped by double digits. Seven moved from the bottom half of the list to the top; five dropped from the top half to the bottom. And three firms that were not on the 1998 list — Quinn Emanuel, the litigation wunderkind; Finnegan Henderson, the IP specialty shop; and Fish & Richardson, an IP and litigation house that scored a big contingency in 2007 — placed in the top 30.

The biggest upward movers: Dechert (up 35 places), Akin Gump (up 34), and DLA Piper (up 31). The biggest losers: Chadbourne (down 44 spots), and Dewey Ballantine, King & Spalding and White & Case (all down 20).

We hope you weren’t working so hard that you didn’t enjoy the best seasons of your careers.

[Note: For a complete list of the 10-year rankings, please go to AmericanLawyer.com.]

RELATED INFORMATION:

AM LAW 100 CHARTS:

Measuring the Efficiency Factor

Two Firms Pass the $2 Billion Mark

Revenue Rises — Slowly

Wachtell Heads the Value Rankings (Again)

RPL Ranks 1998-2007

A Guide to our Methodology

RELATED ARTICLES:

For more of the latest findings on the Am Law 100 firms, see the related series of American Lawyer reports, “THE AM LAW 100 2008: Behind the Numbers: Noteworthy trends and newsmaking firms in this year’s Am Law 100.”

THE 2008 AM LAW 100: Lessons of The Am Law 100

The big firms just finished the best five-year economic run since we began keeping records.

The American Lawyer

By Aric Press and John O’Connor

May 1, 2008

It was fun while it lasted. In 2007, The Am Law 100-the top-grossing law firms in the United States-finished the best sustained growth spurt since The American Lawyer began tracking firm financials in 1984. For the first time, the firms showed five consecutive years of better-than-average growth in both revenue per lawyer, the key measure of law firm financial success, and profits per partner, the metric that has turned law firm managers into contortionists.

How good was this run? Since 2003, average RPL has increased by $205,000. Before that, it took the firms ten years, from 1992 to 2002, to improve that much. The relative gain in profits was even more impressive. Since 2003, PPP has jumped by $438,000, to an average of $1.3 million. It took the Am Law 100 firms 15 years, from 1987 to 2002, to make a similar gain.

This Law Firm Golden Age has been fueled by surging demand for high-end legal services and unrelenting annual rate hikes. Partners reaped the benefits of hard work-and of pulling up the ladder behind them. Stoking these gains has been a dramatic slowdown in the naming of new equity partners. Since 2001, the growth in equity partners has been above the 21-year annual average of 3.2 percent only once, in 2003. Last year the average equity partnership grew by 2.6 percent, or almost five partners.

Even in these bountiful times, five was a big number. Thirty-seven firms shrunk their equity partnerships. Four held them flat. And eight increased them by one or two. A handful of firms managed to lose partners and PPP. Notable in that category are Dickstein Shapiro; Heller Ehrman; and Akin Gump (which benefited from a contingency in 2006).

Other highlights from the Am Law 100 report:

Total revenues reached $64.5 billion, an increase of 13.6 percent.

Two firms, Skadden, Arps and Latham & Watkins, each hopped over the $2 billion barrier. It took Skadden 51 years to reach the $1 billion gross mark, and eight more to hit $2 billion.

Nineteen firms had profits per partner of $2 million or more, four more than in 2006. Three of the 19 firms each decreased their equity partner ranks by 4 percent last year: Dechert, Milbank, and Weil, Gotshal. Once again, Wachtell, Lipton led the pack, this time with a record-breaking PPP of $4.9 million.

Head count grew by 6.8 percent to 77,816 lawyers. The fastest-growing category was nonequity partners, which now account for 35 percent of all partners. If these growth rates continue, the number of nonequity partners will exceed equity partners by 2015.

The dominance of New York continues. The average RPL of New York firms was $1.1 million, while the average RPL for firms not born in New York was about $780,000, a difference of 41 percent. More dramatically, the average non-New York RPL is now about $15,000 behind where the average New York RPL stood in 2003.

The great run may be over. The sharp decrease in deal activity is well-known. And the classic countercyclical practices-litigation and bankruptcy-have not yet lifted all boats. Also, there is a structural indicator that points to weakness. For the first time since the bust of 2001, the growth in head count noticeably exceeded the growth in RPL (in 2002, the two metrics essentially tied.) Coupled to the body count was the much brooded-about associate salary increases last year. Many consultants argue that those costs will be fully felt this year, precisely when demand for high-priced legal help may fall.

Averages and year-to-year comparisons can often prove misleading. To add a little perspective, we ran a series of ten-year trend lines for the big firms. We found that some firms ended more or less where they started. But the story for 59 of the Am Law 100 firms in 1998 was more turbulent. Twelve died or disappeared into mergers. Twenty improved their RPL rank by double digits, while 15 dropped by double digits. Seven moved from the bottom half of the list to the top; five dropped from the top half to the bottom. And three firms that were not on the 1998 list-Quinn Emanuel, the litigation wunderkind; Finnegan, Henderson, the IP specialty shop; and Fish & Richardson, an IP and litigation house that scored a big contingency in 2007-placed in the top 30.

The biggest upward movers: Dechert (up 35 places), Akin Gump (up 34), and DLA Piper (up 31). The biggest losers: Chadbourne (down 44 spots), and Dewey Ballantine, King & Spalding, and White & Case (all down 20).

We hope you weren’t working so hard that you didn’t enjoy the best seasons of your careers.

The Stories

Behind the Numbers Noteworthy trends and newsmaking firms.

Stop Loss Heller Ehrman looks to stop partner defections.

Goodwin’s Grand Plan Goodwin Procter breaks out of its Boston base.

The Sky’s the Limit Business professor offers a look at the Am Law 100 in 2025.

The Giving Tree Mergers don’t always bear fruit.

Methodology A guide to our numbers.

The Charts

Measuring the Efficiency Factor

Two Firms Pass the $2 Billion Mark

Revenue Rises–Slowly

Wachtell Heads the Value Rankings

Revenue Per Lawyer Ranks, 1998-2007

THE AM LAW 100 2008: Behind the Numbers

Noteworthy trends and newsmaking firms in this year’s Am Law 100.

The American Lawyer

By Francesca Heintz

May 1, 2008

Am Law 100 firms all have high gross revenues, but when it comes to translating that money into payouts for equity partners, the similarities end. Average profits per partner among the firms vary widely, from a low of $410,000 at Littler Mendelson to a high of $4.945 million at Wachtell, Lipton, Rosen & Katz. Likewise, there was plenty of disparity in firms’ rates of profit growth, ranging from

an increase of 42 percent at Cooley Godward Kronish to a decline of 17.6 percent at Howrey. (For The Am Law 100 as a whole, average profits per partner were $1.3 million, an 8.7 percent increase from 2006.)

Here are reasons for some of the biggest changes in profits per partner among Am Law 100 firms in 2007:

Windfalls

A contingency fee resulting from the $65 million settlement of a patent suit against ImClone Systems Incorporated contributed to a 30.4 percent increase in Fish & Richardson’s profits per partner. (Revenue per lawyer went up 14.6 percent, too.) Even without that boost, firm president Peter Devlin says, profits would have been up 15 percent.

The contingency sword cuts both ways: In 2006 Akin Gump Strauss Hauer & Feld posted a 34.2 percent increase in profits per partner, thanks in part to a $62 million contingency fee. In 2007 came the hangover: a decline of 6.9 percent, to $1.205 million. Firm chairman R. Bruce McLean says that when the 2006 award is stripped from the numbers, the result is a year-to-year increase of about 8 percent.

New Digs

When you trade up, you pay up. Relocation costs ate into Dickstein Shapiro’s bottom line: The firm moved into new offices in Washington, D.C., and Los Angeles and it expanded its space in New York. Profits per partner declined 6.9 percent, to $1.005 million.

Howrey spent $20 million to open new offices in New York and Munich-money that managing partner and CEO Robert Ruyak says came straight from the profit pool, since the partnership decided not to fund the expansion through borrowing. In addition, the firm suffered in comparison to a strong 2006, when it collected bonuses on work done under alternative billing arrangements. The firm’s profits per partner slid 17.6 percent, to $1.005 million.

Nice Work

Debevoise & Plimpton’s transactions lawyers feasted on premium private equity work in the first half of 2007, while its litigators spent the year defending Siemens AG in a bet-the-company bribery case. The firm’s profits rose 26.9 percent, to $2.29 million; its revenue per lawyer increased 18.7 percent, to $1.2 million.

Working Overtime (Or Not)

Dorsey & Whitney’s profits rose 32.7 percent, to $670,000. Although the firm cut the size of its equity partnership by 4.5 percent and increased the size of its nonequity class by 17 percent, managing partner Marianne Short attributes the rise primarily to an increase in hours worked. “A lot of blood, sweat, and tears went into that number,” she says. Short says that the firm increased billing rates by an average of only 3 percent; she also acknowledges that the firm aggressively managed expenses. Revenue per lawyer went up 6 percent, to $620,000.

Meanwhile, at Cadwalader, Wickersham & Taft, profits dropped 6 percent, to $2.725 million, while revenue per lawyer declined 9 percent, to $910,000. Gregory Markel, chairman of the firm’s litigation practice, says that after the mid-year credit crunch, work dried up in the firm’s structured and global finance practice. The firm has laid off associates and Robert Link left his post as chairman, although he continues as managing partner.

Thelen’s Return

Tiering Up

Shaking Up L.A.

Proskauer’s Premium Play

Number Five With A Bullet

No Place for Excess

Two Firms Pass the $2 Billion Mark

Order the electronic spreadsheet of the 2008 Am Law 100 Two firms — Skadden, Arps, Slate, Meagher & Flom and Latham & Watkins — posted gross revenues of more than $2 billion last year. Ten other firms had ten-digit grosses as well. Meanwhile, Am Law 100 mainstay Cahill Gordon & Reindel continued its drift toward the bottom of the chart. Despite a 7.5 percent increase in revenues, the firm ranked number 99, down seven places from its 2006 finish. Gross revenue figures on this chart are rounded to the nearest $500,000. Firms that tied in the rankings are listed alphabetically. Some firms -provided fractional full-time equivalent or full-year equivalent lawyer numbers, which were rounded up to the nearest whole number. Firms marked with an asterisk have more than one partnership tier or some partners who are predominantly on fixed-income status.
2007 Rank	2006 Rank	Firm	2007 Gross Revenue	Change From 2006
1	1	Skadden	$2,170,000,000	17.3%
2	2	Latham & Watkins	$2,005,500,000	23.5%
3	3	Baker & McKenzie	$1,829,000,000	20.2%
4	4	Jones Day	$1,441,000,000	10.0%
5	5	Sidley Austin	$1,386,000,000	11.2%
6	6	White & Case	$1,373,000,000	15.9%
7	7	Kirkland & Ellis	$1,310,000,000	14.4%
8	10	Greenberg Traurig	$1,200,000,000	15.3%
9	8	Mayer Brown	$1,183,000,000	9.1%
10	9	Weil, Gotshal	$1,175,000,000	11.9%
11	11	DLA Piper US2	$1,134,500,000	11.7%
12	12	Morgan, Lewis	$1,033,000,000	12.0%
13	13	Sullivan & Cromwell	$985,000,000	9.4%
14	16	McDermott Will	$978,000,000	13.7%
15	18	Paul, Hastings	$975,000,000	19.9%
16	21	Simpson Thacher	$966,000,000	20.6%
17	14	Wilmer	$944,000,000	5.2%
18	15	O’Melveny & Myers	$934,000,000	7.5%
19	17	Shearman & Sterling	$921,000,000	9.4%
20	20	Gibson, Dunn	$907,500,000	12.2%
21	19	Cleary Gottlieb	$894,000,000	10.0%
21	22	Morrison & Foerster	$894,000,000	15.5%
23	30	Reed Smith	$892,000,000	38.6%
24	23	Hogan & Hartson	$880,000,000	16.6%
25	24	Dechert	$836,500,000	14.7%
26	29	Davis Polk	$789,000,000	21.4%
27	28	Orrick	$772,000,000	15.9%
28	50	Kirkpatrick & Lockhart6	$755,000,000	N/A
29	25	Akin Gump1	$752,500,000	3.6%
30	26	Bingham McCutchen	$743,500,000	8.4%
31	31	Ropes & Gray	$733,000,000	19.0%
32	27	Foley & Lardner	$720,500,000	7.9%
33	38	Debevoise & Plimpton	$709,500,000	23.4%
34	33	Winston & Strawn	$697,500,000	14.0%
35	41	Hunton & Williams	$653,500,000	19.6%
36	35	Paul, Weiss	$651,000,000	9.6%
37	34	Fulbright & Jaworski	$649,500,000	7.8%
38	42	Milbank, Tweed	$642,500,000	18.8%
39	44	Proskauer Rose	$628,000,000	22.1%
40	36	King & Spalding	$615,500,000	5.7%
41	32	Holland & Knight	$612,500,000	-0.2%
42	47	Goodwin Procter	$611,000,000	20.8%
43	40	Cravath	$610,500,000	11.0%
44	49	Willkie Farr	$603,000,000	20.0%
45	43	Vinson & Elkins	$596,000,000	12.0%
46	37	Pillsbury Winthrop	$590,000,000	1.8%
47	39	Cadwalader	$587,000,000	5.6%
48	52	Wachtell	$578,500,000	22.1%
49	48	Baker Botts	$577,500,000	14.9%
49	45	LeBoeuf, Lamb3	$577,500,000	12.5%
51	53	Fried, Frank	$537,500,000	14.2%
52	56	Wilson Sonsini	$531,000,000	12.7%
53	54	Squire, Sanders	$530,500,000	14.0%
54	55	Alston & Bird	$518,000,000	12.1%
55	51	Arnold & Porter	$508,000,000	6.9%
56	46	Heller Ehrman	$491,000,000	-3.2%
57	71	Cooley Godward	$485,000,000	44.8%
58	57	Sonnenschein	$478,000,000	4.0%
59	58	Howrey	$475,000,000	3.9%
60	61	Bryan Cave	$469,000,000	14.1%
61	63	Covington & Burling	$467,000,000	14.5%
62	59	Kaye Scholer	$464,000,000	8.9%
63	60	Katten Muchin	$461,000,000	9.6%
64	65	Nixon Peabody	$456,500,000	16.3%
65	66	Seyfarth Shaw	$442,500,000	13.0%
66	62	Dewey Ballantine3	$431,000,000	5.5%
67	68	Schulte Roth	$419,500,000	13.7%
68	67	McGuireWoods	$412,000,000	6.3%
69	69	Perkins Coie	$394,500,000	10.7%
70	78	Quinn Emanuel1	$384,500,000	29.0%
71	70	Duane Morris	$375,000,000	11.4%
72	80	Fish & Richardson5	$367,500,000	28.3%
73	72	Dorsey & Whitney	$367,000,000	11.4%
74	99	Drinker Biddle4	$357,000,000	N/A
75	74	Troutman Sanders	$349,000,000	13.5%
76	102	Thelen Reid8	$345,000,000	N/A
77	79	Steptoe & Johnson	$335,000,000	14.1%
78	76	Sheppard, Mullin	$333,000,000	10.6%
79	73	Jenner & Block	$332,500,000	3.9%
80	87	Venable	$321,500,000	19.7%
81	75	Edwards Angell	$320,500,000	5.1%
82	82	Shook, Hardy	$316,000,000	12.5%
83	77	Baker & Hostetler	$315,000,000	5.0%
84	81	Blank Rome	$314,500,000	10.7%
85	96	Patton Boggs	$310,000,000	21.3%
86	85	Finnegan, Henderson1	$306,500,000	12.7%
87	101	Littler Mendelson	$305,000,000	27.1%
88	95	Pepper Hamilton	$297,000,000	14.7%
88	84	Stroock & Stroock	$297,000,000	8.0%
90	91	Kramer Levin	$296,500,000	13.2%
91	82	Dickstein Shapiro	$294,000,000	4.6%
92	92	Mintz, Levin	$291,000,000	11.7%
93	94	Sutherland Asbill	$289,000,000	11.4%
94	98	Faegre & Benson	$284,500,000	14.7%
94	89	Womble Carlyle	$284,500,000	7.2%
96	86	Buchanan Ingersoll	$282,000,000	3.9%
97	97	Chadbourne & Parke	$281,000,000	10.6%
98	100	Ballard Spahr	$280,500,000	15.4%
99	92	Cahill Gordon	$280,000,000	7.5%
100	88	Kilpatrick Stockton	$265,500,000	-0.2%
FOOTNOTES: 1. Gross revenue for 2006 includes a significant contingency fee or fees. 2. DLA Piper is structured as a set of alliances, so the results reflect the U.S. operation only. 3. Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae merged in October 2007. The numbers presented throughout reflect the separate entities. 4. Ranks for 2006 are for Drinker Biddle & Reath only; the firm merged with Gardner Carton & Douglas in January 2007. Due to the merger there is no year-over-year comparison for the merged firm. 5. Gross revenue for 2007 includes a significant contingency fee or fees. 6. Ranks for 2006 are for Kirkpatrick & Lockhart only; the firm merged with Preston Gates & Ellis in January 2007. Due to the merger there is no year-over-year comparison for the merged firm. 7. This firm was not an Am Law 100 firm in 2007 and did not receive ranks for RPL, PPP, and VPL. 8. Ranks for 2006 are for Thelen Reid & Priest only; the firm merged with Brown Raysman Millstein Felder & Steiner in December 2006. Due to the merger there is no year-over-year comparison for the merged firm. (The American Lawyer, May 2008)

http://www.law.com/jsp/tal/PubArticleTAL.jsp?&id=1208947716661

Wachtell Heads the Value Rankings (Again)

Order the electronic spreadsheet of the 2008 Am Law 100 Value per lawyer ranks firms by how efficiently they generate profits. For the fourth year in a row, Wachtell, Lipton, Rosen & Katz tops our list, with a value per lawyer of $1.845 million. It takes only 5.42 lawyers there to make $10 million for the firm; at last-ranked Buchanan Ingersoll, it takes almost 59 lawyers to generate that sum. A firm’s value per lawyer is its compensation–all partners divided by its head count. The result indicates the average value of each lawyer. The second column calculates how many lawyers are needed to generate $10 million in revenues for a firm. For a complete set of definitions, see “A Guide to Our Methodology.”
Rank	Firm	2007 CAP Divided by ­Number of Lawyers	Lawyers Needed to Generate $10 Million
1	Wachtell	$1,845,000	5.42
2	Sullivan & Cromwell	$830,000	12.05
3	Cravath	$720,000	13.89
4	Quinn Emanuel	$705,000	14.18
5	Cahill Gordon	$650,000	15.38
5	Simpson Thacher	$650,000	15.38
7	Davis Polk	$630,000	15.87
8	Milbank, Tweed	$615,000	16.26
9	Gibson, Dunn	$605,000	16.53
10	Kirkland & Ellis	$565,000	17.70
10	Latham & Watkins	$565,000	17.70
12	Debevoise & Plimpton	$530,000	18.87
13	Willkie Farr	$520,000	19.23
14	McDermott Will	$515,000	19.42
14	Skadden	$515,000	19.42
16	Dechert	$475,000	21.05
17	Paul, Weiss	$470,000	21.28
17	Weil, Gotshal	$470,000	21.28
19	Goodwin Procter	$455,000	21.98
19	Ropes & Gray	$455,000	21.98
21	Schulte Roth	$450,000	22.22
21	Vinson & Elkins	$450,000	22.22
23	Cleary Gottlieb	$445,000	22.47
24	Kaye Scholer	$420,000	23.81
25	Hogan & Hartson	$415,000	24.10
26	Fried, Frank	$410,000	24.39
26	Kramer Levin	$410,000	24.39
26	Paul, Hastings	$410,000	24.39
26	Shearman & Sterling	$410,000	24.39
30	Baker Botts	$405,000	24.69
31	Covington & Burling	$395,000	25.32
31	Winston & Strawn	$395,000	25.32
33	Cooley Godward	$390,000	25.64
34	Sidley Austin	$380,000	26.32
35	Finnegan, Henderson	$375,000	26.67
35	Katten Muchin	$375,000	26.67
35	Proskauer Rose	$375,000	26.67
38	Morgan, Lewis	$370,000	27.03
39	Fish & Richardson	$365,000	27.40
39	Orrick	$365,000	27.40
41	Morrison & Foerster	$360,000	27.78
41	Sheppard, Mullin	$360,000	27.78
43	DLA Piper US2	$355,000	28.17
44	Cadwalader	$350,000	28.57
44	Foley & Lardner	$350,000	28.57
44	Greenberg Traurig	$350,000	28.57
44	Wilmer	$350,000	28.57
48	Akin Gump	$345,000	28.99
48	Arnold & Porter	$345,000	28.99
48	Mayer Brown	$345,000	28.99
48	O’Melveny & Myers	$345,000	28.99
48	Stroock & Stroock	$345,000	28.99
53	Jenner & Block	$340,000	29.41
53	Pillsbury Winthrop	$340,000	29.41
53	Steptoe & Johnson	$340,000	29.41
56	LeBoeuf, Lamb	$335,000	29.85
57	Mintz, Levin	$325,000	30.77
58	Bingham McCutchen	$320,000	31.25
59	Dewey Ballantine	$315,000	31.75
60	Fulbright & Jaworski	$310,000	32.26
60	King & Spalding	$310,000	32.26
60	Wilson Sonsini	$310,000	32.26
63	Heller Ehrman	$305,000	32.79
64	Alston & Bird	$300,000	33.33
64	Hunton & Williams	$300,000	33.33
66	Dickstein Shapiro	$295,000	33.90
66	Howrey	$295,000	33.90
66	Reed Smith	$295,000	33.90
66	Venable	$295,000	33.90
70	Duane Morris	$290,000	34.48
70	Sonnenschein	$290,000	34.48
72	Chadbourne & Parke	$285,000	35.09
72	Sutherland Asbill	$285,000	35.09
72	White & Case	$285,000	35.09
75	Nixon Peabody	$280,000	35.71
76	Blank Rome	$275,000	36.36
76	Perkins Coie	$275,000	36.36
78	Patton Boggs	$265,000	37.74
79	Dorsey & Whitney	$260,000	38.46
79	Faegre & Benson	$260,000	38.46
79	Kirkpatrick & Lockhart	$260,000	38.46
79	Seyfarth Shaw	$260,000	38.46
79	Womble Carlyle	$260,000	38.46
84	McGuireWoods	$255,000	39.22
85	Holland & Knight	$245,000	40.82
85	Shook, Hardy	$245,000	40.82
87	Kilpatrick Stockton	$240,000	41.67
87	Pepper Hamilton	$240,000	41.67
87	Troutman Sanders	$240,000	41.67
90	Edwards Angell	$235,000	42.55
91	Jones Day	$230,000	43.48
91	Thelen Reid	$230,000	43.48
93	Baker & Hostetler	$225,000	44.44
93	Ballard Spahr	$225,000	44.44
95	Baker & McKenzie	$220,000	45.45
95	Drinker Biddle	$220,000	45.45
95	Squire, Sanders	$220,000	45.45
98	Bryan Cave	$215,000	46.51
99	Littler Mendelson	$175,000	57.14
100	Buchanan Ingersoll	$170,000	58.82
FOOTNOTES: 1. Gross revenue for 2006 includes a significant contingency fee or fees. 2. DLA Piper is structured as a set of alliances, so the results reflect the U.S. operation only. 3. Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae merged in October 2007. The numbers presented throughout reflect the separate entities. 4. Ranks for 2006 are for Drinker Biddle & Reath only; the firm merged with Gardner Carton & Douglas in January 2007. Due to the merger there is no year-over-year comparison for the merged firm. 5. Gross revenue for 2007 includes a significant contingency fee or fees. 6. Ranks for 2006 are for Kirkpatrick & Lockhart only; the firm merged with Preston Gates & Ellis in January 2007. Due to the merger there is no year-over-year comparison for the merged firm. 7. This firm was not an Am Law 100 firm in 2007 and did not receive ranks for RPL, PPP, and VPL. 8. Ranks for 2006 are for Thelen Reid & Priest only; the firm merged with Brown Raysman Millstein Felder & Steiner in December 2006. Due to the merger there is no year-over-year comparison for the merged firm. (The American Lawyer, May 2008)

April 30, 2008

Op-Ed Columnist

Dumb as We Wanna Be

By THOMAS L. FRIEDMAN

It is great to see that we finally have some national unity on energy policy. Unfortunately, the unifying idea is so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away. Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer’s travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

When the summer is over, we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.

No, no, no, we’ll just get the money by taxing Big Oil, says Mrs. Clinton. Even if you could do that, what a terrible way to spend precious tax dollars — burning it up on the way to the beach rather than on innovation?

The McCain-Clinton gas holiday proposal is a perfect example of what energy expert Peter Schwartz of Global Business Network describes as the true American energy policy today: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.”

Good for Barack Obama for resisting this shameful pandering.

But here’s what’s scary: our problem is so much worse than you think. We have no energy strategy. If you are going to use tax policy to shape energy strategy then you want to raise taxes on the things you want to discourage — gasoline consumption and gas-guzzling cars — and you want to lower taxes on the things you want to encourage — new, renewable energy technologies. We are doing just the opposite.

Are you sitting down?

Few Americans know it, but for almost a year now, Congress has been bickering over whether and how to renew the investment tax credit to stimulate investment in solar energy and the production tax credit to encourage investment in wind energy. The bickering has been so poisonous that when Congress passed the 2007 energy bill last December, it failed to extend any stimulus for wind and solar energy production. Oil and gas kept all their credits, but those for wind and solar have been left to expire this December. I am not making this up. At a time when we should be throwing everything into clean power innovation, we are squabbling over pennies.

These credits are critical because they ensure that if oil prices slip back down again — which often happens — investments in wind and solar would still be profitable. That’s how you launch a new energy technology and help it achieve scale, so it can compete without subsidies.

The Democrats wanted the wind and solar credits to be paid for by taking away tax credits from the oil industry. President Bush said he would veto that. Neither side would back down, and Mr. Bush — showing not one iota of leadership — refused to get all the adults together in a room and work out a compromise. Stalemate. Meanwhile, Germany has a 20-year solar incentive program; Japan 12 years. Ours, at best, run two years.

“It’s a disaster,” says Michael Polsky, founder of Invenergy, one of the biggest wind-power developers in America. “Wind is a very capital-intensive industry, and financial institutions are not ready to take ‘Congressional risk.’ They say if you don’t get the [production tax credit] we will not lend you the money to buy more turbines and build projects.”

It is also alarming, says Rhone Resch, the president of the Solar Energy Industries Association, that the U.S. has reached a point “where the priorities of Congress could become so distorted by politics” that it would turn its back on the next great global industry — clean power — “but that’s exactly what is happening.” If the wind and solar credits expire, said Resch, the impact in just 2009 would be more than 100,000 jobs either lost or not created in these industries, and $20 billion worth of investments that won’t be made.

While all the presidential candidates were railing about lost manufacturing jobs in Ohio, no one noticed that America’s premier solar company, First Solar, from Toledo, Ohio, was opening its newest factory in the former East Germany — 540 high-paying engineering jobs — because Germany has created a booming solar market and America has not.

In 1997, said Resch, America was the leader in solar energy technology, with 40 percent of global solar production. “Last year, we were less than 8 percent, and even most of that was manufacturing for overseas markets.”

The McCain-Clinton proposal is a reminder to me that the biggest energy crisis we have in our country today is the energy to be serious — the energy to do big things in a sustained, focused and intelligent way. We are in the midst of a national political brownout.

http://www.nytimes.com/2008/04/30/opinion/30friedman.html?ei=5087&em=&en

=5e50edff9f212b25&ex=1209700800&pagewanted=print

M&A advisor leaves London-based Merrill Lynch team

 

David Rothnie

29 Apr 2008

A talented UK mergers and acquisitions adviser has left Merrill Lynch as the US bank initiates job cuts in its London-based investment banking team as part of a global redundancy program.

Related Stories

 

Goldman Sachs hires top Merrill bankers 28 Apr 2008

Thain hires new CFO for Merrill 04 Dec 2007

Charles Roast, who Merrill identified as one of the UK’s most promising investment bankers when it recruited him, has left 18 months after joining the US bank.

Roast was a specialist mergers and acquisitions advisor to consumer companies and private equity firms at Deutsche Bank before quitting to join Merrill Lynch in November 2006.

At Merrill, he reported to head of UK investment banking Simon Mackenzie-Smith and his remit was to build up the bank’s UK client base.

One banking source said: “Charlie was a good banker. This is just a case of last in, first out.”

Merrill Lynch declined to comment.

Merrill Lynch has said it plans to cut 4,000 jobs worldwide this year. The bank has culled 1,100 staff in the US since the start of this year after taking massive writedowns and making a year-end financial loss following the credit crunch.

The job cuts are part of a program instigated by John Thain, who was appointed as chief executive to replace the ousted Stan O’Neal last November.

The bulk of the redundancies are expected to fall within the bank’s fixed-income division, where most of the losses were made, but the departure of Roast shows that more traditional and profitable businesses are also being affected.

The upheaval has also prompted some bankers to resign.

Financial News revealed yesterday that two of Merrill’s top credit bankers, Atanas Bostandjiev, head of rates sales, and Antonio Esteves, head of credit sales, quit last week to join Goldman Sachs.

In a related move, Merrill Lynch Canada parted ways with two research analysts, amid speculation the departures are part of the dealer’s cost-cutting efforts, reported Dow Jones Newswires. Dow Jones is the parent company of Financial News.

The departed analysts are Toronto-based Hari Sambasivam, who covered the Canadian biotechnology sector, and Montreal-based Patricia Baker, who covered consumer products and merchandising stocks.

http://www.financialnews-us.com/?page=ushome&contentid=2450516094

http://www.ft.com/cms/s/0/9250f3cc-161c-11dd-880a-0000779fd2ac.html

Fed needs tough chief in Paul Volcker mould

By Jeremy Grantham

Published: April 29 2008 20:48 | Last updated: April 29 2008 20:48

What got us into our financial pickle? Most academics are prisoners of the Efficient Market Hypothesis that assumes man acts rationally and efficiently in economic matters in ways that can be caught in elegant mathematical models. Ben Bernanke, chairman of the Federal Reserve, shares this view completely, and Alan Greenspan, his predecessor, when it suits him. In such a convenient world, there can be no bubbles and no crashes. A related belief is that sensible, disciplined control of money supply will drive away all ills, including the madness of crowds, and, therefore, a sensible central banker is all powerful.

Unfortunately, both concepts are complete illusions. First, we live in a behavioural jungle where markets can crash 23 per cent in a day without any defining event, price/earnings ratios in Japan can rise to 65 times and the value of land under the Emperor’s palace really can equal California’s. Second, central bankers do not always do the right thing, often because that would involve great career risk. Being slapped by a Senate subcommittee for saying “irrational exuberance” is bad enough. Taking away punch bowls and risking being seen as holding the pin when the bubble pops is even more dangerous stuff.

The world seems to think the Fed has substantial power to influence the real economy. Its tools, though, are not nearly as effective as believed. It controls short rates that influence banking profits and perhaps a little increase or decrease in debt. But long-term growth depends on education, supply of workers, capital spending, and technology, over none of which the Fed has any control.

Yet the market can go up 5 per cent in a week because of an unanticipated drop of 25 basis points in interest rates. Such power as the Fed has rests on its jawboning and supply of moral hazard.

Both Mr Bernanke and Mr Greenspan have trouble seeing bubbles. When Mr Bernanke describes an 80-year US housing bubble as “merely reflecting a strong US economy”, we might wonder about his statisticians or his competence. But, really, it is about belief. He is not looking for bubbles to exist in his theoretical world.

Not believing in bubbles and/or being unwilling to risk unpopularity by moving against them leaves the two Fed bosses with no alternative but to give free rein to speculators on the upside and focus on the downside. But, even on the downside, did they have to be so generous?

It created an extreme form of moral hazard: it allowed risk takers to win too big and too easily; it helped spawn a huge hedge fund industry; and, worse still, it helped turn formerly discreet bankers into speculators. If you even partially bail out Bear Stearns – leveraged at 40 to 1 – next time someone will try 50 to 1.

The Fed must show some backbone. If you always take the friendly way out, no bubbles will ever be pricked and we shall always be reacting to crises in an increasingly speculative world. Paul Volcker, the Fed chairman before Mr Greenspan, had the character to do tough, unpleasant things where necessary. His two successors have not.

Both men were in a position to be powerful naggers in protecting financial standards; to question the quality of new financial instruments, not praise their ingenuity as Mr Greenspan did; and to question and review mortgage quality and off balance sheet financing. None of this nagging was done.

Finally, when shall we stop appointing as Fed chairmen either academic economists – out of touch with the messy real world? – or lightweight commercial economists and find someone with solid banking experience? Would a banker with even a hint of John Pierpont Morgan in him have allowed such a sad deterioration of credit and banking standards? Where was Mr Volcker when we needed him? Fired for doing unpleasant but necessary things. So perhaps we get the Fed we deserve. Let me end with Mr Greenspan’s full and contrite repentance: “I have no regrets on any of the Federal Reserve’s policies that we initiated back then.”

What can you say to that?

Jeremy Grantham is the chairman and chief strategist of fund manager GMO.

Copyright The Financial Times Limited 2008

 http://www.ft.com/cms/s/0/9250f3cc-161c-11dd-880a-0000779fd2ac.html

Pandit’s `Closer to End’ Means No Escaping LBO Loans (Update4)
By Pierre Paulden and Cecile Gutscher

 

April 29 (Bloomberg) — If the credit crunch really is close to ending, as Citigroup Inc. Chief Executive Officer Vikram Pandit says, then why is he offering below-market terms to rid the bank of some of its $26 billion in leveraged buyout loans?

Citigroup sold $8 billion of the debt to private-equity firms this month only after giving buyers $6 billion of financing at cheaper rates than it can borrow itself, according to people familiar with the transaction, who declined to be identified because the terms aren’t public. Deutsche Bank AG and Royal Bank of Scotland Plc are also offering credit to buyers to help cut their holdings.

While the deals helped shrink the global overhang to $91 billion from $230 billion, don’t expect banks to open their doors to new borrowers anytime soon, said Nigel Sillis, director of fixed-income and currency research at Baring Asset Management in London. That’s because the arrangements shift one type of loan for another.

“It’s too optimistic to say the backlog has been cleared and everything is back to normal,” said Sillis, whose firm oversees $48 billion. “The forced sellers are cutting deals with the only buyers in town. Getting bona-fide lending going again is way down the line.”

$65 Billion

Banks escaped about $65 billion of LBO commitments in the past four months in part by lending money to private equity firms such Blackstone Group LP’s GSO Capital Partners and Apollo Management Inc. Wall Street is getting rid of the debt individually, in packages or placing it into structures such as collateralized loan obligations, which pool loans and slice them into pieces with various ratings to sell to investors.

“They’re substituting one credit for another but they’re still ultimately on the hook for the debt,” said Robert Willens, a former managing director Lehman Brothers Holdings Inc. who runs a tax-advisory firm in New York.

The rest of the inventory was reduced because acquisitions such as Blackstone’s $6.6 billion of Dallas-based credit card processor Alliance Data Systems Corp. were canceled, eliminating the bank commitments.

By offering to finance the sales, banks can receive higher prices for the loans.

Financing

Deutsche Bank sold loans for about 90 cents on the dollar, according to people familiar with the offering. By contrast Goldman Sachs Group Inc., which didn’t provide financing, has dumped some loans for as little as 63 cents. Goldman Sachs dropped 11 percent this year in New York Stock Exchange trading, compared with Citigroup’s 9.6 percent drop.

Financial institutions ended up with the buyout debt after agreeing to lend a record $735 billion for LBOs last year. When credit investors began fleeing in 2007 to safer bonds, the banks were left holding the debt, which is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

Citigroup was stuck with $69 billion of commitments to companies including Dallas-based TXU Corp., Texas’ biggest electricity provider now known as Energy Future Holdings Corp.

Pandit, 51, was put in charge of Citigroup in December. He cut the firm’s backlog in the first quarter by $5.5 billion to $37.7 billion, according to regulatory filings. It has since sold $8 billion with financing and $4 billion without, the bank said.

In some cases Citigroup provided private-equity firms with $4 of financing for every dollar of they invested, said people familiar with the terms.

Blackstone, TPG

The loans to buyout firms, including Blackstone and TPG, were offered at as low as 1.5 percent above the London interbank offered rate, or about 4.3 percent. That compares with Citigroup’s sale of preferred securities last week at a yield of 8.4 percent.

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment.

The purge helped drive overall loan prices higher and enabled Pandit to tell investors last month the credit crisis is abating.

“We think it’s important to think about the credit crisis in terms of two phases,” Pandit said at the bank’s shareholder meeting this month. “During the first phase, there were meaningful liquidity and price adjustments that resulted in meaningful marks, and therefore, capital adjustments. I think we are closer to the end of this phase than the beginning.”

In the second phase, depending on housing and the economy, credit losses will increase in Citigroup’s loan portfolios, Pandit said. “We have significant earnings potential to offset them,” he said.

Loan Prices

The S&P index of actively traded loans rose to 92.1 on April 24, up from a record low of 86.28 cents in February as investors bet the reduction of the backlog would buoy prices.

While the banks remain stuck with lending commitments, the loans to private-equity firms are generally higher quality than the LBO financing, said Janet Tavakoli, president of Chicago- based Tavakoli Structured Finance, which advises banks and hedge funds. That reduces the amount of capital they are required to put up to cushion against potential losses.

Carlyle Group Chairman David Rubenstein said he’s eager to participate in the sales. Banks are offering the debt at discounts lower than the prices on their book and are willing to finance the sales, he said.

Other private equity firms are going to do it and “we’re going to do it too,” Rubenstein told a conference in Baltimore yesterday.

Deutsche Bank provided Blackstone and Apollo with loans with similar leverage to Citigroup, according to investors who saw the terms. The German bank also gave below-market rates to entice buyers, offering to lend the money at as little as Libor plus 1.25 percent, the investors said. John Ford, a Blackstone spokesman, and Steven Anreder, an Apollo spokesman, declined to comment. Blackstone and Apollo are based in New York.

Deutsche Bank Loss

Deutsche Bank Chief Financial Officer Anthony Di Iorio told analysts on a conference call today the bank sold 1.4 billion euros ($2.2 billion) of loans in April, in addition to sales earlier this year. He didn’t discuss prices or financing arrangements with buyers.

The Frankfurt-based bank reported its first quarterly loss in five years today after writing down the value of loan obligations by 1.8 billion euros. The bank reduced commitments to 33.1 billion euros from 36.2 billion euros at the end of last year. Deutsche Bank sold $5 billion of the debt to private-equity firms in the U.S., analysts at Charlotte, North Carolina-based Bank of America Corp. wrote last week.

Goldman Sachs

Goldman Sachs reduced its loans to $20 billion from $43 billion since the start of the year without providing credit to buyers, said people familiar with the trades.

The bank ditched its portion of $7 billion of financing for Auburn Hills, Michigan-based automaker Chrysler LLC for as little as 63 cents on the dollar and sold debt of Bain Capital’s Bavaria Yachtbau, a German yacht maker, for 65 cents on the dollar, the people said.

“Goldman bit the bullet, leaving no doubt about the risk transfer,” Tavakoli said. Michael DuVally, a Goldman Sachs spokesman in New York, declined comment.

Until banks can shed last year’s LBO commitments, they’ll be unable to make new loans, sacrificing the ability to earn fees that average 2.5 percent on high-yield debt, the most lucrative part of the capital markets, according to estimates by Mercer Oliver Wyman, a financial-services consulting firm in London.

“A lot of financial institutions have big holes in their balance sheets and haven’t begun to scratch the surface yet,” Rubenstein said. “We may be getting closer to the bottom but it may be that the bottom is a number of months away.”

Lending Drops

Bank lending has already slumped 73 percent in the past year, according to data compiled by Bloomberg. U.S. banks made $85 billion of leveraged loan commitments in the first quarter, down from $320 billion in the same period in 2007.

“They have to free up balance sheet space so they can become active again in new lending activity,” said Axel Potthof, who oversees European high-yield debt in Munich for Pacific Investment Management Co., manager of the world’s biggest bond fund and a unit of Munich-based Allianz SE. “The problem is they’re blocked, they can’t do new lending business because they still have this on the balance sheet.”

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Cecile Gutscher in London at cgutscher@bloomberg.net

Last Updated: April 29, 2008 15:24 EDT

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Lehman Plans EU1.1 Billion CLO to Cut Buyout Loans (Update1) Bloomberg - 8 hours ago Lehman’s Thalia European CLO includes loans that the fourth- largest US securities firm provided for leveraged buyouts, said the people, who declined to be … Securitization is dead. Long live securitization! Globe and Mail all 3 news articles » LEH

Lehman Creates CLO to Get Buyout Loans Off Its Books (Update1) Bloomberg - Apr 3, 2008 Lehman’s CLO accounted for 40 percent of total March volume, according to an April 2 report from Wachovia Corp. analysts led by Brian McManus. …LEH

Aprés TAF, le CLO déluge?
FT Alphaville, UK - Apr 14, 2008
Most has been written about the Lehman CLO - Freedom. Freedom is a $2.8bn collateralised loan obligation just closed by Lehman to shift all its LBO debt off …

 

 

Aprés TAF, le CLO déluge?

One interesting chart doing the rounds right now shows the Fed’s reserve holdings on July 18th last year and compares them to their current composition. Whereas in the summer of ‘07, nearly 90 per cent of the balance sheet was in Treasuries, as of April 2, just north of 50 per cent was. It doesn’t look healthy.

And in the past few days - in the wake of this and this - there’s been a lot of discussion about investment banks abusing the Fed’s new post-TAF discount windows (PCDF, TSLF) to turn a swift buck on the back of more structured chicanery.

Most has been written about the Lehman CLO - Freedom. Freedom is a $2.8bn collateralised loan obligation just closed by Lehman to shift all its LBO debt off its books.

It was rather elliptically suggested by Bloomberg (from a Morgan Stanley analysis) that Freedom’s notes had been used as collateral by Lehman in the Fed’s primary dealer credit facility. And that that was - in the main - the reason the CLO had been created and successfully closed.

But there’s some confusion. In this article, Bloomberg say Lehman sold the $2.2bn of senior notes in Freedom “in a private placement”, which can’t be true if they’re being used in repos with the Fed by Lehman. As for the equity tranche, it’s unrated, so the NY Fed won’t accept it as collateral.

The WSJ reports that only some of the senior notes may actually have been pledged to the Fed. The small amount was supposed to “test” what the Fed would accept.

Since the test seems to have gone well, can other banks be expected to jump on the CLO bandwagon? JP Morgan is understood to be doing just that - with rumours of senior notes of a recently closed CLO being pledged in the PCDF.
But even if Freedom, and other CLOs, were created with the express intent of pledging notes to get liquid collateral through the PCDF, so what?

Is this not, afterall, exactly the kind of greasing of the broken high-finance machine that the Fed is hoping to achieve? And forget not that a CLO with a first loss equity tranche, is going to be safer than the sum of its parts.

(Interesting aside: in its latest CDO monitor, JP Morgan analysts said that single-A CLO tranches were the “sweet spot” in the capital structure - unlikely to suffer losses even in a stressed environment yet still offering attractively high yields. Does the Fed know this?)

In a way, this all cuts back to the debate on just how successful - or not - the whole gamut of market-moving facilities established by the Fed (TAF, TSLF, etc etc) have been.

This entry was posted by Sam Jones on Monday, April 14th, 2008 at 11:44

When iPhones Go Missing
Wall Street Journal - Apr 4, 2008
Lehman Brothers Holdings is the latest. The firm headed by Richard Fuld Jr. just rolled out a $2.8 billion CLO called, appropriately enough, Freedom. …

Lehman’s loan clearout FT Alphaville, UK - Apr 8, 2008 Bloomberg has a lot more information on the $2.8bn “Freedom” CLO Lehman brothers closed last week. FT Alphaville reported news of the deal at the time. …LEH

How Lehman Opened the Fed’s Spigot Wall Street Journal - Apr 10, 2008 Lehman’s Freedom vehicle is commonly called a collateralized loan obligation, or CLO, on Wall Street. CLOs are securities backed by a pool of loans. …LEH

Lehman’s price on Freedom FT Alphaville, UK - Apr 1, 2008 Lehman is preparing to issue a $2.8bn Collateralised Loan Obligation, according to Total Securitization. A leveraged loan clearout then. If true, the CLO …

Buyout CLOs May Be Used for Fed Loans, Analysts Say (Update2)
Bloomberg - Apr 9, 2008
Lehman Brothers Holdings Inc., the fourth-largest US securities firm, last month created the $2.8 billion Freedom CLO, the largest this year, …

 

Carlyle, Deutsche Bank Seek to Raise $500 Million CLO (Update3)
By Pierre Paulden

April 21 (Bloomberg) — Carlyle Group, the world’s second largest private-equity firm, is raising a $500 million collateralized loan obligation to buy high-risk, high-yield debt being sold by banks at discounted prices, according to people with knowledge of the plan.

The CLO is being arranged by Deutsche Bank AG, said the people, who declined to be identified because the terms aren’t public. The fund follows a similar $450 million CLO that Carlyle and JPMorgan Chase & Co. closed this month.

Carlyle, the Washington-based buyout firm run by David Rubenstein, joins Blackstone Group LP and Apollo Management LP in purchasing loans from banks that have struggled to sell the debt after losses on securities tied to subprime mortgages caused investors to shun all except the safest of government bonds. Private-equity firms are emerging as buyers at a time when financial institutions from Goldman Sachs Group Inc. to Citigroup Inc. are willing to sell the loans for as little as 63 cents on the dollar.

“Private-equity firms have the capacity and interest in buying these loans,” said Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York.

Michele Allison, a Deutsche Bank spokeswoman in New York, and Ellen Gonda, a Carlyle spokeswoman, declined to comment.

CLOs package loans and channel the income to investors in portions of varying risk. They are a form of collateralized debt obligation, the entities that helped spur demand for high-yield debt before the credit-market slump.

Cutting Backlog

The CLOs by Carlyle are part of a return to issuance after sales ground almost to a halt. Firms sold $16.7 billion of CDOs in the first quarter, including $13.4 billion CLOs, compared with $165 billion in the same period a year earlier. Blackstone Group LP’s GSO Capital Partners is creating a $381 million fund named Tribeca Park CLO, Lehman Brothers Holdings Inc. analysts said in a report dated April 18.

“The CLO market never died, it’s been dormant,” Morgan Stanley analyst Vishwanath Tirupattur said in telephone interview. Only managers with “significant experience and access to capital,” can raise a CLO, he said.

Banks have cut their backlog of so-called leveraged loans to $95 billion from $245 billion in July by offering discounts, according to New York-based Standard & Poor’s. New York-based Citigroup sold $8 billion of loans to buyout firms in the past quarter, the bank’s Chief Financial Officer Gary Crittenden told investors April 18. Frankfurt-based Deutsche Bank sold $5 billion to private-equity firms, according to Lehman analysts.

Prices Rise

By reducing the mass of unsold loans on bank balance sheets, banks and private-equity firms are helping Federal Reserve Chairman Ben S. Bernanke’s effort to unfreeze credit markets. Wall Street chief executive officers including JPMorgan Chase & Co.’s Jamie Dimon, Goldman Sachs Group Inc.’s Lloyd Blankfein, Lehman Brothers Holdings Inc.’s Richard Fuld and Morgan Stanley’s John Mack said in the past two weeks that they’re optimistic the worst of the credit crisis is over.

Prices for average actively traded loans have risen almost 5 cents to 91.16 cents on the dollar in the past two months, according to Standard & Poor’s. Even so, the percentage of loans trading below 80 cents on the dollar is at 14 percent, up from less than 1 percent in November, according to Lehman analysts.

High-yield, or leveraged, loans are rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P.

Collapsed Fund

Royal Bank of Scotland Group Plc, the U.K.’s second-biggest lender, plans to start a fund to transfer the risk of losses from 1.5 billion euros ($2.3 billion) of high-yield loans, according to three people with knowledge of the proposal.

In addition to the CLOs, Carlyle raised a $1.35 billion fund to buy loans and bonds of troubled companies. Carlyle is stepping up to take advantage of low prices even though it was forced to close a $22 billion fund run by its Carlyle Capital Corp. unit that invested in mortgages. The fund collapsed as lenders seized its assets after it couldn’t meet margin calls.

Deutsche Bank is marketing the $500 million Carlyle High Yield Partners 2008-1, the people said.

The CLO will consist of $383 million of bonds with the highest ratings and $52.5 million of low-rated bonds, the people said. Carlyle will hold the $64.5 million so-called equity portion, which receives income once interest payments on the bonds have been made.

Carlyle Credit

JPMorgan arranged Carlyle Credit Partners Financing last month, according to a prospectus. The CLO consists of $332 million of bonds with the highest credit ratings that will pay interest of 0.85 percent more than the three-month London interbank offer rate.

The JPMorgan CLO, “enables us to buy senior secured bank loans at attractive prices,” Michael Zupon, head of Carlyle’s U.S. leveraged finance team said today in a statement announcing the close of the $450 million fund. Carlyle manages $10.3 billion in leveraged finance assets globally.

The bonds were sold at 97.13 cents on the dollar according to the prospectus. JPMorgan sold shares in the $58 million riskiest portion at 66.6 cents on the dollar. Brian Marchiony, JPMorgan spokesman, declined to comment.

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: April 21, 2008 12:39 EDT

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Schwarzman, Kravis Cash Pile Grows With Risk of Reduced Returns
By Jason Kelly and Elizabeth Hester

April 29 (Bloomberg) — Leveraged-buyout titans Henry Kravis and Stephen Schwarzman are sitting on record amounts of investor cash that has yet to find anything approaching the industry’s benchmark returns.

Private-equity firms raised $163.5 billion in the first three months of 2008, the second-biggest quarter since London- based Private Equity Intelligence Ltd. started tracking the data in 2003. At the same time, they agreed to $62.2 billion of leveraged buyouts, down 69 percent from a year ago, as borrowing costs more than doubled, data compiled by Bloomberg show.

Unable to finance the takeovers of $5 billion or more that fueled an all-time high $735 billion in transactions last year, LBO firms are trying to compensate by purchasing minority stakes in publicly traded companies and leveraged loans. Without the benefits of size and leverage, these deals may drag down returns from the average 30 percent or more that their investors expect.

“It is uncharted territory,” said Benjamin Phillips, managing director of strategic analysis at New York-based Putnam Lovell, an investment-banking unit of Jefferies Group Inc. that specializes in financial services. While buyout firms typically look for 20 percent internal rates of return from investments, “it’s headed well south of 20 now,” he said.

A year ago, Kravis, the 64-year-old co-founder of New York- based Kohlberg Kravis Roberts & Co., was working with TPG Inc. to close the $32 billion purchase of Dallas-based TXU Corp., the largest U.S. leveraged buyout. This year, his biggest deals include buying $1.25 billion of notes from Legg Mason Inc. to shore up capital at the Baltimore-based money manager. The notes, convertible into cash or Legg Mason stock, pay 2.5 percent interest.

Deal Sizes Shrink

The largest LBO this year by Schwarzman’s Blackstone Group LP was of Richmond, Virginia-based food distributor Performance Food Group Co. for $1.2 billion. Blackstone also bought New York-based hedge-fund manager GSO Capital Partners LP in January for as much as $930 million. Schwarzman, 61, said at the time that the deal will increase his firm’s ability to bet on distressed bonds and loans, and manage debt funds.

“Some of the best returns in the private-equity business come from investments in difficult economic times,” said Peter Rose, a spokesman for New York-based Blackstone. The world’s largest buyout firm has committed about $3 billion in equity to deals since the credit crunch took hold in August, he said.

Mark Semer, a spokesman for KKR, the second-largest LBO firm, declined to comment.

While deal-making has ground to a halt, fundraising hasn’t skipped a beat. KKR closed a $17.6 billion fund, its largest, at the end of last year. Warburg Pincus LLC said on April 22 that it raised $15 billion for its biggest pool, exceeding the New York-based firm’s $12 billion goal.

`Tough World’

Blackstone gathered $21.7 billion for the industry’s biggest fund last year. TPG, the Fort Worth, Texas-based firm led by David Bonderman, is trying to raise more than $15 billion for a new fund.

“If you’re not putting money out, it’s going to be longer until you can give money back,” said Lyons Brewer, a managing director of C.P. Eaton Partners LLC, a Rowayton, Connecticut- based firm that helps hedge funds and private-equity firms raise capital. “It’s going to be a tough world for awhile.”

LBO firms use cash from investors combined with their own funds and debt secured on the target they buy to finance takeovers. They typically seek to expand companies or improve performance before selling them within five years. The use of debt, which can cover as much as two-thirds of the purchase price, helps boost returns.

Baseline for Returns

Buyout funds are invested over a period of five to 10 years, so the impact of today’s markets on returns won’t be known for some time. Past gains have far exceeded what investors have earned with stocks or bonds.

TPG Partners IV, a $5.3 billion fund started in 2003, has generated average annual returns for investors of more than 34 percent, according to data on the Web site of the California Public Employees’ Retirement System. KKR Millennium Fund, begun in 2002, also has returned 34 percent. Blackstone Capital Partners IV has advanced 54 percent a year since its 2003 debut, the Calpers site shows.

The LBO model has changed this year, with buyout firms stepping up to rescue banks and bond insurers crippled by losses from the collapse of the subprime-mortgage market. Instead of using leverage, the investors are buying in at large discounts to current market prices.

National City Corp., Ohio’s largest bank and subprime lender, sold $7 billion of equity last week to a group led by New York-based Corsair Capital LLC at 40 percent below the current share price.

Credit Cycle

TPG paid $2 billion for a 16 percent stake in Washington Mutual Inc. on April 8. The Seattle-based company, the largest U.S. savings and loan, sold the shares at a 33 percent discount to the previous day’s close.

Bonderman, 65, declined to comment. During its 16-year history, TPG has taken non-controlling stakes in companies including Oxford Health Plans Inc. and Continental Airlines Inc. The firm made about 10 times its $66 million investment in Houston-based Continental.

TPG remains among the most active buyout firms. The firm agreed earlier this month to buy 50 percent of SIA International Ltd., a Russian pharmaceutical company, for $800 million.

Private-equity investors are “seeing distressed debt-type valuations, which are attractive, for real businesses and real assets,” said Jeffery Harte, a Chicago-based analyst at Sandler O’Neill & Partners LP. “The current environment is really tough, but if you can fast-forward to when the credit cycle turns, these are good assets they’re buying on the cheap.”

MBIA Paper Loss

The strategy comes with risks. Warburg Pincus invested $500 million in MBIA Inc., the world’s biggest bond insurer. It paid $31 a share in January for stock in the Armonk, New York-based company that now trades at less than $10.

Buyout firms, which are accustomed to controlling the companies they acquire, have much less of a say when they take minority stakes. Instead, many of the deals give them dividend- paying preferred shares that can help boost returns.

“It is very different from investing in a traditional buyout,” Ignacio Jayanti, Corsair’s president, said in an interview last week. “You cannot use leverage in the same way, as the underlying companies are already very levered and regulations proscribe certain types of leverage common to traditional buyouts.”

LBO managers may be willing to trade higher returns for the opportunity to simply put money to work, said Christopher P. Giordano, an attorney at DLA Piper US LLP in New York, who advises private-equity firms.

“Funds are sitting on a significant amount of capital and there is expectation to deploy that,” Giordano said. “A return on equity invested that’s a positive is better than zero.”

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Elizabeth Hester in New York at ehester@bloomberg.net

Last Updated: April 29, 2008 00:00 EDT