Not So Bad?

So far, losses projected at the beginning of the recession have not been realized.  Gretta Rusanow, head of advisory services for Citi Law Firm Group, notes that firms surveyed in April estimated a 15% drop in demand for Q2 (With PPP Money Dwindling and Cases Rising, ‘Substantial Uncertainty’ Remains for Firms, Dylan Jackson 7/9/2020, American Lawyer).  By June, the firms had revised the estimated drop to just 7%.  When Q2 ended, revenue had dropped only 1%.

Additionally, firms appear to be in a stronger cash position than at the beginning of the Great Recession (If Cash is King, Do Law Firms Need to Change Their Business Model to Keep Up, Dan Packel 6/23/2020, American Lawyer).  A survey by Wells Fargo Private Bank Legal Specialty Group  (“WF Legal Group”) found that 90% of firms surveyed had 3 months or more coverage of monthly expenses, not counting partner draws (Firms Avoid Dire Outcomes Amid Covid-19 Pandemic, Survey Shows, Dan Packel, 6/23/2020, American Lawyer).  According to Joe Mendola of WF Legal Group, the cash position can be attributed to: 

1.     stronger than expected Q1; 

2.     withholding of partner distributions; 

3.     timing - many firms had not yet distributed final profits from 2019 when Covid hit, which facilitated withholding. 

The surveyed firms’ cash positions were also likely aided by PPP.  According to SBA data, over 1,500 law firms received PPP loans, including 47 of the AmLaw 200 who received loans between $218M and $444M (With PPP Money Dwindling and Cases Rising, ‘Substantial Uncertainty’ Remains for Firms, Dylan Jackson 7/9/2020, American Lawyer).  PPP was designed to cover 2 and half months expenses, and most funding was disbursed in April, which likely helped temper layoffs in Q2.  

Still, the legal sector shed 64,000 jobs in April (roughly 5.5%), following a loss of 1,700 jobs in March; May and June showed some positive signs, adding 3,200 and 7,500 legal jobs respectively (June Jobs Reports: Legal Adds 7,500 Jobs, but Murky Future Awaits, Patrick Smith 7/2/2020, American Lawyer).  Now that PPP funds have been exhausted, will widespread layoffs ensue?  Much will depend on whether the predicted 5% drop in demand in Q3 is realized.