Recessions & Mega Firms Forum

[Anonymous User]

Are associates at firms like KE/Latham materially worse off regarding potential layoffs in the event of a market downturn (or god forbid crash). Putting aside the "Lathaming," and in a vacuum, is it safer to choose elsewhere in the v10?

[Barrred]

Are associates at firms like KE/Latham materially worse off regarding potential layoffs in the event of a market downtown (or god forbid crash). Putting aside the "Lathaming," and in a vacuum, is it safer to choose elsewhere in the v10?

I don't know much about market downtowns, but downtown markets are generally pretty good, like Grand Central Market in downtown Los Angeles. I believe that all associates have access to these markets, including Latham and Kirkland.

[Anonymous User]

lol - edited

[Elvis_Dumervil]

Are associates at firms like KE/Latham materially worse off regarding potential layoffs in the event of a market downturn (or god forbid crash). Putting aside the "Lathaming," and in a vacuum, is it safer to choose elsewhere in the v10?

1. Why would you be worse off at those firms? I feel like there's a premise you're leaving out here.

2. That said, why would you put aside Lathaming? That's literally the answer to the question.

[Anonymous User]

Are associates at firms like KE/Latham materially worse off regarding potential layoffs in the event of a market downturn (or god forbid crash). Putting aside the "Lathaming," and in a vacuum, is it safer to choose elsewhere in the v10?

1. Why would you be worse off at those firms? I feel like there's a premise you're leaving out here.

2. That said, why would you put aside Lathaming? That's literally the answer to the question.

1. I mean that's the question. I guess the hypothetical premise is size and the fact that these firms feed on the middle market. But I'm honestly not sure whether the deal-flow would just be reduced proportionally to size, in which case the impact would be the same as to a white-shoe firm.

2. If this was the answer then why didn't KE get as bad of a rep when the "Lathaming" occurred... And there's a lot of debate whether the Lathaming would happen again. And were DPW/STB/PW/GDC/etc. associates really that much safer back then? The Lathaming feels like an inexact (and possibly overblown?) buzzword.

[legalpotato]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

[Anonymous User]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

[Anonymous User]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

The K&E hedge is real, at the outset of COVID when deals all died large numbers of corp associates were shifted into bankruptcy, and it personally turned my transactional adjacent practice from totally drying up to a low but minimally respectable billable number for several months.

It’s not going to save everyone in a downturn but it is legitimately more than just a talking point given how strong K&E’s bankruptcy practice is.

[2013]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

The K&E hedge is real, at the outset of COVID when deals all died large numbers of corp associates were shifted into bankruptcy, and it personally turned my transactional adjacent practice from totally drying up to a low but minimally respectable billable number for several months.

It’s not going to save everyone in a downturn but it is legitimately more than just a talking point given how strong K&E’s bankruptcy practice is.

Hasn’t Kirkland’s corporate team grown like 10 fold since then? I’m pretty sure the RX team can’t feed that many mouths…

[legalpotato]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

Why yes, not KE new lateral, KE does do more Rx than most firms....

In a 2008 crazy scenario, KE might actually be better off. But if a more gradual cooling, no transactions no bankruptcies, KE rx will not be keeping the ship afloat. Sorry to be the one to tell you.

[Anonymous User]

So is the upshot KE might be better off than LW and maybe Skadden… but how does it compare to the other elite firms in a doomsday scenario?

[Sackboy]

Between 2007-2009, the below is was what firing and hiring looked like (reduction/increase in headcount). The effects of the pandemic were very uneven in not only overall effect but also in terms of timing, so no specific interval (e.g. 2007-2010, 2008-2009, etc.) gets the whole picture. In an effort to get as complete of a picture as possible, I've added a few notes. I've included mostly the TLS darlings but also a couple firms that were notoriously hosed.

• Cravath (+20.2%) (then -19.6% in 2010)
• WLRK (+11.5%)
• Debevoise (+9.0%) (followed by a further -23.6% decline over the next 5 years...)
• PW (+7.7%) (grows another +1.5% in 2010 and then slashes -6.8% in 2011)
• Kirkland (+6.7%)
• STB (+2.2%) (peaks in 2008, -3.9% drop, still ends up bigger than in 2007)
• Cleary (+1.0%)
• DPW (-1.1%)
• Weil (-3.1%) (peaks in 2008, sees -8.0% in a single year) (followed by -7.9% more over the next 3 years...)
• Skadden (-4.6%) (peaks in 2008, sees -11.6% in a single year)
• S&C (-5.9%)
• Shearman (-12.8%)
• Latham (-13.9%) (peaked in 2008, so what we know to be the Lathaming is really -19.1% in a single year)
• Cadwalader (-28%) (expands to -33% by 2010)

[Anonymous User]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

Why yes, not KE new lateral, KE does do more Rx than most firms....

In a 2008 crazy scenario, KE might actually be better off. But if a more gradual cooling, no transactions no bankruptcies, KE rx will not be keeping the ship afloat. Sorry to be the one to tell you.

I like how you imagined an angry lateral defending KE, got a question that reflected the reality that bankruptcy wouldn't save KE but might be a relevant factor, and replied to that as if it were an angry lateral arguing that bankruptcy would keep KE afloat anyway. This website is really an incredible place

[Anonymous User]

Yes and no. Any firm that is highly leveraged is at risk in a downturn scenario. In that sense, L&W/Kirkland are more at risk than say Cravath.

Couple of considerations though:

1. Most firms have been moving to a LW/Kirkland model. I'll get my head bitten off for this, but there's no other way to describe it when you see the moves made by DPW/PW lately (rewarding high billers, moving off lockstep, expanding the number of income partners and associates etc.) By moving to this model, leverages have gone up across the board.

2. You really can't extrapolate much from 2008 for several reasons. First, QE policy by the Fed has given markets confidence that the government will do everything in its power to avoid another massive recession. A giant-industry wide downturn like 2008 is really unlikely outside of a black swan event. In fact, we just tested a blackswan event with COVID and the top firms, especially the mega firms, made record profits. Second, there was a massive amount of FUD in 2008. People truly believed that the good times of finance/law was over - I get the sense that management is significantly more level-headed and commercial these days. In some ways, the sacrificing of those attorneys helped future generations of lawyers. Third, 2008 was an opaque time. "Lathaming" is famous because it was extremely public, but layoffs occurred at every major firm. Some firms just refused to acknowledge it was occurring. Additionally, LW and K&E in 2021 are very different beasts than they were in 2008. You can say the same on the other end that many of the old school white-shoe firms are not what they once were.

3. Hedging is real, to an extent. It really doesn't matter if you have an extremely strong international arbitration practice or whatever - it doesn't make any money. The safest firms are firms that are very strong across groups that are highly profitable (m&a, cap markets, debt finance, white collar lit, restructuring).

At the end of the day - statistically speaking, you're unlikely to be at the firm beyond 3-5 years. So just think about where you want to be for the next 3-5 years rather than trying to crystal ball how a firm will react in a worldwide global recession.

[Joachim2017]

Just a minor point about the previous post, but it's news to me that white collar lit is strongly profitable. My understanding was that the only parts of litigation that are truly profitable (in the sense of being anywhere near the ballpark of transactional practice) is complix/commercial lit. Now of course white collar lit will be more profitable than, say, appeals, but in the relevant context is it actually a money maker for large firms?

[ExpOriental]

Yes and no. Any firm that is highly leveraged is at risk in a downturn scenario. In that sense, L&W/Kirkland are more at risk than say Cravath.

Assuming AmLaws numbers are reliable (no reason to think they're not, at least on this particular point), Cravath is actually the most levered of the three you mentioned.

Cravath: 4.76
Kirkland: 4.72
Latham: 4.46

Also, neither of Kirkland or Latham have particularly high leverage when compared to the rest of what this board seems to consider their peers. They're pretty much middle of the pack in that regard.

And before someone compares Kirkland to Dewey, I have been told by credible sources that Kirkland does not actually use guaranteed comp packages for their big lateral hires; they just give an amount of equity that would pay out $X in a given year assuming similar performance to prior years.

I also want to make the point that "Kirkland will survive and may even thrive in a downturn" is not the same as "Kirkland associates will survive in a downturn." The firm could be posting record profits on the back of RX, and I'd still expect it to ruthlessly cut the fat in groups that are going to be slow for the foreseeable future. Obviously the extent to which your group can support or transition into RX is a factor there.

[Anonymous User]

Just a minor point about the previous post, but it's news to me that white collar lit is strongly profitable. My understanding was that the only parts of litigation that are truly profitable (in the sense of being anywhere near the ballpark of transactional practice) is complix/commercial lit. Now of course white collar lit will be more profitable than, say, appeals, but in the relevant context is it actually a money maker for large firms?

At my firm (one of the two megafirms), white collar is our most profitable lit group, so I extrapolated from that. I don't know if it holds true across the board.

[Anonymous User]

Yes and no. Any firm that is highly leveraged is at risk in a downturn scenario. In that sense, L&W/Kirkland are more at risk than say Cravath.

Assuming AmLaws numbers are reliable (no reason to think they're not, at least on this particular point), Cravath is actually the most levered of the three you mentioned.

Cravath: 4.76
Kirkland: 4.72
Latham: 4.46

Also, neither of Kirkland or Latham have particularly high leverage when compared to the rest of what this board seems to consider their peers. They're pretty much middle of the pack in that regard.

And before someone compares Kirkland to Dewey, I have been told by credible sources that Kirkland does not actually use guaranteed comp packages for their big lateral hires; they just give an amount of equity that would pay out $X in a given year assuming similar performance to prior years.

I also want to make the point that "Kirkland will survive and may even thrive in a downturn" is not the same as "Kirkland associates will survive in a downturn." The firm could be posting record profits on the back of RX, and I'd still expect it to ruthlessly cut the fat in groups that are going to be slow for the foreseeable future. Obviously the extent to which your group can support or transition into RX is a factor there.

Wow - was not expecting those leverage ratios. Thanks - I guess leverage wouldn't be an issue against K&E/LW when compared to other firms.

[Monochromatic Oeuvre]

2. You really can't extrapolate much from 2008 for several reasons. First, QE policy by the Fed has given markets confidence that the government will do everything in its power to avoid another massive recession. A giant-industry wide downturn like 2008 is really unlikely outside of a black swan event. In fact, we just tested a blackswan event with COVID and the top firms, especially the mega firms, made record profits. Second, there was a massive amount of FUD in 2008. People truly believed that the good times of finance/law was over - I get the sense that management is significantly more level-headed and commercial these days. In some ways, the sacrificing of those attorneys helped future generations of lawyers. Third, 2008 was an opaque time. "Lathaming" is famous because it was extremely public, but layoffs occurred at every major firm. Some firms just refused to acknowledge it was occurring. Additionally, LW and K&E in 2021 are very different beasts than they were in 2008. You can say the same on the other end that many of the old school white-shoe firms are not what they once were.

Saving for my "The Economic Cycle Is Over, There Are No Consequences To Printing Infinite Money, Good Times Are Here To Stay, And Lawyers Won't Ever Be Fired" children's pop-up book.

(I quoted a lot of "The recession is surely coming!" posts between 2013 and 2019 that are fun to revisit, too.)

[Anonymous User]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

Why yes, not KE new lateral, KE does do more Rx than most firms....

In a 2008 crazy scenario, KE might actually be better off. But if a more gradual cooling, no transactions no bankruptcies, KE rx will not be keeping the ship afloat. Sorry to be the one to tell you.

ITT, V10/20 associates at firms without strong BK, levfin practices unsuccessfully attempt to step up and strike down a strawman without any insight into how other V10s actually function.

[Anonymous User]

Yes and no. Any firm that is highly leveraged is at risk in a downturn scenario. In that sense, L&W/Kirkland are more at risk than say Cravath.

Assuming AmLaws numbers are reliable (no reason to think they're not, at least on this particular point), Cravath is actually the most levered of the three you mentioned.

Cravath: 4.76
Kirkland: 4.72
Latham: 4.46

Also, neither of Kirkland or Latham have particularly high leverage when compared to the rest of what this board seems to consider their peers. They're pretty much middle of the pack in that regard.

And before someone compares Kirkland to Dewey, I have been told by credible sources that Kirkland does not actually use guaranteed comp packages for their big lateral hires; they just give an amount of equity that would pay out $X in a given year assuming similar performance to prior years.

I also want to make the point that "Kirkland will survive and may even thrive in a downturn" is not the same as "Kirkland associates will survive in a downturn." The firm could be posting record profits on the back of RX, and I'd still expect it to ruthlessly cut the fat in groups that are going to be slow for the foreseeable future. Obviously the extent to which your group can support or transition into RX is a factor there.

Do those KE and LW numbers include their NSP? Feel like that would artificially deflate leverage

[ChairmanKaga]

Do those KE and LW numbers include their NSP? Feel like that would artificially deflate leverage

No.

[Anonymous User]

Are leveraged/debt finance associates equally as safe as RX associates in recession?

[Anonymous User]

In b4 brand new KE lateral from lower v100 "actually KE is well hedged against economic downturn because of its robust restructuring practice"

Doesn't KE do more Rx than most firms? It would probably matter on the margins (which is what OP is asking about). If the economy does a 2008 again then many associates would be fucked - basically a guessing game to decide which would be the MOST fucked. The Rx hedge might help save a few at KE that get axed at similar firms. It wouldn't be this massive difference, though.

The K&E hedge is real, at the outset of COVID when deals all died large numbers of corp associates were shifted into bankruptcy, and it personally turned my transactional adjacent practice from totally drying up to a low but minimally respectable billable number for several months.

It’s not going to save everyone in a downturn but it is legitimately more than just a talking point given how strong K&E’s bankruptcy practice is.

See e.g. that email from Andy Calder last May chastising Houston corporate associates for “hiding” and insisting that they “grab a restructuring assignment ASAP” because they had more work flowing in than they could handle and needed people to help. It was very much the opposite of struggling to find hours.

[Anonymous User]

Just a minor point about the previous post, but it's news to me that white collar lit is strongly profitable. My understanding was that the only parts of litigation that are truly profitable (in the sense of being anywhere near the ballpark of transactional practice) is complix/commercial lit. Now of course white collar lit will be more profitable than, say, appeals, but in the relevant context is it actually a money maker for large firms?

At my firm (one of the two megafirms), white collar is our most profitable lit group, so I extrapolated from that. I don't know if it holds true across the board.

White collar is one of (if not the) biggest cash cows for GDC’s lit practice.