In one of the first clear signs that slumping credit markets are causing economic pain at law firms, Clifford Chance on Monday laid off a group of associates in the structured finance area.
John Christian, the partner in charge of the London-based firm's U.S. personnel committee, said the firm had made a difficult "business decision" to lay off the six associates in a practice group that worked exclusively for credit rating agency Standard & Poor's. The lawyers in the group had reviewed the documentation S&P used to rate mortgage-backed securities, the market for which has collapsed in recent months.
"We concluded this work just wasn't coming back," Christian said. He declined to discuss the severance packages offered to the associates, but one of those terminated said they were offered three months' salary with no bonus. Indeed, the associate said the timing of the layoffs seemed designed to deprive the targeted associates, all of whom were relatively senior, of their bonuses.
The past week has seen a flurry of bonus announcements from New York law firms matching the level set last Monday by Cravath, Swaine & Moore. Cravath announced two bonuses that, combined, range from $45,000 for first-years to $110,000 for senior associates. Among the many firms that have matched that range in recent days are Milbank, Tweed, Hadley & McCloy; Willkie Farr & Gallagher; Simpson Thacher & Bartlett and Sullivan & Cromwell. Clifford Chance has not yet announced a bonus but in the past has matched other firms.
The high bonuses announced by law firms have stood in contrast to bad news at major clients like investment banks, many of which have already had layoffs.
Many of the layoffs at banks are also linked to the weakness of the structured finance market, and many of the law firms with large practices in the area may feel pressure to make cuts.
Clifford Chance was actually not a major player in the U.S. structured finance market, at least not compared with firms like Cadwalader, Wickersham & Taft; Sidley Austin; Orrick, Herrington & Sutcliffe; McKee Nelson and Thacher Proffitt & Wood, all of whom have scores of lawyers in securitization practices that have slowed considerably.
Paul D. Tvetenstrand, chairman of Thacher Proffitt, said his firm, while definitely slower than before, still had work from securitizations of assets other than residential mortgages. He said there were no economic layoffs in the works and that associates at the firm have been reassured as such.
"Our partners are going to take the hit before we pass it on to the associates," he said.
McKee Nelson brought aboard another New York partner Monday. Alice F. Yurke, formerly a partner at Morrison & Foerster, said her derivatives practices could take advantage of some of the skills of the firm's many structured finance lawyers in an area that was still quite busy.
Christian said Clifford Chance had decided the associates in its S&P group could not be reassigned because of their relative seniority. The firm has about 260 lawyers in its New York office.
Law firms are generally loath to engage in layoffs because they hurt the firm image in the eyes of both lateral and law school candidates. Clifford Chance is still wrestling with the fallout from a leaked 2002 associates' memo that described widespread misery at the firm.
Nevertheless, law firms have engaged in major layoffs in the past. Shearman & Sterling laid off 10 percent of its associates when mergers and acquisitions plummeted in 2001, and the former Dewey Ballantine also had a number of layoffs.