Cadwalader, Wickersham & Taft announced today it is laying off 96 lawyers in a second round of job cuts as the Wall Street firm continues to cope with the ongoing effects of the credit crunch.
W. Christopher White, the firm's chairman, says the cuts will be in its capital markets and global finance groups, which have been hit hard by the reduced appetite on Wall Street for commercial mortgage-backed securities. The cuts are on top of the 35 associates Cadwalader laid off in January, bringing the total to 131.
"If it had been, as we anticipated in the early part of the year, a less severe contraction and not as prolonged a contraction, we would have ridden this out," White says. "But it seems clear from the advice clients are giving us that this will be more severe and longer than we anticipated."
Of the 96 affected lawyers, White says 90 percent "are being laid off because of the downturn in the real estate finance and securitization market." The job reductions principally affect Cadwalader's New York, Charlotte, and London offices (the majority are in New York); one or two Washington, D.C., lawyers also face cuts, White says. Most are associates, though some special counsel are affected.
Cadwalader also is dismissing administrative staff, White says, though numbers were not immediately available. Cadwalader already had a hiring freeze in place since the fall, which remains in effect. To date, at least 21 staffers have left and not been replaced.
Cadwalader decided not to rescind any offers from its incoming class of associates, White says. A spokeswoman for the firm says Cadwalader expects 70 new associates.
Cadwalader expects its overall head count come Oct. 1 to be 580, White says. The firm had 630 lawyers at the end of June.
Cadwalader, considered a major player in commercial mortgage backed securities, has suffered from a work shortage in its capital markets and real estate finance groups since the crunch took hold in the second half of last year. The firm was already forecasting for a decline in revenue, but White says the firm's original projections budgeted for a rebound in the second half of 2008. The firm no longer believes that will occur.
Cadwalader is not alone in laying off associates. Firms ranging from McKee Nelson, Sonnenschein Nath & Rosenthal and Thacher Proffitt & Wood also have reduced their associate ranks through layoffs and buyouts since the market began heading downward last fall.
But Cadwalader is the first firm to announce a second round of layoffs, a shocking admission from a firm that only two years ago was ranked third in New York for profits per partner, behind only Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore. Yet after work slowed down, profits per partner fell 6 percent to $2.725 million. It now ranks fifth among New York firms, falling behind Sullivan & Cromwell and Simpson Thacher & Bartlett. Nationally, it ranks sixth.
Still, $2.725 million is no laughing matter, and some critics have questioned why Cadwalader partners don't eat some of the losses to keep more associates employed. White counters that it would be unfair to lawyers in those groups to keep excess head count when there's not enough work to keep everyone busy.
Members of the management committee, in consultation with partners in the affected groups, first began debating associates layoffs at the beginning of July. The full partnership was informed at a meeting last week. Associates are being told today.
The London office, which wasn't affected in January, this time will experience layoffs in the capital markets group. "London sometimes finds itself behind the United States in market trends," White says. Now, the downturn is clearly a global problem, he adds.
Yesterday, London managing partner Michelle Duncan e-mailed employees to say the office's summer party scheduled for Friday was canceled "due to budget considerations," adding there would instead be a "smaller-scale drinks event to take place later this summer."
The laid off lawyers will receive severance until the end of the year, White says. The affected associates will have a better chance of finding new jobs now than they would if the firm waited until January to enact the cuts, says White. (The beginning of the year typically is when most law firms conduct performance reviews and make changes.)
The firm acknowledges, though, that many of the associates from the January layoffs still are looking for work: Of the 33 cut in New York and Charlotte, about two-thirds, or 23 lawyers, have since found new positions. (The January cuts also affected two lawyers in Washington, D.C.)
White adds that the layoffs will not affect Cadwalader's continued efforts to diversify outside of structured finance into areas such as intellectual property and private equity. Financial restructuring and litigation, two of the firm's countercyclical practices, are performing strongly, he says. Those groups, though, are not expected to make up for the total shortfall in structured finance.