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The subprime mortgage crisis claimed 35 more bodies last week. On Jan. 10, Cadwalader, Wickersham & Taft, the firm with the third highest profits per partner in New York, laid off 35 attorneys and redeployed another 20 to 25 due solely to the recent economic downturn. And this latest round of layoffs is yet another indication that the forecast for 2008 is, at best, mostly cloudy. The New York-based firm rode the mortgage-backed securities wave, reaping substantial profits from the practice area along the way. But no longer. The layoffs, consisting mainly of associates and a few counsel, were in two once thriving but now frigid practices — global finance and capital markets. “This downsizing was a last resort from our standpoint,” says Gregory Markel, the head of the firm’s litigation department and a member of the management committee. He says that the decision was entirely market driven. At the moment, the bloodshed seems to be limited to firms that relied heavily on the mortgaged-backed securities practice, and legal recruiters and consultants think it will probably stay that way. Firms such as McKee Nelson, Thacher Proffitt & Wood, Sidley Austin, and Orrick, Herrington & Sutcliffe have substantial securitization practices. In fact, for some firms, these may be the best of times because of the subprime mess: They are capitalizing on the litigation and regulatory work that’s resulted from the collapse of the market. Thus far in the fallout, Clifford Chance has laid off six lawyers, and McKee Nelson and Thacher Proffitt have offered buyouts to associates and have redeployed associates to other practices. More than 20 associates at Thacher Proffitt have accepted the buyouts, and the firm says it will not have to resort to layoffs. Cadwalader has been assessing its options since the credit market crashed last summer. Firm management looked not only at public information but also spoke with clients about what was in the pipeline. They came to the conclusion that the work just wasn’t there anymore. “It hasn’t improved, period, since we started looking at it,” Markel says. “We see this lasting at least another six months or possibly longer.” The firm, which posted $2.9 million in profits per partner in 2006, predicts that even partners will have to tighten their belts. Profits per partner will dip slightly in 2007 and again in 2008, according to Markel. Associates in the Washington office will not be affected, says Markel, though some in D.C. have been transferred to more active practice areas. The firm has given each associate a severance package of three months’ pay and medical benefits until the end of the year. Also, associates who met the criteria will qualify for end-of-year bonuses. One question for the firm going forward is what toll the layoffs will take on recruiting. Word will get back to the law schools, but the effect will probably only be short term. “Experience indicates that recent layoffs have not affected recruiting,” says Peter Zeughauser, a legal consultant with the Zeughauser Group. “I think the first wave of layoffs back in the early �90s was a shock, but I think associates know that it’s a fact of life now.” And in any case, Cadwalader isn’t known for being a “warm and fuzzy place,” as one recruiter puts it. But the firm’s management did face a delicate task in deciding how to handle the economic reality of having too many people with nothing to do. If they pare down on associates and staff, they run the risk of not being able to rebuild those ranks later, but trying to weather the storm can slow profitability and make for disgruntled partners. “Some will interpret it as a bad sign. Some will interpret it as good management,” says Michael Short, a legal consultant with Hildebrandt International. “I tend to lean toward the latter.”
Anthony Lin of the New York Law Journal , an ALM affiliate, contributed to this article. Attila Berry can be contacted at [email protected].

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