The early 2012 results are in: Law firm profits increased by 4.3 percent in 2012, in line with Citi Private Banks full-year 2012 forecast. We must admit, though, we doubted our powers of prognostication after reviewing the third quarter 2012 results. But the factors in the fourth quarter of 2012 that drove such a strong finish to the year (very strong collections, a spike in demand, and more moderate growth in expenses) may not be sustainable.
Revenue growth of 3.6 percent in 2012 was largely driven by a push for collections in the fourth quarter. Revenue growth accelerated from the 1.7 percent result for the first nine months of 2012 vs. the same period of 2011. Demand growth during the fourth quarter played some part, reversing the trend we had seen during the first three quarters (when demand growth slowed and then went into a slight decline). However, at a full year demand growth rate of just 0.2 percent, this could hardly be enough to explain the full year revenue result. Part of the answer lies more in the focus firms placed on collections, particularly during the fourth quarter, as we saw the collection cycle shortened by 2.1 percent in 2012 (vs. a lengthening of 1.2 percent we had seen in the third-quarter results).
