For the first time in more than a decade, Greenberg Traurig has issued a capital call to raise $24 million from its equity shareholders. The 1,700-lawyer firm said it took the action as a safeguard against “uncertainty” in the U.S. and international markets, and that it is not facing any immediate cash needs.
The capital call, which was announced last month during a telephonic partner meeting, requires equity shareholders to contribute 1 percent to 5 percent of their salaries, according to a Greenberg lawyer who asked not to be identified. The contributions will be based on salary levels, with lesser-paid shareholders paying 1 percent and the highest-paid principal shareholders paying 5 percent. Dividing the number of equity partners by the capital call works out to an average payment of $76,923. The average profit per partner was $1.42 million last year, up 7 percent from the year before. The capital call would likely wipe out most of that increase.
Richard Rosenbaum, Greenberg’s chief executive officer, said the capital call was not required by its bank and was strictly a desire by the firm to “add to our equity cushion.”
“We have not raised capital in over 10 years and have long required more modest capital than most of our peers,” he said in a statement. “In light of the current uncertainty in U.S. and global markets, we recently did announce a capital raise for our shareholders, each paying in a modest amount over several years in order to further add to our equity cushion.
“There was no current cash need or other requirement giving rise to this decision, one which is fully consistent with our conservative financial management and with what other well-managed businesses are doing in the current global economic climate.”
Greenberg initially asked shareholders to make the contributions by the end of the year but, after some shareholders balked, the firm agreed to accept payments in two installments, one by the end of 2012 and the other in early 2013, according to the partner. Firm executive chairman Cesar Alvarez is in the process of drawing up the documents, sources said.
Greenberg ranked 10th on the latest Am Law 100 survey with $1.24 billion in revenue, up by 0.6 percent in a year. The firm’s 312 equity partners shared $442 million in net income last year.
Greenberg is not the only law firm to ask for capital contributions from partners in recent years. DLA Piper, one of the nation’s largest law firms, issued a first-time capital call for its U.S. partners in 2009. At the time, the firm said the move was designed to decrease its reliance on bank credit during the recession and require partners to “have some skin in the game.”
Bill Brennan, a law firm consultant with Newtown Square, Pa.-based Altman Weil, said he recommends that firms require capital contributions from partners. “It’s not uncommon,” he said. “Thirty percent of law firms have regular capital calls. It increases the firm’s financial stability and reduces the risk so that if something unexpected happens, the firm has money in the till to address the problem and carry it through difficult times. Firms that rely heavily on debt are taking very significant financial risk.”
Capital calls also can be required by banks as a condition of renewing lines of credit, although Rosenbaum firmly denies that this was the case with his firm.
Greenberg, like many other firms, banks with Citibank, which also dealt with failed law firm Dewey & LeBoeuf and is out millions of dollars after Dewey filed for bankruptcy. Brennan said Citibank could be tightening its restrictions on other law firms.
“I wouldn’t be at all surprised if the bank required this,” Brennan said. “Partners are the last in line to collect if something happens.”
Greenberg is still highly profitable, generating $1.2 billion in revenue last year. But the firm has faced a number of financial and ethical issues in recent years. Greenberg laid off dozens of secretaries earlier this year and cut expenses by moving its Miami operations to smaller space last year.
U.S. District Judge Marcia Cooke on August 3 sanctioned Greenberg Traurig and TD Bank for discovery lapses in a case brought by investors with Ponzi-scheming ex-lawyer Scott Rothstein.
In June, Greenberg and Quarles & Brady agreed to pay $88 million to settle a suit by investors who claimed losses in an alleged $900 million Ponzi scheme by a mortgage company.
Also in June, Alvarez said the firm is “conservative” about borrowing and expressed disappointment with the slow recovery of the legal market.
“I feel disappointed for the firm because we would all like to be doing better than we are doing,” he said. “People got used to a growth rate that has not been achievable since 2008.”
Julie Kay is a reporter for the Daily Business Review. She can be reached at firstname.lastname@example.org.