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RBS predicts further shrinkage in legal market

19 March 2012

UK law firms need to reduce their fee-earner headcount by another 5% in order to return to levels of profitability they enjoyed before the recession, according to research by Royal Bank of Scotland.

Based on a survey of 60 senior executives across 40 law firms, RBS predicts that 3,000 jobs will have to go, as only one in three respondents predicted growth of more than 5% and a majority forecast flat or falling revenues.

Continuing economic weakness will combine with the impact of alternative business structures to put further pressure on a sector that, RBS estimates, lost about 15% of its employees during the downturn. While redundancy programmes at the biggest firms make headlines, "very private and discreet" restructuring is ongoing at many others.

James Tsolakis, head of the RBS legal services team that compiled the report, said the bank expected the currently depressed levels of transactional activity and revenue growth to be a feature of the marlet for the medium term.

"New business models and organisational structures, resourced differently than the traditional law firm, will be required to improve chargeable hours to levels that can be expected to deliver materially improved profitability over time," he commented.

"Alternatively additional restructuring will be required to further eliminate fee-earner capacity."

Mr Tsolakis also predicted the first AIM stock market listing of a legal firm within 18 months.

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