November 3, 2008 6:07 PM

McKee Nelson Cuts 17 Associates

Posted by Nate Raymond

McKee Nelson announced Monday it has laid off 17 associates in its corporate finance practice as the credit crisis continued to batter securitization work.

The layoffs represent about 9 percent of the firm's headcount, which has been reduced to 174 lawyers. The New York-based firm also laid off 15 administrative staffers. McKee Nelson said the cuts were unrelated to performance.

The layoffs mark the second round of cuts at McKee Nelson since the credit markets began facing trouble in August 2007. Last fall, McKee Nelson conducted a round of buyouts affecting 23 associates and relocated nine associates in structured finance to other areas.

Reed Auerbach, co-head of the firm, attributed the cuts to continued slowdown in the securitization sector. Before the crisis, the firm typically ranked toward the top of league tables for asset-backed securities.  "We're still top of the tables, but there's not much of a table left," Auerbach says. "The table's got one leg."

Because of that work shortage, the firm has attempted to diversify and reduce its presence in structured finance. Besides cuts, Auerbach says the firm continues to hire lawyers in its litigation and other areas. Where structured finance lawyers made up 60 percent of firm headcount a year ago, today they make up only 40 percent, Auerbach says.

McKee Nelson said in a statement that partners tried for the last 16 months to bear the costs of their overcapacity in structured finance to keep the group intact. But following the financial crisis that erupted in September, the firm was forced to reevaluate its position. Auerbach notes that Lehman Brothers and Washington Mutual were among the firm's clients, though work would have been down regardless of what happened to the two companies since asset-backed and commercial mortgage-backed securitizations aren't happening.

The firm says it has "analyzed and created a projection of what we believe the structured finance business will look like over the next two years and what resources, capabilities and experience will be required to do that work." The layoffs came as a result of that process.

McKee Nelson says it is financially sound and debt free. Its real estate expenses are less than 10 percent of the firm's revenue, a measure of financial health. Auerbach says the firm is not considering anything as drastic as a merger.

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