January 13, 2009 5:30 AM

THE AM LAW 100: Cadwalader Profits Fall 30 Percent

Posted by Nate Raymond

Following a year that saw structured finance deal work crater due to the ongoing financial crisis, Cadwalader, Wickersham & Taft said Monday that its average profits per equity partner fell more than 30 percent in 2008, The American Lawyer reports.

On average, Cadwalader's equity partners will take home profits of $1.88 million, down from $2.725 million in 2007. Revenue fell to $506 million, down 13.8 percent from $587 million. Chairman W. Christopher White, though, says the firm is now positioned for 2009 following a series of layoffs in its troubled structured finance practice.

"I'd like to think that we put most of our pain in 2008," White says, adding that the $1.88 million profit number "is not too shabby."

The drop, while severe, beat previously published rumors that profits per partner would fall 50 percent. But the decrease does illustrate the challenge that firms with large structured finance practices have in this economic climate.

For months, consultants had predicted that firms like Cadwalader would be hit disproportionately hard by the recession. In October, consulting firm Hildebrandt International said that firms with "significant capital markets practices" would likely see average drops for partner profits of 5 to 15 percent, "with a few firms seeing even steeper declines."

The fall so far has turned out to be much steeper. Orrick, Herrington & Sutcliffe, which usually ranks among the top five firms for asset-backed securities work, on Friday revealed that profits per partner fell 21 percent to $1.315 million. And Thacher Proffitt & Wood, focused heavily on mortgage-backed securities work, is in the process of dissolving because of what it said were "severe reductions in revenue."

Jeffrey Grossman, a managing director in Wachovia's legal specialty group, says that while New York firms will generally see 8 to 10 percent drops in profits per partner, many of those were saved by the crisis-related work after the collapse of Lehman Brothers. But a few firms, he says, "will perform materially worse" because of their greater focus on structured finance.

"Structured finance, structured products, capital markets, whatever you want to call it, that's still going to be down for some time to come," Grossman says.

White says it's wrong to put the focus on Cadwalader's structured finance side, which, while still large, was shrunken through layoffs last year. "Our financial restructuring people are very busy, parts of our litigation department are very busy, and those are important engines in a downturn," he says.

Cadwalader's antitrust practice spent part of 2008 representing Microsoft Corporation in its battle for Yahoo Inc. In litigation, the firm represented the fallen investment bank Bear Stearns after its merger with JPMorgan in March. And this month, the firm secured the debtor counsel role on the Chapter 11 proceedings for chemicals maker LyondellBasell.

Still, White concedes that Cadwalader lawyers in other practices had less work. "We have lawyers today who are less busy than they were, our private equity guys and some of the real estate finance, some of the capital markets," he says.

The slowdown in real estate and capital markets in particular fueled a series of layoffs at Cadwalader. In January 2008 the firm laid off 35 lawyers. It cut another 96 in July. The firm also shed staff jobs and reigned in expenses in hopes of boosting profits.

By mid-summer, revenue fell below internal firm projections, which White pegged in the early summer at $535 million to $550 million. By the time the July layoffs were announced, though, White said he'd decided to "stay out of the projection business."

After Lehman Brothers filed for bankruptcy in September, White says many financial services clients began hoarding cash, making collections difficult. That remains "an ongoing issue," he says.

Cadwalader also went through a series of management changes in 2008. In February, White took over as chairman, a role long filled by Robert Link. He remained on as managing partner, but in November, Link's name was left off a slate of candidates for Cadwalader's management committee. A vote on that slate is scheduled for today.

Also missing from the slate was James Carroll, head of Cadwalader's Charlotte office, which serviced Bank of America and Wachovia on structured finance transactions. In their place were restructuring cochairs Bruce Zirinsky and Deryck Palmer.

The move appeared to signal that Cadwalader's management was deemphasizing capital markets work in favor of restructuring assignments. Yet despite the shift, this month Cadwalader confirmed that Zirinsky and another restructuring partner, John Bae, had defected to Greenberg Traurig. Zirinsky, who handled the Northwest Airlines bankruptcy, came to Cadwalader in 1998, following M&A rainmaker Dennis Block from Weil, Gotshal & Manges. In addition to Zirinsky and Bae, four other partners have left Cadwalader since the July layoffs.

Nevertheless, White says Cadwalader will continue to recruit, specifically for its litigation and corporate practices.

"I view this as an opportunity to continue to grow and strengthen the firm," White says. "I hope it's somewhat evident that while Cadwalader has a very strong reputation in capital markets and structured finance, it's becoming evident we have strength beyond that."

Click here for the final published results of last year's Am Law 100 ranking.

This report is part of The Am Law Daily's ongoing Web coverage of The Am Law 100s 2008 financials, bringing you our own reports and those from our sibling publications at Incisive Media. Results are preliminary.

Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.

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