Big Law Firm Revenue Grows on Higher Rates, Wells Fargo Says (1)

Revenue at the country’s 100 largest law firms rose by 11.4% in the first quarter, outpacing the growth a year ago, Wells Fargo & Co.'s legal banking unit said Tuesday.

Firms gained revenue despite a slower growth in demand for lawyers’ time. Demand, as measured by billable hours, rose 1.7% in the quarter, compared with 2.1% in the same period last year, the bank found.

Lawyer headcount rose 3.4% and billing rates rose 9.7% from the first quarter last year, offsetting the slower demand, Wells Fargo said.

Firms increased their hiring this year expecting the strong demand growth they experienced last year, Owen Burman, a senior consultant in Wells Fargo’s legal banking group, said in an interview.

“The deal market was supposed to drive the acceleration this year, and that is certainly on hold,” Burman said. “I don’t think firms are pulling their expectations down yet.”

In an optimistic sign for the next quarter, inventory—or bills waiting to be collected—rose by 11.7%. The increase more than doubled the 4.3% inventory rise at firms that ranked 101 to 200 in size by revenue, according to the bank’s report.

Some of that inventory for large firms may prove hard to collect, Les Starck, a senior consultant for the bank’s legal specialty group, said. Some of that figure may represent work on delayed or withdrawn deals, which often doesn’t result in law firms recouping their full fee.

“Just because you have robust inventory doesn’t mean it will be immediately recoverable,” Starck said. “Firms are telling us that collections through March have been just fine. We haven’t seen any stress yet, but it’s certainly something we want to keep an eye on.”

Law firms are facing an uncertain economy as major banks increase the odds of a recession while the Trump administration’s tariff policy shakes out.

Firms began to see a slowdown in activity toward the end of the first quarter, Burman said, and it’s harder than usual to predict what will happen in the second quarter.

“We don’t have a great idea of what to look forward to,” Burman said. “So much can change in the next 60 days.”