Legal eagles hoping to fly again in 2014 as law firms predict economic pick-up
THE outlook for Ireland Inc is more positive for 2014 with a projected GDP growth of 2pc. This more positive economic outlook is mirrored by an increased positivity amongst senior lawyers quizzed in the second annual Smith & Williamson survey of Irish law firms.
One in every two of the 101 firms surveyed expects an improvement for the legal sector next year, compared to just one in four last year.
The areas of business where most growth is anticipated are in property, conveyancing and litigation.
The banking sector is under pressure to deal in a more structured fashion with mortgage arrears, business restructurings and buy-to-let disposals. This will lead to increased work for law firms as banks seek to litigate or issue enforcement and repossession proceedings.
The key issue facing the legal sector is maintaining profitability in a challenging fees environment. Ascertaining profitability is the Holy Grail of the legal sector because lawyers are not yet allowed to form limited liability partnerships.
Two in three firms have reported significant downward pressure on fees, with 36pc reducing their hourly billing rates. Most firms (81pc) have continued to agree to more fixed fees for assignments to secure work.
Managing cash flows also remains an issue of major concern for most mid-tier and smaller firms.
Revenues have increased in 53pc of the firms and almost one in two firms has seen an increase in their profits -- (63pc of larger firms).
The domestic economy has, however, continued to be a difficult marketplace for some.
Two in three legal firms (69pc) have continued to reduce their operating costs and one in three have experienced an increase in bad debts/provisions.
International business markets remain an important source of business for larger firms.
The UK market dominates international business (46pc) for Irish law firms, with Europe at 29pc and the USA at 17pc.
Business from the USA is more significant for the larger firms, representing 36pc of their international business, with three-quarters of the top 20 firms increasing their activities to attract international business.
Irish law firms have mixed views on the Government's new personal insolvency regime.
There has not been a floodgate of applications under the legislation as speculated.
Only 11pc of managing and senior partners believe that it will address the issues of people with debt problems.
Crucially, almost eight out of 10 law firms believe that the banks hold too much power over the new process.
Recent data from the Central Bank shows that the arrears on residential loans, principal dwelling houses (PDH) and Buy-To-Lets (BTL) continues to worsen.
* 18.5pc of PDH mortgages (142,892 cases) at June 30, 2013 were in arrears.
* Only 223 PDHs were taken into possession during Q2 2013.
* 26.8pc of BTL mortgages (39,948 cases) were in arrears at the end of June 2013.
* Only 75 BTL properties were taken into possession in Q2 2013.
These statistics demonstrate the urgent need for the banks to deal with arrears on residential loans in a more meaningful manner. More long-term solutions are required.
For demonstrably non-performing loans, enforcement and repossession with debt write-offs are the only viable solutions. This view is echoed by the law firms who believe they will see more repossession work in the coming year.
Interestingly, the firms surveyed believe that there will be more informal deals, reflecting the banks' increasing pragmatism when dealing with debtors.
We believe that this is a direct benefit of the new personal insolvency legislation, which, by giving debtors alternative options, has set clear parameters to negotiations between the parties.
Paul Wyse is Managing Director of Smith & Williamson's Dublin office.