Citigroup now using alternative fees for one third of all work

Citigroup now manages nearly a third of its external legal work under alternative fee arrangements, according to the banking giant's general counsel, Michael Helfer.

Speaking at a panel debate last month, Citigroup's Helfer told a US audience that the bank now manages around 30% of its external legal work under alternative fees, mainly in the form of fixed or contingency fees.

The general counsel added that his sympathy for anyone who opposes fixed fees is "minimal", adding that the vast majority of Citigroup's external work is handled on discounts to external advisers' standard chargeout rates.

The public commitment for a shift away from traditional hourly billing from one of the most influential global legal clients will be seen as evidence that so-called alternative fee arrangements are becoming widespread as companies move to cut legal costs.

Global investment banks are some of the most lucrative clients for international law firms, in boom markets typically controlling external legal budgets of hundreds of millions of dollars. However, the financial crisis has seen many banks - themselves under intense pressure - move to dramatically cut back on legal spend via hardline panel reviews.

Helfer also told delegates that Citigroup's legal department had been downsized from 1,100 lawyers a few years ago to its current size of 850.

The Citigroup general counsel, whose comments were first reported by Legal Week sister title The American Lawyer, said the two issues currently taking up most of his time are "how we manage outside counsel" and crafting "a sensible risk-reward ratio".

Other speakers at the debate, held in Washington DC on 25 September, included Skadden Arps Slate Meagher & Flom executive partner Eric Friedman, Akin Gump Strauss Hauer & Feld chairman Bruce McLean and Kirkland & Ellis chairman Thomas Yannucci.

McLean predicted that more work will be handled on an alternative fee basis due to client demand which, he argued, would change law firms' business model. Kirkland's Yannucci predicted that law firms would outsource more of their services, leading to fewer full-time staff.

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