Over the last few weeks, I’ve spoken to a number of client firms about their experiences of 2020, and where they see the market going over the next few months. I won’t pretend this is a scientific study, or that it has a huge sample size (about 20 individuals in 20 firms) but I found it interesting, and I hope you do too.
My first take away, was how resilient our client firms are. While a few found the first lock down, challenging, all of them managed, with a mixture of home working, and minimising visits to the office.
The 2 big issues were, access to technology, and access to their “files”. Firms who had invested in cloud computing (most of them) and had digitised their paper files (far fewer) had a huge advantage. Experience ranged from simply going home and “logging on”, to panicked calls to IT support, and loading paper files into their car.
Of course, not worrying about their finance function helped!
Next, most took advantage of the furlough scheme. It was a challenge for some. For a number 80% of their furloughed employees’ salary was less (in some cases, significantly less) than the maximum grant. Some topped up the government scheme, to pay 100% of the furloughed staff members salary, but most didn’t.
Some firms took out a COVID Business Interruption Loan. Interestingly, most of those who did, found they didn’t need it, and are treating it as “low cost working capital”.
Which brings me to business activity.
This was more varied. Generally speaking, there was a short sharp shock in the second quarter. Revenue fell, in some cases dramatically, but mostly far less than people expected. Broadly the message was “it wasn’t as bad as I thought it would be”.
Different sectors held up more than others. Matrimonial and private client work (excluding conveyancing) held up best. Firms with strong matrimonial practices have remained busy throughout the year (a cynical person might correlate that with lockdown!), but general private client work was also strong. One person commented “there’s nothing like being faced with a global pandemic to make one face one’s own mortality” when reporting an increase in enduring powers of attorney, and estate planning. Sadly, a few have noted a marked increase in executory and probate work.
Commercial work was more mixed. Most deals froze at the start of lockdown. Some never came back, and very few deals were initiated in the 2nd quarter. However, in the third quarter many of the deferred deals came back, and some of our commercial firms have been very busy through the summer.
Interestingly, some commercial firms report their clients seeing the impact of the lockdown as a buying opportunity. One in particular is extremely busy with Commercial Property clients “recycling their cash” (the client’s words), into other investments. From a few firms the message I received was that there is a lot of money “out there” looking for a home!
Residential Conveyancing has had the greatest roller coaster ride, from “falling off a cliff” in Q2, to “I could be working 24hrs a day 7 days a week if I wanted to” in Q3. However, it’s fair to say that the residential property lawyers I spoke to are the least confident about the next few months.
Other more “random” observations. Agricultural work is booming – apparently “farmers have buckets of cash” at the moment. Insolvency work is very quiet …… but “watch this space”.
Which brings me to the next few months.
As I mentioned above, residential conveyancing lawyers are nervous. There is normally a dip over the holiday period, but the expectation is that with increasingly sever lockdowns, and the expectation of increased redundancies, that will be exacerbated (one person referred to the Furlough Scheme as the “Redundancy Deferral Scheme”!). A number of people reported mortgage lenders dramatically tightening their lending criteria, making getting a mortgage much harder.
Firms with a broader private client offering (matrimonial, wills and executory/probate) feel they are in a better position to weather the downturn. The few Commercial Property lawyers I spoke with, were “cautiously optimistic”. One pointed to “turmoil” in the letting market creating a lot of work.
Commercial Litigators and Insolvency Lawyers are “biding their time”!
The consensus is still that Q1 of next year will be hard, possibly very hard. I’ve written about his before. The expression I’ve heard more than once is that it’s when the “chickens will come home to roost”.
I’m not going to disagree with that assessment. The economy is in a bad spot, and the public finances are in a worse one …. but …!
There are 2 things beginning to make me think optimistically about Q2/3 next year.
First are the increasingly hysterical reports about a Vaccine. This morning Matt Hancock opined that most folks should be vaccinated “sometime after Easter”. For once the hype might be real. I hear from friends in the NHS that planning for distribution is underway, and my wife (a Doctor, and possibly the most cynical person I know) is surprisingly optimistic! A 95% effectiveness rate is extremely high (vaccines in common use, e.g. Cholera, are far less effective), and with the “Oxford” vaccine reporting a 70-90% effectiveness, we have one that is much easier to manufacture and store than the others.
Second – as with all down turns, there will be winners and losers. No doubt some sectors, and many businesses will be badly affected. However, a recurring theme in the conversations I’ve been having is that “there is a lot of cash out there”. Which makes absolute sense – look at the hole in the public finances? Very broadly speaking, the government has borrowed billions of pounds and given it (by way of grants and loans) to people. Also (and I’m sorry, but this is a little “dark”), the 50,000+ excess deaths will dramatically accelerate the passing of “inactive” wealth, to a younger generation where that wealth will be much more active.
What connects these 2 things – confidence!
The biggest problem for individuals and business over the last few months has been uncertainty and a collapse in confidence. Everybody has put off significant purchases and investments because of uncertainty, and a lack of confidence. The result – a lot of people are sitting on cash – remember the firms who have their CBILS still sitting in the bank, and all that cash “looking for a home”?
But with an effective vaccine in reach, and “the end in sight”, that confidence will return … and that cash will be looking even harder for a home.
I hesitate to predict a 2021 summer boom – I’m not an economist (!), and public debt is eye watering, but ….. there will be a lot of people, with a lot of cash, looking to “get back to normal”.
Remember the “roaring 20s” (well, at least, do you remember hearing about them – even I’m not that old!). Well, that boom happened right after the First World War …. and the Spanish Flu pandemic!
David Calder, Managing Director