Profits at many of the largest international law firms are shrinking rapidly because of an increase in costs and a decline in the number of mergers and acquisitions and public offerings, leading some to scale back hiring as they prepare for a deep global recession.

Research from the Thomson Reuters Institute, which tracks internal data from more than 160 US-based firms, found demand for M&A work fell almost 14% in the three months to the end of September when compared with the same period in 2021. While the overall number of billable hours declined less than 1% in the quarter, payroll expenses soared almost 11% and overheads by almost 13%, the institute found.

The key measure of profitability in Thomson Reuters’ quarterly index remained at the lowest level since tracking began in 2006. Analysts warned this trend would “potentially place firms under immense pressure to bring expenses under control by cutting headcount, much the same as in [the financial crisis of] 2008-09.”