Three of Wall Street’s biggest banks are demanding lower fees from elite attorneys — arguing that artificial intelligence is sharply reducing the costs of gruntwork that used to require more billable hours.
Goldman Sachs, Morgan Stanley and Citigroup are pressing outside lawyers to cut costs as AI speeds up routine legal tasks including research, document review and contract analysis, according to the Financial Times.
“If the number of hours they’re working on a matter has come down because of AI . . . our expectation is for costs to come down significantly per transaction,” Adam Meshel, Citigroup’s global head of legal, told the FT.
The shift could take aim at a business model that has long helped make partners at top firms extraordinarily wealthy.
Big Law firms traditionally boost profits by billing clients by the hour for armies of junior associates. AI can now accomplish some of that work far more quickly, potentially leaving firms with fewer hours to bill.
Top lawyers have “for a long time been compensated on the foundation of [associates billing for long hours],” Morgan Stanley general counsel Eric Grossman told the FT. “Their compensation model is now extraordinarily unstable.”
The technology’s ability to speed up legal work could amount to “a fundamental altering of the revenue foundation for these mega firms,” Grossman added.
Citi has begun asking law firms competing for its business to spell out how much they are saving by using AI, according to the report.
Meshel said a “different working model” would probably be in place within a year, adding that he wants the new arrangements developed collaboratively with the bank’s outside lawyers.
Morgan Stanley, meanwhile, plans to put most of its outside legal work out for competitive bids by the end of the year and use alternatives to hourly billing such as fixed fees, according to the report.
Morgan Stanley is still prepared to pay top dollar for the judgment and expertise of leading attorneys, according to Grossman.
He said firms could also preserve their profits by using AI to handle more matters while cutting their own costs, even as Morgan Stanley pays less.
Goldman Sachs has likewise asked outside firms for information about how much more efficiently they can perform work with AI and expects to share in the benefits, the FT reported, citing people familiar with the matter.
Goldman declined to comment to the FT. The Post has sought comment from Goldman and Morgan Stanley. A Citi spokesperson declined comment when reached by The Post.
Nearly half of large law firms surveyed this year by Citi’s law firms group said AI had already affected how they price their work.
So far, however, the disruption has been limited.
Shama Hyder, a professor of practice at the Link School of Business and creator of the Hyder Index, told The Post that the banks’ demands are feasible even if law firms cannot measure every minute saved by AI.
“Firms may not be able to calculate every minute AI saves, but they can compare similar matters based on total hours, staffing, turnaround time and cost,” Hyder said.
“Major banks have enough purchasing power to demand those numbers and make them part of competitive bidding.”
Hyder said the technology could force a rethink of the billable-hour model because clients will resist paying the same amount for work that takes far less time.
“If work that once took twenty hours can now be completed in five, clients are not going to keep paying as though it still takes twenty,” she told The Post.
“Using AI to produce the same invoice faster is not going to satisfy clients.”
The pushback comes as legal bills from the nation’s largest firms have soared.
Big Law’s hourly charges have surged since 2023, with associate rates climbing 33% to an average $798 this year, according to Persuit data reported by the FT.
Partners have seen a 29% increase during that period.
Wall Street banks are particularly powerful customers for Big Law, relying on outside attorneys for work ranging from financing transactions and mergers and acquisitions to litigation and white-collar investigations.