NEW YORK (Realist English). Three of Wall Street’s biggest banks — Goldman Sachs, Morgan Stanley and Citigroup — have launched an assault on one of the world’s most profitable business models: the hourly billing of lawyers at elite “Big Law” firms.
The banks are demanding fee reductions, arguing that artificial intelligence drastically cuts the time required for routine tasks that previously generated multi‑million‑dollar bills.
According to the Financial Times, the major financial institutions are insisting that savings from AI usage — in areas such as legal research, contract analysis and document review — be directly reflected in the cost of services.
As Adam Meshel, global head of Citigroup’s legal department, put it, if “the number of hours worked on a deal has been reduced because of AI… we would expect significant cost savings per deal.”
The Collapse of the Leverage Model: Why Partners Could Lose a Fortune
At the heart of the Big Law business model lies the so‑called “leverage model.” The concept is simple: firms hire armies of junior associates who work late into the night, billing clients for every hour at rates far exceeding their actual salaries. This model has enriched partners for decades — but now it could be on the verge of collapse.
“For a long time, high‑end lawyers were compensated based on associates billing long hours of work,” Eric Grossman, chief legal officer of Morgan Stanley, told the Financial Times. “Now their compensation model has become extraordinarily unstable.”
The banks insist that AI can perform in hours what used to take days. As Grossman noted, this could lead to a “fundamental change in the revenue base for these mega‑firms.”
New Rules of the Game: Tenders, Fixed Fees and “Sharing the Savings”
The banks have already begun implementing new payment mechanisms. Citigroup has launched a process requiring law firms to indicate in their bids how much they are saving through AI. Meshel said a “different working model” could be introduced within a year.
Morgan Stanley plans to put most of its external legal work out to competitive tender by the end of the year and to shift to alternative billing models, such as fixed fees.
At the same time, the bank is willing to continue paying top dollar for the judgment and talent of the best lawyers — but not for mechanical work that can be done by a machine. Grossman noted that firms could maintain profitability by using AI to handle a larger volume of work while reducing their own costs.
Goldman Sachs, for its part, has already requested information from firms on how much more efficiently they are working with AI and expects to “share the benefits” of that efficiency.
Numbers and Realities: Fees Are Rising, Efficiency Is Not
The banks’ pressure comes against the backdrop of rapidly rising legal costs. According to legal technology company Persuit, the average hourly rate for associates at the largest US law firms has reached $798 this year — 33% higher than in 2023.
Meanwhile, a survey conducted by Citi’s legal division found that about half of large law firms already acknowledge AI’s impact on their pricing. However, for now, that impact remains limited.
Inevitable Transformation
Wall Street’s assault on the billable‑hour model is not merely an attempt to cut costs. It is an acknowledgement that technology is fundamentally changing the economics of the legal profession. The banks, themselves active adopters of AI, can see that their legal partners are profiting from the same technology — and they are unwilling to pay for “thin air.”
As Eric Grossman summarised, “the compensation model has become extraordinarily unstable.” And that instability now threatens the very heart of Big Law — a multi‑billion‑dollar industry built on charging for human time. The only question is how quickly and how deeply AI will rewrite the rules of the game in this sector.
