Some of Wall Street’s biggest banks have lobbed a grenade over the billable-hour wall, telling their outside counsel that legal bills should be shrinking as a result of savings from artificial intelligence. The question now is whether the lower costs the banks are claiming are real—or, for the moment at least, an AI-style hallucination.
The Financial Times broke the news on Sept. 1 that Citigroup, Morgan Stanley, and Goldman Sachs have told law firms they want new billing arrangements that would help them avoid paying top price, especially for associates. Citing data from legal technology company Persuit, the newspaper noted that hourly billing rates for Big Law associates currently average $798, a 33% increase since 2023.
Since the FT’s initial report, The New York Times and a cavalcade of other business and legal publications have picked up the thread. On Sept. 26, The Times wrote that in-house legal teams are now routinely asking firms to reduce bills by 20% to 30% across the board because of perceived AI savings, figures the paper attributed to Legora, another legal tech company. As one Big Law partner told the newspaper, clients see firms using AI and want to know “what does that mean for us?”
- Wall Street banks are pressuring law firms to cut fees, arguing AI should reduce routine legal work costs by 20% to 30%.
- Citi, Morgan Stanley and Goldman Sachs are pushing competitive bids and fixed-fee models while questioning rising associate rates, which average $798 per hour.
- Law firm demand tells a different story. Citi and Wells Fargo data show billable hours, revenue and client demand all climbed in 2026.
- The article examines whether AI savings are real, how verification costs may offset efficiency gains and why more corporate clients may soon demand lower legal bills.
What the Banks Are Doing to Cut Putside Counsel Costs
The banks, as most of those reports have underlined, are core clients for Big Law and are setting an agenda other corporate law departments may be eager to follow. Here’s what they are asking firms to do:
Citigroup told the FT that it is now requiring law firms to bid for the company’s legal work. As part of that process, the company is asking firms about their AI use and how much the technology is reducing their costs. Citi’s global head of legal told the newspaper that the approach is designed to create an alternative approach to its outside legal work that should be operating “within a year.”
Morgan Stanley’s general counsel confirmed to the FT that the bank will also set up a competitive bidding process and look for alternative fee arrangements “such as fixed fees.” While the bank said it would continue to pay premiums when top law firm talent is required for a matter, it expects that AI will reduce legal bills overall. The GC also asserted that embracing AI to improve efficiency should allow firms to “remain profitable as before,” the FT reported.
Goldman Sachs reportedly asked its outside counsel to provide information about how AI was improving efficiency, the FT also wrote. If law firms are lowering costs, the bank expects them to pass along the savings, the newspaper said, quoting anonymous sources. (The investment bank declined to comment about its efforts for the FT’s report.)
Other banks have joined the fray as well. The American Lawyer, quoting an unnamed Am Law 100 partner, reported on Sept. 22 that JPMorgan Chase and Bank of America were also among the financial institutions that had asked firms about AI, efficiency, and cost savings. That partner told the publication that banks have “a large opportunity” to use AI for routine regulatory compliance, anti-money laundering, sanctions, and due diligence work.
Why Corporate Clients Are Pushing Back on Big Law Billing Rates
Financial institutions are attempting to push back on a series of issues around legal expenses that have long caused consternation among corporate clients. One is law firms charging partner-level rates and racking up billable hours for associates working on often routinized or repetitive tasks, such as contract review or legal research. With AI, the banks now believe firms should be able to dramatically cut the time needed to handle such work.
Corporate clients have also noted the soaring revenues and profits Big Law has logged in the last few years. In 2025, the Am Law 100 alone saw revenue grow by 13% and net income jump 16.3%, according to The American Lawyer.
And partner rates have climbed as well. Hourly rates for partners have risen 29% during the last three years, the FT said, quoting Persuit data. In a much-discussed article published in February, The Wall Street Journal, also citing Persuit data, reported that hourly rates for some senior partners have now topped $3,400. Rates at that level, however, are usually reserved for star lawyers handling bet-the-company deals or litigation, the Journal acknowledged.
The Banks’ Own Data on Law Firm Demand and Billable Hours
While data and news coverage abound about rising rates and the premiums clients are paying for certain legal talent, the evidence that artificial intelligence substantially reduces the amount of work law firms are performing is much harder to find. And some of the most inconvenient data for the banks’ arguments come from their own analysts.
In August, Bloomberg Law published stats from Citi’s own Law Firm Group showing a big increase in demand for law firm services during the first half of 2026. Firms, Citi said, saw revenue growth of 11.7% and 4.2% growth in billable hours year over year—more than double the usual growth average of 1.5% to 2%.
Wells Fargo showed even stronger growth during the first half, according to Reuters. Revenues grew 12.4%, an increase from the 11.2% surge during the same period in 2025. The bank said demand was up 4.8%, a figure that is “near the highest” it has ever reported, Reuters said, adding that the number of hours lawyers are working has been gathering momentum since the second half of last year.
At the same time, Reuters quoted Wells Fargo’s data showing that productivity was up 1.8% in Q1 and Q2, following a decline in the first half of 2025. The bank’s numbers also showed that expenses grew 9.6% in the first half of 2026—this despite a decline in the growth rate for lawyer headcount, Reuters said.
‘More Hours Than Ever’: Is AI Actually Reducing Legal Work?
These are hardly the data points one might attribute to an industry being hollowed out by AI-driven automation or that describe clients who need less help from their outside counsel. And in the legal industry, as in any other business sector, pricing usually follows demand. As Bloomberg Law’s Roy Strom noted in a Sept. 3 column, clients are insisting that AI is already saving time and effort, yet they are generating more work and “paying for more hours than ever.” If AI was saving so much time, “hours should not be going up,” he said.
It’s a compelling argument, as is another point raised by Strom. If AI does indeed end up saving lawyers time, wouldn’t the long-derided billable hour be a valuable tool for clients eager to ensure they are being charged appropriately? Banks want to move toward competitive bids and fixed fees, he wrote. But with law firms paying for AI tools, associates billing fewer hours, and costs going down, “what better pricing model could exist?” he asked.
In the same article, Citi’s head of advisory services framed a move away from the billable hour as a golden opportunity for Big Law. She also acknowledged that clients may come to favor hourly billing if AI really does make work go faster. Quoting data from Citi, Strom noted that two-thirds of firms have told the bank that associates are using artificial intelligence every day. So are half the partners. Why then has AI not resulted in a plunge in the hours lawyers are working? Strom suggests firms are now devoting the additional time to other client services “or more thorough work.”
Indeed, as we wrote on Sept. 23, law firms fear that AI will require a “verification tax” because it is not clear legal AI tools can deliver outputs that can be trusted without human verification. As many as two-thirds of senior legal professionals in a recent survey by Morae, a legal technology company, feared that verification costs may undermine the efficiency gains delivered by AI tools.
What to Watch: Law Firm Benchmarking Data and the Next Big Law Clients
Upcoming law firm financial benchmarking data may provide additional clues about AI’s impact on billable hours. Thomson Reuters’ next Law Firm Financial Index should arrive six weeks or so after the end of the third quarter. And Citi’s review of the first nine months of the year traditionally arrives in December.
Even then, the data is unlikely to settle lingering questions. If demand slows, that may reflect broader economic conditions as easily as automation. The numbers may, however, demonstrate whether the gap between the AI-related savings clients are claiming and time spent on their work is beginning to close.
The other issue to watch is whether other big clients sign onto the banks’ campaign. Already, JPMorgan Chase and Bank of America have jumped into the fray. If the banks are able to drive down their outside counsel costs by a substantial margin, other corporate heavyweights outside the financial services sector will almost assuredly follow suit.
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David L. Brown is a legal affairs writer and consultant, who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times, and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms as senior content consultant.