Wall Street giants including Goldman Sachs, Morgan Stanley, and Citigroup are demanding that their outside legal counsel cut fees, citing the increased efficiency brought about by artificial intelligence in routine legal tasks. Goldman Sachs, for instance, is directly asking law firms to quantify the savings AI provides on their matters and is leveraging these figures in fee negotiations. Morgan Stanley and Citigroup are also pushing firms to reassess their charges for tasks like research, document review, and contract analysis, which AI can now perform much faster. Citi's global head of legal affairs, Adam Meshel, stated that if AI helps lawyers complete tasks in less time, the cost per transaction should significantly decrease, and the bank is soliciting bids that reflect AI savings.
This move by major banks highlights a shift in how legal services are valued, particularly challenging the long-standing billable hour model. Surveys indicate that a significant majority of corporate legal departments (67%) and law firms (55% in 2024, rising to 62% and 57% respectively in 2026) expect AI to reduce reliance on the billable hour. The banks' argument is bolstered by the high rates charged by top law firms; for example, a first-year associate was billed at $1,310 per hour, and 2021 graduates at $960 per hour on one bankruptcy case. If AI can streamline initial reviews, banks see no reason to pay the same prices for outdated workflows.
While law firms have seen revenue growth (11.3% in the first nine months of 2025, with demand up 4.2% in the first half of 2026), they are also facing rising expenses, including increased headcount and the costs associated with adopting AI tools. Firms are attempting to maintain profit margins by raising rates on the remaining billable hours, but clients like Goldman Sachs are losing patience. This creates a tension where clients expect firms to invest in AI for efficiency but also want to share in the resulting cost savings. The issue extends beyond law to other professional services like consulting and auditing, where similar pressures are expected as AI automates structured work.
