With the announcement last week that Ernst & Young is to join Arthur Andersen and Price Waterhouse in setting-up a legal practice, City lawyers are looking over their shoulders and worrying about their profits.The prospects of the other three members of the 'Big six' entering the legal market are mixed.
Deloittes & Touche is the leading adviser to law firms and so has more reservations about entering the market than the others.
'Competing with our clients would be a serious issue for us,' says Deloittes partner William Barnes.
'Our knowledge of the sector makes us think they are the best people to do the work.'Meanwhile, a Coopers & Lybrand review recently concluded that its core business areas should be supported by legal skills.
Spokesman Tim Baxter says that a decision on how this would be done has yet to be made, but he does not rule out following the other firms in setting up a legal arm.
Tim Roberts of KPMG says his firm has the situation under review, but has no specific plans at the moment.Of course, with Law Society rules prohibiting multi-disciplinary partnerships, the accountants do not 'set up' their own practices.
As with Garrett & Co and Arthur Adnersen in July 1993, Arnheim & Co -- a new solo practice which begins on 1 March 1996 -- will form an association with Price Waterhouse and become a member of its eight-firm European legal services network (see  Gazette, 7 February, 1).But all the accountants deny they are openly competing with law firms.
They maintain a common reason for the arrangements.
'It's client driven,' says Alastair Gorrie, who co-ordinates the PW network from Brussels.
'For PW, the positioning of our legal services practice is complementary in our tax practice.
In that area, there is increasing demand for a one-stop shop.' Nick Land, Ernst & Young's senior partner, says a legal practice would simply be a natural extension of his firm's existing work.
'Much of what we do is law-related,' he points out.However, some lawyers are less than convinced.
Mark Sheldon, former senior partner and now consultant at Linklaters & Pains, and La w Society Past President, says the accountants just want to get their fingers into the legal pie.
'A lot of commercial clients don't want a one-stop shop.
They want to pick and choose.
The accountants simply look on legal work as more profitable than audit and less volatile then management consultancy,' he concludes.It is medium-sized firms, such as 90-lawyer City firm Speechly Bircham, that are most threatened by accountants.
Garrett & Co has around 60 lawyers and Arnheim & Co is aiming to employ 50 within four years.
At that size, they will only compete directly with the smaller City firms.
'Only the fittest will survive,' says Mervyn Couve, former managing partner and current head of the corporate group at Speechly.
'Obviously, solicitors won't like this kind of competition because the accountants will be able to send their clients' legal work inhouse.'This is one of the many claims which the accountants strongly dispute.
John Newton, a spokesman for AA and Garrett & Co, says it is policy for two other firms to be nominated to clients when Garrett & Co is an appropriate referral.
PW's Alastair Gorrie adds that they have a professional obligation to refer their clients to the best lawyers.
And both say that profit is not the main motivation, pointing out that the legal and accounting practices do not share fees, although Nick Land says simply: 'We wouldn't go into business if it weren't profitable.'But where Mr Newton and Mr Gorrie agree their legal practices do have an advantage is access to the accountants' international networks of law firms.
'The geographical coverage of the legal services network is our competitive strength,' says Mr Gorrie.
'Most law firms don't have the network we do.
We expect to get cross-border work from that.'But, once again, he does not convince Mr Sheldon.
'I don't think clients want a global network.
The typical multinational client will pick and choose lawyers in other countries,' he argues.The most important question, however, is whether the market can take the extra competition, particularly in the light of advances made by US firms in the City over the last two years.
Gary Born, London-based partner at US firm Wilmer Cutler & Pickering, is not sure.'There is a real question as to how much more than market can sustain in a healthy way,' he says.
Similarly concerned is John Griffiths-Jones, head of business development at Denton Hall.'The market isn't going to take all the suppliers,' he says.
'There will be an unavoidable shake-out -- particularly of the regional and medium-sized firms -- over the next few years.'Mr Griffiths-Jones thinks the accountants are a threat to established law firms.
Both he and Mr Born point to Paris as an example of their potential.
There, half of the top ten law firms are accountant-led.
'The accountants have the muscle and resources to grow fast and become major players,' warns Mr Griffiths-Jones.Mervyn Couve, though clearly threatened by the extra competition these new law firms represent, is not sure there are enough of them to have a major short-term effect.
But, in the long term, he is worried that accountants outside the 'Big six' will be encouraged to venture into law.