Allen & Overy reported a 7 per cent fall in half-year revenues yesterday and Clifford Chance said that it was cutting more lawyers as law firms continue to suffer from the economic downturn.

Allen & Overy’s half-year fee income fell to £511 million in the six months to October 31 amid a continued slump in transactional work.

Clifford Chance, a “magic circle” rival, which recently lost its crown as the world’s largest law firm, said that it had begun a redundancy consultation with eight lawyers in its London capital markets practice. The firm said that there were no plans for further dismissals.

Falling revenues and additional layoffs at London’s elite law firms suggest that the sector is still adjusting to the financial crisis that wiped out some clients altogether and ruined the appetites of those that survived to do deals. Most large law firms have completed radical restructuring programmes in which hundreds of junior lawyers and partners were laid off as firms tried to streamline themselves for leaner times.

Allen & Overy’s overhaul was one of the most severe, with about 450 jobs lost and 47 partners leaving the firm. It is not expecting to make further job cuts, but salaries for all staff will remain frozen until May. Clifford Chance released about 200 staff and an unknown number of partners this year. Firms are also struggling under intense pressure to cut fees and gold-plate their service with other benefits, such as sending junior lawyers on free secondments to key clients.

Allen & Overy is the first big firm to announce half-year results, which are not compulsory. Wim Dejonghe, managing partner, said that the opening months of the 2009-10 financial year had been difficult, but he was more optimistic about the second half,although transactional work remained flat.

Mr Dejonghe said that the market had begun to recover in recent weeks, with the firm’s litigation, restructuring and banking practices all growing. “We’re quite confident that activity levels are trending in the right direction — but, obviously, if Citibank goes bust next week we will have to review our position,” he said.

Recent instructions flagged by Allen & Overy in its results statement include Abu Dhabi bank bailouts and American real estate foreclosures, suggesting that lawyers are still reliant on credit crunch-related work rather than more forward-looking mandates.

The firm plans to continue investing in litigation and finance and in its operations in the Middle East, Central Europe and Asia. It recently recruited two partners to its Singapore office.

Denton Wilde Sapte, a mid-market British-based law firm, also reported half-year figures yesterday, with revenues up 3.5 per cent at £88 million.

Also this week, SJ Berwin, another mid-market firm, culled its partnership. The firm, whose full-year revenues slumped by almost 50 per cent, would not confirm numbers but said that “less than six” partners were affected.

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