A record year for the City's leading law firms saw them close the gap on their New York rivals in profitability, according to research published today.

Although four of the world's five largest law firms are based in London, New York still boasts nine of the fifteen most profitable, according to Legal Business, a respected trade publication.

However, the magazine's Global 50, its annual ranking of the world's leading law firms, shows that the City is catching up.

Wachtell Lipton Rosen & Katz, a Wall Street mergers and acquisitions boutique, remains the world's most profitable corporate firm with profits of $4.4 million per equity partner last year, the magazine said.

Slaughter and May, the UK's richest firm, is second with profit per equity partner (PEP) last year estimated at $3.5 million. That edged out another New York M&A specialist, Cravath Swaine & Moore, at $3.3 million.

But the survey showed that the bottom lines of London's global giants last year were almost as impressive as their billion-pound revenues.

Freshfields Bruckhaus Deringer had PEP of $2.88 million, up 47 per cent, putting it ahead of New York rivals Simpson Thatcher & Bartlett, Davis Polk & Wardwell and Skadden Arps.

Linklaters ($2.6 million) and Clifford Chance ($2.3 million) also ranked in the top ten in PEP.

On Friday, Linklaters announced record revenues of £1.29 billion for 2007-08, matching similarly impressive increases at Allen & Overy, Clifford Chance and Freshfields. For the first time, the UK's top four each earned in excess of £1 billion in fee income.

The magazine attributed the narrowing gap in profitability between the City and Wall Street to the weakness of the American dollar, the declining influence of US companies and the rise of markets such as Russia and the Middle East, where British firms are perceived to have a cultural advantage.

The survey showed that the top 100 law firms collectively made profits last year of $29.6 billion on revenue of $77.8 billion. Eighteen firms generated revenue in excess of $1 billion.

However, Mr Baxter said that behind the record figures was a sense of pessimism that the market had peaked. He said: "Law firms in our survey are worried. Big ticket M&A work has all but dried up, and the large international financing work is scarce.

"Firms are increasingly reliant on their litigation and restructuring teams, and are looking to their colleagues in the emerging markets to keep their corporate lawyers busy."

Mr Baxter said that approximately 46 per cent of lawyers employed by firms in the survey specialised in M&A or commercial property, two of the practice areas hardest hit by the credit crunch.

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