Clifford Chance, once the world's biggest law firm, today revealed a 37 per cent plunge in full year profits after its key banking and corporate clients were hit by the impact of the financial crisis.

Average partner earnings at the London-based firm collapsed from £1.16 million in 2007-08 to £733,000 over the 12 months to April 30.

Clifford Chance also lost its spot as the world's largest law firm by revenue after turnover fell by 5 per cent, down from £1.33 billion to £1.26 billion.

Skadden Arps Slate Meagher & Flom, its US rival, which billed $2.2 billion (£1.33 billion) in 2008, now moves into first place in the world rankings.

David Childs, Clifford Chance's global managing partner, said: "Given the scale of the financial crisis and the severity of the economic downturn, last year was very challenging for our clients and therefore for us."

The firm's banking and finance, mergers and acquisitions, real estate and private equity practices were particularly badly affected, Mr Childs said.

He attributed the steep fall in profit to the cost of a massive restructuring under which hundreds of junior lawyers and support staff have been made redundant and around 100 partners will be cut. The shake-up will result in the partnership shrinking by 15 per cent by the end of 2009-10. The total number of staff has already fallen from around 7,300 to around 6,700.

Mr Childs said that the firm continued to invest strategically and expected to return to growth next year. Practice areas such as finance and litigation were picking up, while the firm's Asian offices continued to perform strongly.

The firm's finances remained sound, he added.

"We have no doubt that, barring an unexpected event, this year will be much better," Mr Childs said.

"There will be an awful lot of issues to sort out coming out of the financial crisis and we think there will still be a lot of demand for high-quality legal advice."

Clifford Chance is the first of Britain's so-called "magic circle" to report its provisional results for 2008-09. Allen & Overy, Freshfields Bruckhaus Deringer and Linklaters are expected to announce their figures in the next two weeks.

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