Clifford Chance, the London-based law firm, disclosed a plunge in profits yesterday as it absorbed the cost of a radical shake-up that will lead to about 100 partners losing their jobs. It also lost its spot as the world’s biggest law firm by revenue as turnover slid by 5 per cent to £1.26 billion.

The firm blamed the impact of the financial crisis on big clients, including Barclays and Citigroup — which undertook fewer deals — for the 37 per cent slump in profits, from £1,156,000 per equity partner in 2007-08 to £733,000 for the 12 months to April 30.

Legal Business, the trade publication, said that Clifford Chance would fall to sixth in its annual survey of the world’s highest-grossing law firms, to be published next week.

Skadden, Arps, Slate, Meagher & Flom, the Wall Street firm, which billed $2.2 billion (£1.3 billion) in 2008, is expected to claim the top spot. Clifford Chance is also likely to be overtaken in the rankings by Freshfields Bruckhaus Deringer and Linklaters, two British rivals, which will announce their full-year results in the next two weeks.

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 impact of the financial crisis on practices such as banking, structured finance and private equity — the firm’s strengths — created a “perfect storm” that left Clifford Chance more exposed than its rivals, a legal consultant said.

It was the first of the City’s leading law firms to reveal significant job cuts, with about 200 fee-earners and support staff losing their jobs in London this year, while global headcount has fallen from 7,300 to 6,700. Mr Childs said that Clifford Chance would shed about 15 per cent of its partners — about 100 — as part of the shake-up.

The fall in profits is the biggest yet reported by a leading City law firm. This year smaller competitors, such as Eversheds, Herbert Smith, Lovells and Norton Rose, have announced profit falls of between 10 and 27 per cent.

Stephen Mayson, director of the Legal Services Policy Institute, a think-tank, said that law firms had been hit harder than expected but remained profitable compared with other businesses: “I suspect there are more than a few law firm clients who would be thrilled in the present climate at personal incomes within a stone’s throw of £750,000.”

Despite its troubled year, Mr Childs said that Clifford Chance remained on a solid financial footing and was committed to its international ambitions. This week it cut loose its office in Hungary but established a new litigation practice in Asia, where much of the firm’s growth is expected to occur. In recent months, it has advised on large projects in China and embarked on a strategic alliance with one of India’s top law firms in anticipation of that market opening to foreign law firms.

Mr Childs said that the top end of the legal market in the United States and Europe was seeing evidence of green shoots, with litigation and regulatory work particularly busy.

“We have no doubt that, barring an unexpected event, this year will be much better,” he said. “There will be an awful lot of issues to sort out coming out of the financial crisis and we think there will be a lot of demand for high-quality legal advice.”

Tony Williams, a former managing partner of Clifford Chance, who now runs Jomati, a legal consultancy, said that the firm’s results were disappointing but understandable, given its dependence on leading international commercial and investment banks.

Mr Williams predicted that Clifford Chance would rebound next year: “If it was a public company, its share price would have fallen markedly on this announcement and I’d be filling my boots buying shares.”

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• BGC 'set aside £40m to lure Tullett brokers'
• Legal aid review to ensure value
• Fears as 21 magistrates' courts face closure