July 1 (Bloomberg) -- Clifford Chance LLP, one of the five largest U.K. law firms, said its average profits per equity partner fell 37 percent to 733,000 pounds ($1.2 million) as clients cut spending and mergers, acquisitions and financing work declined.

Revenue for the London-based firm’s fiscal year, which ended on April 30, declined 5 percent to 1.26 billion pounds, the firm said today in a statement. That ranks it behind U.S. law firms Skadden, Arps, Slate, Meagher & Flom LLP and Baker & McKenzie LLP, and means Clifford Chance is no longer the world’s largest law firm by revenue.

The firm, whose clients have included Royal Bank of Scotland Group Plc, Barclays Plc, UBS AG, Banco Santander SA and Lehman Brothers Holdings Inc., has dismissed about 130 salaried lawyers and 115 staff since 2007 and is cutting 15 percent of its partners in a recent restructuring.

“When they suffer, we suffer as well,” Clifford Chance managing partner David Childs said in an interview today, referring to the firm’s banking clients. “The last 12 months were very difficult for our clients and for us.”

Clifford Chance is the first of London’s so-called Magic Circle firms to announce financials for the last fiscal year. Linklaters LLP, Allen & Overy LLP and Freshfields Bruckhaus Deringer LLP will announce their financial results this month, spokespeople at the firms said.

Top-Grossing

New York-based Skadden, Arps, Slate, Meagher & Flom, the top-grossing U.S. law firm for the 2008 calendar year, reported revenue of $2.2 billion, according to the American Lawyer, a trade magazine. Chicago-based Baker & McKenzie had revenue of $2.19 billion.

At Clifford Chance, Childs said he is optimistic about the coming year and believes the worst is over for the firm and the legal market.

“The demand for legal services is picking up,” Childs said. “There are signs there will be more activity.”

The firm is focusing on busier practices including restructuring, regulatory advice and Asia, and expecting work to increase in corporate finance, capital markets and initial public offerings later in the year, Childs said. Mergers and acquisitions and real-estate remain slow, he said.

In the past year, the firm opened offices in Abu Dhabi and Kiev and won a license enabling the firm to practice local law in Singapore. It also acquired Romanian law firm Badea & Asociatii and signed a referral agreement with the Indian law firm AZB & Partners.

As a way to cut costs, Clifford Chance is increasingly using its New Delhi outpost to perform office tasks, which saves the firm around 9 million pounds a year, Childs said at a conference last month. The office is staffed with 240 workers handling technology, paralegal and other support work, he said.

Last year, partners were asked to contribute 60 million pounds in a shift away from financing the firm through debt.

To contact the reporter for this story: Lindsay Fortado in London at lfortado@bloomberg.net.

Last Updated: July 1, 2009 09:59 EDT