June 5 (Bloomberg) -- Clifford Chance LLP may lose its spot as the world’s largest law firm by revenue to U.S. competitors because of the effect of the global financial crisis on the firm’s clients.

Revenue for the London-based firm’s fiscal year, which ended on April 30, declined about 5 percent, Clifford Chance managing partner David Childs said yesterday. That would lower the firm’s fee income to about 1.26 billion pounds ($2.04 billion) and rank it behind U.S. law firms Skadden, Arps, Slate, Meagher & Flom LLP and Baker & McKenzie LLP.

Clifford Chance and other London law firms with large U.K. banks as their biggest clients have seen revenue fall as the credit crisis reined in spending by financial-services companies. Clifford Chance has dismissed about 130 salaried lawyers and 115 staff since 2007.

“Profitability will be significantly down,” Childs said yesterday at a law-firm conference in London. Revenue would be “lower if it wasn’t for sterling,” he said, referring to the currency-conversion rate for revenue coming from the firm’s 29 offices outside of the U.K.

That figure, based on preliminary results, would be topped by at least two law firms. 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.

Final revenue and profitability figures won’t be available for at least a few weeks, said Claire Gosnell, a Clifford Chance spokeswoman.

Magic Circle

Four of the “Magic Circle” law firms, Clifford Chance, Allen & Overy LLP, Linklaters LLP and Freshfields Bruckhaus Deringer LLP, reported revenue of more than one billion pounds last year. London’s most profitable five firms comprise the group.

Partner profits at Magic Circle firms will be “down anything from 15 to 30 percent, depending on how much restructuring costs they book this year,” said former Clifford Chance managing partner Tony Williams, founder of Jomati Consultants LLP.

Clifford Chance clients have included Royal Bank of Scotland Group Plc, Barclays Plc, UBS AG, Banco Santander SA and Lehman Brothers Holdings Inc.

Partner Reductions

In addition to the job cuts, Clifford Chance is reducing its partnership ranks under a plan to increase profits, the firm said in February.

“The firm was simply too large for the supply of work,” Childs said. “We went for a vote to take out up to 15 percent of our partners. We decided which groups had to slim down, then you’re down to who are the lower-performers.”

Eighty-seven percent of the firm’s partners voted for the cuts, Childs said.

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

“We now finance the firm largely through partner capital,” Childs said. “When we saw Lehman go under, we wanted to grab partner capital while the banks were still lending.”

The firm is rethinking the way its offices are staffed, Childs said. The Moscow office has been reduced from 175 lawyers to 130, while the firm is hiring in other areas.

“The Middle East is really the bright spot where the firm is still growing, still hiring,” he said.

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. The office is staffed with 240 workers handling technology, paralegal and other support work.

“If it’s not high-value, we’re going to move it to a cheaper location,” Childs said. “I don’t see why you can’t have your secretary in India if you’re bold enough.”

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

Last Updated: June 5, 2009 06:45 EDT