June 12 (Bloomberg) -- Cravath, Swaine & Moore LLP, the fifth-most profitable U.S. law firm, is offering $80,000 to incoming lawyers to defer their starting dates for a year, according to an internal memo obtained by Bloomberg News.

Cravath, whose clients include Citigroup Inc., Time Warner Inc. and Johnson & Johnson, also is requiring current summer associates who are offered full-time jobs to accept $65,000 to wait a year instead of starting in October 2010. The delayed start date for lawyers scheduled to begin work this year at the New York-based firm is optional.

“While the firm’s level of work is at or near its level before the continuing economic decline, there are many more associates at the firm today than our plans anticipated,” Cravath said in the memo to associates today. “The poor economy and the disruption at many financial institutions have reduced the rate at which our associates have left.”

The most-profitable U.S. law firms have experienced a drop in revenue as the credit crisis reined in spending by financial- services companies, slowing work on mergers, acquisitions and financings. The value of announced mergers and acquisitions totaled $691 billion this year, down 55 percent from the same period in 2008.

Cravath has advised buyers, sellers or targets on $33.5 billion in deals this year, according to data compiled by Bloomberg. The firm is advising the independent directors of General Motors Corp. in connection with its bankruptcy and defending Merck & Co. Inc. before the U.S. Supreme Court in a shareholder class action over the painkiller Vioxx.

Following Latham, Orrick

Cravath, one of the pace-setters for the top tier of law firms in the U.S. and one of the few that haven’t dismissed lawyers, is following the lead of Latham & Watkins LLP and Orrick, Herrington & Sutcliffe LLP in asking its new lawyers to take paid time off in exchange for a salary cut.

Latham, based in New York, and San Francisco-based Orrick, offered their incoming lawyers $75,000 in March to delay their start for a year. New York-based Skadden, Arps, Slate, Meagher & Flom LLP and Simpson, Thacher & Bartlett LLP have offered current associates a year off in a public-interest job for a reduced salary.

Cravath’s class of 150 incoming lawyers and 120 summer associates is “significantly larger than planned because the acceptance rate of our offers increased the size of those classes well beyond our expectations,” the memo said.

The firm will pay the deferred lawyers as much as $1,000 a month to cover student loans and the cost of medical and dental insurance, according to the memo. Up to 50 percent of this year’s incoming lawyers can defer, it said.

Starting at $160,000

Cravath, which pays its lawyers a starting salary of $160,000, slashed associate bonuses at the end of last year by as much as $80,000, citing “unprecedented conditions” in the economy. Salaried lawyers received a maximum bonus of $30,000.

Managing partner Evan Chesler has said the firm will not raise billing rates this year because of the financial crisis’s affect on clients.

The average partner profit at Cravath fell 24 percent to $2.5 million last year from 2007, placing it fifth in the U.S., according to the American Lawyer, a trade publication. Wachtell, Lipton, Rosen & Katz was the most profitable U.S. law firm with $4 million in profit per partner last year, according to the magazine.

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

Last Updated: June 12, 2009 14:10 EDT