Law firm Allen & Overy sees tough '09

By Kirstin Ridley

LONDON (Reuters) - Allen & Overy, one of Britain's "magic circle" of top law firms, saw partner profits slide 9 percent to 1.0 million pounds as a credit crunch casts its gloom over an industry which once penned record deals.

After a 46 million pound restructuring and a redundancy programme in which 47 partners or 9 percent of the total have left, the firm said on Friday it expected market conditions to remain tough.

Accepting that the year to April 30 had been "exceptionally challenging," Allen & Overy said pretax profit dipped 4 percent to 431 million pounds, although turnover was flattered by the weak pound and rose 7 percent to 1.09 billion pounds.

A credit freeze that sparked the bleakest global recession in living memory has shaken the once solid foundations of legal firms, which saw profits surge during the last boom and some partner earnings top 3.0 million pounds.

"Market conditions in the year ahead will no doubt remain challenging," said managing partner Wim Dejonghe. But he added: "We know that, despite the major uncertainties that remain in the global economy, the markets will pick up again soon."

A solid performance from businesses in western Europe and the Middle East was helped by the relative strength of local currencies. Around half of turnover came from overseas, with an even greater share expected from outside the UK this year.

Nevertheless, with once-lucrative mergers and acquisitions (M&A) remaining scarce and corporate clients curbing spending, legal practices have been forced to overhaul businesses and slash hundreds of jobs.

Rival Clifford Chance saw annual revenue fall 5 percent and partner profits plunge 37 percent to 733,000 pounds as its exposure to the battered financial sector toppled it from its position as the largest global law firm by revenue.