‘Magic circle’ law firm profits overtaken by US rivals - telegraph.co.uk

London’s “magic circle” law firms have lost their status as the most profitable in the City after being overtaken by rivals from America.

The five elite firms – A&O Shearman, Clifford Chance, Freshfields, Linklaters and Slaughter and May – have fallen down the rankings of the partnerships with the highest profits per lawyer, according to analysis by Law.com.

The magic circle is made up of the corporate law firms that were traditionally the most profitable and best-known in the City of London.

Now, only one of the magic circle, A&O Shearman, ranks in the list of London’s 10 most profitable firms. The remainder are all from the US.

It marks a stark loss of position compared with last year, when both Freshfields and Slaughter and May were in the top 10.

However, in recent years, the firms have faced aggressive competition from a cohort of highly profitable US rivals, which have all led major expansions in the UK.

All of the magic circle firms apart from London-focused Slaughter and May have led similar drives into the US in response. None has been as successful in the US as their transatlantic rivals have been in Britain.

Paul Weiss, a so-called “white-shoe” New York law firm, is now the most profitable in London with average revenues per lawyer of more than £2m.

By contrast, A&O Shearman only managed 10th place on the list of law firms with the highest profits per lawyer, at £1.2m.

Of the 18 firms with average revenues of more than £1m per lawyer, 14 were from the US. UK firms Freshfields and Slaughter and May took the 14th and 15th positions.

US firms included among the top 50 London outfits expanded their revenues by 14.7pc last year – double the rate of their British counterparts, which grew at 7.1pc.

Top US firms have increasingly outbid their British rivals in the fierce competition for talent by offering much higher salaries for newly qualified lawyers and offering top partners packages in the millions of pounds.

Paul Weiss, Davis Polk and Gibson Dunn, some of the top US firms with operations in London, all pay £180,000 salaries to their freshly trained lawyers while the magic circle firms pay only £150,000.

Quinn Emanuel, a Los Angeles litigation specialist, became the highest-paying firm in the City this month, upping its salaries for newly qualified lawyers in its London offices to £189,000 a year.

Equity partners at US firms also take away significantly higher payouts than their rivals. Kirkland & Ellis, the Chicago law firm that has focused on big-ticket private equity deals and leveraged buyouts, currently has the highest average partner payouts of any City firm at more than £8m each.

Partners in the magic circle, on the other hand, earned payouts of £2m each last year. Linklaters partners were the highest paid at £2.2m each while Clifford Chance paid £2.1m and Freshfields and A&O Shearman both paid £2m each.