The UK magic circle had a truly ropey year in 2004. Indeed, anyone espousing the cause of the European independent firmmight have felt vindicated. Average profits at the UK/European big four slipped across the board. Clifford Chance's average profit per equity partner (PEP) dropped from €913,000 (£644,000) to £562,000; Linklaters' from €1m (£734,000) to £674,000; Freshfields Bruckhaus Deringer managed £675,000 compared with €993,000 (£700,000) the previous year and Allen & Overy (A&O) recorded £609,000 after the previous year's €952,000 (£675,000).

The disappointing figures were borne out in each of the European practices. Clifford Chance, Freshfields and Linklaters all dipped more or less the same amount in turnover ( €23m (£15.6m), or around 2 per cent of European revenue for each firm). Of the big four, only A&O managed a minor rise, of €4m (£2.7m), creditable in the circumstances, but hardly cork-popping. Yet history shows that the UK elite owes a vast amount of its growth to its investment in Europe, Clifford Chance's merger with Rogers &Wells aside. Clifford Chance merged with major practices in Germany ( Pünder ) and Italy ( Grimaldi); Freshfields with BruckhausWestrick Heller Löber in Germany and Austria; A&O with half of Loeff Claeys Verbeke in Benelux; and Linklaters with Oppenhoff & Rädler in Germany, De Bandt in Belgiumand Lagerlof & Lehman in Sweden. And over five years, all of these mergers have delivered critical mass, virtually all of it in Europe. Freshfields has grown by 107 per cent, A&O by 102 per cent, Linklaters by 82 per cent and Clifford Chance by 62 per cent. There is no doubt that the UK magic circle is forming a European bulge bracket.

Their problem is less about market share (the four firms account for €3.78bn (£2.56bn), or 23.5 per cent, of the total market, up slightly in terms of revenue from last year's €3.72bn (£2.52bn), but down proportionally from 25 per cent of the total in 2005) and more about adapting local economies to an Anglo- Saxon model of profitability. There are several different ways of going about this, although it usually involves a degree of tinkering with the equity spread. A&O, for example, has a stretched lockstep which operates various ceilings for its partners in Benelux and Central and Eastern Europe. Clifford Chance is actively considering this as well. Freshfields, through its merger of equals with Bruckhaus, has fewer problems on that score.

The Lawyer Euro 100 shows that the UK is still the biggest and most profitable legal economy. Fifty-four per cent of the firms in The Euro 100 are headquartered in the UK. That is not even counting practices such as Mayer Brown Rowe&Maw (MBR&M) and Jones Day , which in European terms are dominated by their UK, formerly independent City firm, components

Freshfields may be biggest in Europe as a whole, but is still only fourth by turnover in London. It grossed €502.5m (£341m), while the rest of its European practice, dominated by Germany, accounted for €549.8m (£373m).

Clifford Chance turned over €568.9m (£386m) in London and €411m (£278.9m) on Continental Europe. Linklaters turned over €558m (£378.6m) in London and €354.1m (£240.2m) on the Continent. At A&O the split was even more marked: €535m (£363m) in London and €308m (£208m) in the rest of Europe.

Inevitably, revenue per partner (RPP) in London is higher than in the rest of Europe for each of those firms. Part of this is accounted for by the exchange rate, but mostly because the UK charge-out rates are at least 30 per cent higher - and as much as 50 per cent in many cases. Freshfields' RPP in London is €2.87m (£1.94m), while its European RPP is €2.29m (£1.55m).

Linklaters' RPP in London is €2.89m (£1.96m) compared with €2.2m (£1.49m) for Europe as a whole, while A&O records €2.83m (£1.92m) RPP next to its European figure of €2.35m (£1.59m). Clifford Chance lags behind its magic circle rivals on RPP, generating €2.48m (£1.68m) per partner, compared with €2.09m (£1.41m) in Europe as a whole. But what of life outside the magic circle? The second division City firms had mixed fortunes in 2004. Lovells posted good year-end figures in April 2004, but since then has been struggling badly. Its figures were buoyed by its Continental revenues: London turnover actually dropped, from €353.7m (£240m) to €324.2m (£220m). Norton Rose increased its London turnover by 18 per cent to €198.9m (£135m), meaning that Continental Europe generated €63.4m. However, it had to tackle the near wholesale defection of its Cologne operation to CMS Hasche Sigle at the beginning of 2005, which represented some €20m (£14.1m) out of Germany's total revenues last year of €44.2m (£31.1m).

Most European practices had a difficult year, so the magic circle was not alone. However, Cleary Gottlieb Steen & Hamilton, Shearman & Sterling and White & Case all delivered around a 22 per cent rise in European turnover. And Gleiss Lutz also had a stormer, with a 20 per cent revenue hike.

Perhaps attention was elsewhere; there was certainly plenty to do shoring up troublesome US practices or stemming the holes in the Asian businesses. But Europe is still fundamental to the growth prospects of the magic circle.

METHODOLOGY

The Lawyer Euro 100 charts the financial performance of the largest firms by revenue in Europe. It includes all firms that generate revenues from the UK and Continental Europe, which means it includes those US firms that have significant European operations along with the largest Continental-based outfits.

Unlike The Lawyer 's Annual Report, which is published in September, the financial year under consideration is a calendar year, the usual basis for Continental and US financial reporting. As a result, there is considerable overlap between the two publications; the global figures for the UK-based firms were first published in September 2004, although this is the first time the European portion of those results have been published. The most recent figures are for Continental and US firms and are based on their December 2004 year-ends.

As always, not every firm provided full financial results to The Lawyer . Continental firms in general are less familiar with the trend for transparency that exists in the UK, but it was noticeable this year that a significant number of European firms were prepared to give all or most of the financial details requested. However, in the interests of fairness and the fact that many partners spoke off the record, we have not identified those firms that have cooperated officially with the research and those that haven't.

Almost all firms supplied fee-earner figures, although in several cases we have estimated equity partner numbers. These figures are used to calculate key indicators such as revenue per lawyer and revenue per partner. Trainees, paralegals and consultants are not included in fee-earner figures.

Currency values fluctuated less wildly during 2004 than in 2003, but it was felt fairer to use an average exchange rate across the year than a spot rate. Consequently, all conversions are based on the UK Treasury's exchange rate for 2004 (£1 = €1.4739). Figures throughout are rounded to the nearest 1,000 when the total is in millions and the nearest 100 when it is in thousands. All profit per equity partner figures are an average.