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Citibank has punished Freshfields because the firm is acting in litigation against the bank over the collapse of a company in Singapore.
Citibank's work is said to be worth about £10m a year in fees to the firm.
Freshfields is representing Prince Jefri Bolkiah and the Brunei Investment Authority against Citibank in a complex dispute over the assets of the failed Amedeo Development Corporation in Singapore, which collapsed last year with debts of $6bn (£3.8bn).
A source says: "The Citibank board have reacted very badly to a letter that Freshfields wrote to them.
"I would guess, knowing the kind of letters that litigators write, that it was quite fruity.
"A number of the finance partners at Freshfields are extremely disturbed by Citibank's decision.
"Freshfields hasn't got a particularly strong finance practice, but Citibank is one of the banks they have a good relationship with. It's one of the examples of what happens to a firm that is trying to build a finance practice but where the firm is more committed to its corporate practice.
"If you act for borrowers you can upset your banking clients very easily."
A banking source at a top City firm says: "Most US banks take a very negative view of any law firm that acts for them issuing proceedings against them on behalf of another client.
"My experience is that it is not irretrievable, but it can last for four of five years if you are blackballed."
Sources indicate that Citibank will not take Freshfields off work already in progress.
"That would not be in their interest," says one.
Clifford Chance is understood to be the chief beneficiary of Freshfields' row with the bank.
A Freshfields secondee at Citibank is believed to have been told to return to the firm, and Clifford Chance is understood to have acted quickly to fill the gap.
"Citibank is a core client of Clifford Chance and they would be very sensitive to anybody else getting Citibank work and it would be an ideal opportunity for them to ride to the rescue," says a source.
The dispute is also understood to have scuppered Freshfields' attempt to lure highly-rated banking partner James Johnson from Wilde Sapte.
Sources tell The Lawyer that Johnson, whose clients include the US banking giant, has decided to call off discussions with Freshfields because of the loss of the Citibank work.
Johnson would not comment on his talks with Freshfields other than to say: "Citibank and Salomon Smith Barney are all part of Citigroup, and, yes, they are a very large client of mine."
Banking partners at Freshfields are understood to be angry that Citibank's decision has made Johnson decide not to join the firm.
A Freshfields spokeswoman says: "We cannot comment on specific client-related matters.
"We can confirm we continue to act for Citibank in a number of areas."
Laurie Adams, general counsel at Citibank, says: "We would not comment on any matters between ourselves and our law firms.