There are some topics of conversation that never fail to generate a perennial interest. Lottery jackpot dreams, for or against the war, England to win or go out in the group stage… Fresh-fields' finance practice. The latter may seem to lack quite the same appeal, but nonetheless it frequently gives the City's lawyers something to talk about over lunch. And the recent McKinsey review of the state of its finance practice has provided fresh food for thought on why the magic circle giant's capability in finance is perceived as being less than it could be.

By all accounts, consultants McKinsey's stock-take of Freshfields Bruckhaus Deringer has served to tell the partners what they already knew about their finance practice, but perhaps feared to openly say for themselves – that the firm still has a way to go to build up elements of its finance department on the back of its stellar reputation for corporate and M&A work and for an equally star-studded client list.

McKinsey's problem-solvers may not have produced the magic formula to propel Fresh-fields' finance practice all the way to the undisputed number one position, but the process of scrutinising the practice and its weaknesses has galvanised partners into action. A reshuffle of the firm's finance practice is underway, with the stated aim of institutionalising relationships with key banking clients, rather than chasing mandates – with Freshfields' habit of pursuing instructions rather than clients, the firm is perhaps failing to see the wood for the trees. For their part partners are playing down talk of a reshuffle, with talk of 'broadening' and 'deepening' client connections. Whatever the terms used though, change is afoot. Freshfields' head of finance Simon Hall is keen to stress that the review was intended to see how far they could push the business, and get a "cohesive vision" for the firm. "What we are trying to do is improve the quality of earnings, their reliability and predictability," he explains.

Under the umbrella of Freshfields' finance practice sit the five sub-categories of asset finance, banking, project finance, restructuring and insolvency, and structured finance. The department was built along these lines when it split from corporate in 1995. These categories reflect where the firm's current finance strengths lie – rivals cite Freshfields' project finance, structured finance and securitisation teams as top drawer. For its part, the firm emphasises its expertise in these more complex fields of finance as a precursor to explaining why it does not do a lot of the more straightforward and lucrative vanilla banking. This stance has raised eyebrows at Allen & Overy and Clifford Chance, two firms that derive huge incomes from undertaking exactly this type of high-volume banking, and that consequently raced ahead in the bull markets of the late 1990s. "I strongly believe you can do one without doing the other," says Hall, referring to the firm's 'no high volume' stance. He says that the McKinsey review strongly demonstrated that there is an appetite among clients for more finance expertise in firms other than the traditional finance duopoly.

But does it matter that Freshfields' finance practice has some rather buried links? The partners obviously think that change is required, or they would not have brought in McKinsey at such great cost (the bill is believed to have exceeded £1m). The McKinsey review will be applied to the firm generally over the coming year. But the fact that the template drawn up by the consultants is to be applied first to finance highlights that Freshfields knows where the rethinking needs to be done.

The finance practice's perceived weakness is not in the quality of its lawyers, but in its structure and size. The vast vanilla banking practices of other magic circle firms dwarf the Freshfields team, while the capital markets team sits within the corporate department in contrast to the standalone capital markets departments of its magic circle rivals.

But Freshfields, as everybody knows, is vast when it comes to corporate work. It has arguably the strongest European network of all the magic circle firms, and was an early mover into the continental markets. It may be characterised as the laggard on finance by the City, but its great rival Linklaters was the slow mover into Europe. And there is probably little need in the City and in Europe in general for another large, commoditised vanilla banking team that is modelled on the current ones.

But would building up a larger finance department result in a clash with corporate? The potential for conflicts would certainly rise. But the dominance of corporate within Fresh-fields is what has served to keep finance subservient until now. "One of the historical problems is that the banking practice gets overwhelmed by the demands of our corporate colleagues," Hall says.

But the crux of the problem, which the McKinsey review re-emphasised, and which the firm's partners acknowledge, is Freshfields' failure to cross-sell its finance practice to the key financial institution clients that currently use the firm for corporate advice. Contrary to Freshfields' aspirations, it has not become a foregone conclusion that the firm's major banking clients will automatically opt for the same firm to do all their finance work. Being transaction-focused because of corporate demands has meant that team-building around clients has suffered – something the firm is now working on as a priority.

The firm must have hoped that on the back of its 2000 merger with German finance giant Bruckhaus Westrick Heller Loeber, referrals into the finance department would consequently follow. But it looks like clients may have not always made the link to finance that Freshfields had hoped for. Changing the mindset of these clients is a tough task.

Strategic decisions taken in the 1990s have also marred the development of certain areas of the firm's finance department. Since then, debt finance has consistently been named as an area of relative weakness for Freshfields, something that them firm is clearly trying to change. Integrating the firm's capital markets lawyers into the corporate department, a move made approximately 10 years ago, arguably gave its reputation in debt less clout than that of its rivals. But earlier this year, it acted for engineering group Invensys on a £2.7bn refinancing – a high-profile instruction that showed Freshfields finally punching its weight after a strategic push to develop its track record in debt finance. Making a splash with this kind of role, as Freshfields did at the time, probably went a long way towards putting the firm's debt credentials at the front of clients' minds. This, after all, is what McKinsey concluded is the key to greater finance success.

Far from hiding its light under a bushel for a few months post-McKinsey, the firm has found good reason to shout about its finance successes. Last month, it advised Barclays Capital and HSBC on a £10bn covered bond programme for Northern Rock. It also scored points in the all-important debt field in April, advising Morgan Stanley and five other investors on a $52m (£28m) funding through secured convertible debt securities for network operator Viatel.

And the banking team has won praise for advising on a leveraged financing for Baroness Retail in the take-private buy-out of Debenhams early this year.

The strength of the firm's German practice also paid off in April on the debt side – Fresh-fields advised on € 4.18bn (£2.78bn) of debt facilities for cable operator Kabel Deutschland, through a private equity consortium including Apax, Goldman Sachs PIA and Providence Equity Partners. Globally, the highly-respected asset finance practice has secured some high-profile and complex instructions that have impressed clients. The FRANs securitisation for Air France, in which Freshfields acted for structurer and joint book-runner Credit Lyonnais, has won plaudits recently.

If the firm continues at the same level as this for a sustained period for the same key clients, the City's perception of Freshfields' finance practice will have moved closer to the image sketched out in the McKinsey review. It needs to go beyond praise on a debt-related instruction to the point where rivals no longer think it unusual for Fresh-fields to be involved in such a piece of work.

Simon Hall characterises the shake-up as a "broadening of relations" with financial institution clients. If it is to take on magic circle rivals at this kind of finance work though, it will need to invest in building up a much larger, integrated practice.

Comparing City firms' finance practices is tough, however. Every firm structures its team differently and names it differently, meaning like is often not being compared with like. Freshfields' simple structure of a finance department comprising five teams may seem crystal clear, but its strategic meanderings suggest otherwise. Linklaters does not have a named 'finance' practice, opting to split it into more specific departments that include asset finance, capital markets and structured finance and securitisation. Allen & Overy has a 'banking and finance' department, as well as more specific named teams such as debt capital markets and derivatives. Clifford Chance too, has a banking and finance department named, in addition to a separate capital markets department. So comparing top firms' finance practices is not easy, given that one firm's definition of 'finance' does not necessarily correlate with a competitor's. As far as Freshfields is concerned, size is not everything. For its more aggressive competitors, size certainly seems to count.

In April this year, Freshfields appointed finance lawyer Catherine McGonagle as head of practice development for its finance practice after a two-year search for the right person. According to the firm, McGonagle, who joined from Allen & Overy, will help partners to "build on the breadth and depth of the firm's finance offering". Better marketing is an obvious priority for Freshfields at the moment, given that the firm believes that it has the lawyers and expertise deserving of a reputation that sits with the best of magic circle finance practices. McGonagle is still settling into the job, having been in the post for a month, but it will be interesting to see what her initial presentation to the partnership concludes. Making some bold lateral hires to lend the banking work a reputational gloss could well be high up on her list. But in terms of the panels that the firm's finance department sits on, Hall stresses that they are coming from a position of strength. "I do not think there is a panel we want to be on that we are not on already, with the exception of the Barclays general panel," he says.

For a firm that boasts the logo "A history of thinking ahead", the thinking process has not been at full throttle in the finance department until now. Bringing in the consultants has injected some fresh thinking into getting the most out of Freshfields' big name clients. Now that the thinking has been set out, all eyes will be on the firm's finance department to pull out all the stops and chase clients over mandates. Finance lawyers at rival firms think that this requires a beefing-up of Freshfields' expertise. It is no doubt feasible that the firm will snare some promising young capital markets lawyers, eager to catch the practice on a wave. But hiring the big-hitters will always be a difficult game. The firm has carved itself a reputation for being the streetwise magic circle player with no airs and graces. It now has to cement its reputation among its financial institution clients as an equally viable choice for finance.