Shares of Chicago-based Heidrick are down 32 percent over the past 12 months amid subprime mortgage losses that have Citigroup, Merrill Lynch and Washington Mutual slashing staff.

Those three are among the financial clients that account for about a third of Heidrick’s revenue. With the job market eroding, executive hiring stands to decline and some corporations may cancel searches for senior positions, analysts say.

Waning financial services demand is the “main bugaboo” for executive search firms, Tobey Sommer, an analyst with Sun-Trust Humphrey Robinson, wrote in a report last month, explaining his downgrade of Heidrick shares to “reduce” from “neutral.”

Nationwide, announced layoffs in the financial services industry soared to 153,105 in 2007 from 50,327 in 2006, according to Chicago-based employment researcher Challenger Gray & Christmas. Last week, Citigroup and Merrill Lynch announced a combined $22.5 billion in first-quarter write-downs and plans for 12,000 job cuts.

“The market is deteriorating,” the Nashville, Tennessee-based Sommer said in an interview last week. “That could make the back half of the year volatile for Heidrick.”

Analysts estimate Heidrick’s per-share profit this year will drop to $2.61, down 12 percent from $2.97 in 2007. Heidrick reports first-quarter results April 29.

For Heidrick, the financial sector’s woes raise a troublesome specter from 2000, when the collapse of the technology bubble precipitated three years of losses for the company. At the time, Heidrick generated about 34 percent of its revenue from filling tech positions, similar to what it derives from financial services now.

“Confirmed searches,” Heidrick’s key revenue generator, plunged from 7,816 in 2000 to 3,757 in 2003. Last year, Heidrick’s searches rose 15 percent to 5,102, though the fourth-quarter number dipped 4 percent. The company commanded an average fee of $114,900 per search last year, up 14 percent from 2006.

Heidrick shares ended Friday at $33.38, about 12.8 times estimated earnings, compared with an average of 13.2 for 13 companies in a human resources and employment services index tracked by Standard & Poor’s. The index, which includes Heidrick and its biggest rival, Korn/Ferry International, is down 27 percent for the past 12 months.

L. Kevin Kelly, Heidrick’s CEO since September 2006, is counting on overseas growth to offset a slowdown in the United States. Revenue in the company’s Asia operations surged 59 percent in 2007 to $78.6 million, more than double the pace in Europe and the Americas. (At $333.6 million, sales in the Americas accounted for 51 percent of total revenue last year.)

“A lot of the financial services clients, like all the other clients, are expanding internationally,” Kelly, 42, said during a conference call in February. He declined to comment for this article. “We’re seeing great demand in Asia, we’re seeing great demand in Central and Eastern Europe and the Middle East. We still have an opportunity to capture more market share.”

Filed by Meghan Streit of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com