(Corrects name of COO to Alex Stern, from Alex Smith in
paragraph 7, drops reference to morning trading in paragraph 8.
Corrects ticker symbol for Dell Inc to DELL.O, from DELL.N in
* Adj EPS 61 cents vs analysts' estimate 33 cents
* Financial advisory business revenue rises 19 pct
* 4th-quarter revenue rises 22 pct to $574 mln
By Lauren Tara LaCapra
Feb 7 Lazard Ltd posted
stronger-than-expected fourth quarter results on Thursday as it
made more money from advising companies on deals, and it said
its mergers and acquisitions business may be at only the
beginning of a long-awaited recovery.
The three necessary conditions for a mergers rebound are in
place: valuations are reasonable, financing is available, and
executives are confident now, said Lazard Chief Executive Ken
Jacobs, noting that for a long time, confidence was the missing
"The macroeconomic environment is better going into 2013
than it's been in awhile and that helps our business generally,"
Jacobs said in an interview. "Between our two businesses, we've
never been positioned better historically than we are today."
Lazard's main businesses are advising on acquisitions and
restructurings, and asset management. The bank's advisory
revenue rose 19 percent to $309 million in the fourth quarter
from the same quarter a year ago, while its asset management
revenue rose 20 percent to $245 million.
The recent uptick in deal activity is a welcome gift for
independent advisory firms like Lazard, whose profits are more
weighted in deals than bulge-bracket rivals like Goldman Sachs
Group Inc or Morgan Stanley, which rely more
heavily on trading.
Lazard said it also made progress on an expense-savings plan
it announced in April.
Chief Operating Officer Alex Stern said the firm has been
getting out of businesses with low-growth potential or low
productivity, and that about 200 employees will be leaving as a
result. Lazard has also consolidated some operations onto the
same support staff and technology platforms, and ended contracts
with outside firms that provide data, technology and real-estate
services to reduce costs, he said.
Shares of Lazard were up 2.8 percent to $37.69 in afternoon
trading. As of Wednesday's close, the stock was up 23 percent
"A solid quarter for Lazard should be interpreted positively
by investors, and we would expect the stock to continue to move
higher today despite what has been an impressive run recently,"
Sandler O'Neill analyst Devin Ryan said.
Overall, Lazard reported a fourth-quarter net loss of $5.3
million, or 5 cents per share, compared with a net loss of $4.8
million, or 4 cents per share, a year earlier.
Excluding special items like expenses related to its
cost-cutting plan, Lazard earned 61 cents per share. Operating
revenue rose 22 percent to $574 million.
Analysts on average were expecting earnings of 33 cents per
share, on revenue of $477.2 million, according to Thomson
Like Lazard, rival Evercore Partners reported robust
results due to an uptick in merger activity in the final quarter
of the year.
For several years, Lazard and other independent firms as
well as regional banks have been gaining market share from
Boutique banks say they are less conflicted when they advise
clients, because they are not trying to sell other services,
such as underwriting, to clients.
Over the past 12 years, large Wall Street firms' share of
advisory fees has dropped significantly while the share of
smaller, independent firms' has grown, according to Thomson
Nine bulge-bracket banks including Goldman, Morgan Stanley
and JPMorgan Chase & Co saw market share decline to 44
percent in 2012 from 63 percent in 2000. A group of 21
independent firms including Lazard, Rothschild and Evercore
Partners Inc, saw their share climb to 21 percent from
10 percent over that same timeframe.
Lazard, which ranked eighth in the league tables last year
with $734 million in fees, earned 4 percent of the merger
advisory fees in the industry, up from 3 percent in 2000. It has
been named as an adviser on several large deals recently,
including advising Microsoft Corp on its role in Silver
Lake Partners's planned buyout of Dell Inc.
On a conference call with analysts, Jacobs said Lazard
outperformed competitors in several markets last year. Its
European advisory revenue was flat compared with an overall
decline of 32 percent for the industry, and its U.S. advisory
revenue was up 17 percent compared to just a 2 percent gain for
Overall, Lazard's advisory revenue is close to its all-time
peak, reached in 2007, said Jacobs.
COST CUTTING PROGRESS
In April, Lazard outlined a plan to achieve an operating
margin of 25 percent in 2014 through headcount reductions and
other cost-savings initiatives, even if revenue does not
However, because of a four-year deferred compensation plan
in 2008 that has dragged on results, and expenses related to the
cost savings plan, like severance and payments to exit contracts
early, the savings have not yet reached the bottom line.
In 2012, Lazard's operating margin was flat at 16.8 percent.
But executives said the firm is on track to meet its target next
year, and that they expect a margin of 21 to 22 percent this
Ultimately, Lazard aims to save $125 million a year from its
cost-cutting plan, and aims to push its compensation ratio down
to a range of 55 to 59 percent, and push non-compensation
expenses down to a range of 16 to 20 percent. Its compensation
ratio of 61.8 percent and non-compensation ratio of 21.4 percent
last year were still short of those goals.
(Reporting by Lauren Tara LaCapra in New York; Additional
reporting by Avik Das in Bangalore; Editing by Supriya Kurane
and Leslie Adler)