Lazard Ltd (LAZ.N) reported a higher-than-expected quarterly profit on Thursday as the investment bank's merger and acquisition advisory business posted solid growth despite a subdued market for deals.
M&A around the world slowed in the 2013 first half to the most sluggish pace since 2009, Thomson Reuters data show.
Recession-hit European companies have put the brakes on transactions, and their healthier U.S. counterparts are taking a cautious approach amid market uncertainty.
However, Lazard advised on a number of big-ticket deals that closed in the second quarter, helped by its strong presence in the "middle-market" - midsized companies - where most of the deal activity is occurring.
"If you look at the market as a whole today, you don't see as many of the blockbuster deals that were announced every Monday that you used to see eight or 10 years ago," Chief Executive Kenneth Jacobs said in an interview. "The activity is in midsized public companies - the $1 to $10 billion or $1 to $5 billion range."
That activity is driven by mergers between midsize publicly traded companies as well as private-equity firms exiting investments, Jacobs said.
Net income attributable to common stockholders rose to $31.4 million, or 24 cents per share, in the second quarter from $30.2 million, or 24 cents per share, a year earlier.
On an adjusted basis, the company earned 45 cents per share. On that basis, analysts were expecting 33 cents, according to Thomson Reuters I/B/E/S.
Strategic advisory operating revenue rose 13 percent to $240 million, driven by a 12 percent jump in M&A and other advisory revenue.
Operating revenue from the financial advisory business was up 9 percent at $263 million.
Lazard exceeded its target for cost-cutting, after finding more room to cut costs during a firm-wide review that began last year, Chief Operating Officer Alex Stern said. The investment bank will save $160 million a year as a result of that process, up from its target of $125 million.
Lazard had to take a higher-than-expected charge of $38 million during the latest quarter related to things like headcount reductions and early contract exits. The charge is higher than the $26 million management estimated last quarter.
Lazard aims to get to an operating profit margin of 21 or 22 percent this year, and 25 percent next year, through the cost cuts. It wants to reduce compensation expenses to a "mid-to-high" 50 percent range of operating revenue, compared with a current level of 60 percent, and wants non-compensation expenses in a range of 16 to 20 percent.
Its metrics are headed in the right direction, excluding the up-front costs of its expense-reduction plan. In the second quarter, it reported an operating margin of 19.5 percent, up from 15.9 percent in the first quarter.
(Reporting by Anil D'Silva in Bangalore; Editing by Saumyadeb Chakrabarty and John Wallace)