NEW YORK (Reuters) - Asset manager and advisory firm Lazard Ltd (LAZ.N) said on Thursday that it is reviewing whether to convert into a “C Corporation” from its current status as a public partnership after changes to the U.S. tax code mean such a conversion could raise its effective tax rate by about 10 percentage points.
The overhaul of the U.S. federal tax system, enacted in late December, is widely expected to give a boost to corporate earnings in the U.S. but it can penalize some companies with foreign operations.
Lazard, a boutique advisory firm headquartered in Bermuda, could be at risk of having its overseas earnings taxed twice and some earnings could be subject to U.S. taxation for the first time if it went ahead with the conversion, executives said.
The company now has to weigh those costs against the perks of a “C-Corp” structure, which include inclusion in stock indices and the possibility of institutional shareholders.
“I think we’ve carefully left open the possibility still of a conversion, but it’s going to require a lot more study,” Chief Executive Ken Jacobs said on a conference call following the release of the company’s fourth quarter earnings.
Like many other banks, Lazard reported a one-time charge from the tax changes. The hit of $420 million related to reduction in certain deferred tax assets contributed to its first quarterly loss in five years.
On an adjusted basis, Lazard beat Wall Street estimates as strength in its asset management business helped offset a decline in advisory fees.
Lazard’s stock fell more than 2.0 percent in morning trade, but retraced losses and closed up 1.4 percent. Last week, its stock traded to an intraday record of $59.80.
Lazard, seen as a bellwether for the mergers and acquisition advisory industry, worked on a number of high-profile deals during the quarter including Aetna Inc’s (AET.N) $77 billion sale to CVS Health (CVS.N). Still, this activity paled in comparison to last year which included the $130 billion merger of Dow Chemicals and DuPont.
CEO Jacobs said the environment for merger activity looked bright, particularly for large capitalization companies, but should see a pick up encouraged by the U.S. tax change.
“The factors underlying M&A activity are about the strongest they’ve been in a long time,” he told Reuters. “Really, the question is how long they persist.”
Revenue from Lazard’s strategic advisory activity, which includes fees from consulting on deals, fell 18 percent in the fourth quarter ended Dec. 31. Financial advisory revenue was down 17 percent.
Revenue from the asset management business rose 23.1 percent to a record $339 million and accounted for nearly half of total revenue.
Adjusted for the tax charge as well as a one-time gain of $203 million, Lazard earned $1.12 per share, beating the average estimate of 90 cents.
Net loss attributable to the company was $83.6 million, or 70 cents per share, in the fourth quarter, compared with a profit of $128 million, or 96 cents per share, a year earlier.
Total revenue fell slightly to $692.3 million from $705.8 million.
Reporting By Aparajita Saxena in Bengaluru and Catherine Ngai in New York; Editing by Clive McKeef