The world of Michele Lamarche, one of Lazard Ltd.’s top advisers to Greece on its debt restructuring, is full of meetings that never happened, officially at least.
With efforts to cut in half Greece’s 206 billion-euro ($269 billion) debt stalled and a Greek bond payment looming, Lamarche and two colleagues secretly met in Paris on a Saturday morning in December with BNP Paribas SA adviser Jean Lemierre, a negotiator for Greece’s private creditors, two people involved in the restructuring said. Out of that 30-minute meeting came the proposal to offer private creditors cash and give them and the public creditors parity on new Greek debt, said the people, who declined to be identified because the talks were private. It helped restart the negotiations.
“We had to work something out,” Lamarche, 63, said in an interview. “The alternative, Greece exiting the euro, was too dramatic for everybody. Sometimes you need to sit down with the other side, talk bluntly and in total confidence.”
Over a 30-year career at Lazard, Lamarche has negotiated such deals all over the world, always on the side of the debt-strapped sovereigns against their creditors. In Iraq, Argentina, the Ivory Coast and now in the glare of Greece, Lamarche, short, thin and elegant in her Dior suits and Christian Louboutin high heels, is among a small cast of advisers, and one of the rare women, who show up around the table for almost every major sovereign debt restructuring. Now with nations including Portugal and Spain struggling with high debt and sluggish economies, Lamarche’s work is shifting to developed markets in Europe. With Greece, the largest sovereign debt restructuring, the team is also becoming a bigger fee generator for Lazard.
“Beyond her experience and her understanding of how those deals work, her talent is her political instinct,” Lemierre, who represented Greece’s private creditors with Institute of International Finance Managing Director Charles Dallara, said in an interview. “In a stalemate, she’ll be able to stand back, use her connections and unlock the situation.”
With Europe’s debt crisis again roiling markets and pushing up bond yields in Italy and Spain, the threat of more restructurings beyond Greece remains. Portugal hasn’t sold long-term bonds in the public markets for a year and Spain, with unemployment at a European Union high of 23.6 percent, is struggling to meet budget targets. The 17-nation euro economy will shrink 0.3 percent this year, the European Commission said.
Lamarche said she hopes Europe will prevent further restructurings. It should always be the last resort, she said.
Business Is Expanding
“Everybody realized how difficult those restructurings are,” Lamarche said. “It always makes a return to the market much more difficult for a country. Portugal and Spain are making big efforts, and I hope an improving economic environment in the U.S. will help.”
Europe’s crisis is a recipe for growth in Lamarche’s business. The team is working on other assignments related to the euro crisis, she said, declining to identify them. Lazard, based in Hamilton, Bermuda, will earn as much as 25 million euros alone in fees for advising Greece over the last two years, the Greek government reported on March 21. The bigger the debt reduction and level of creditor participation, which is almost 97 percent, the larger the fees are. Lazard’s top 10 clients paid the bank about $14 million each last year on average, according to Lazard’s annual report.
“Michele Lamarche never got much publicity for her work, and she isn’t the type to care,” said Luce Gendry, a partner at Paris-based mergers-and-acquisitions bank Rothschild, who has known Lamarche since college. “Sovereign debt wasn’t something that would make the headlines as much. Now it is grabbing everyone’s attention.”
Finding consensus during that secret meeting in December was just the beginning. Lamarche, accompanied by Lazard Paris chief Matthieu Pigasse and economist Daniel Cohen, and Lemierre also had to get their own camps to accept the concept, called co-financing.
Euro-region nations had agreed to lend Greece 30 billion euros to sweeten a debt exchange, and creditors wanted it invested in securities to guarantee the new 30-year bond’s principal. Greece objected the deal was too costly and some European countries, including Germany, had technical concerns.
In the final accord, investors took the 30 billion euro-cash in the form of European Financial Stability Facility notes, and received bonds with a face value of 31.5 percent of the old ones, instead of 50 percent. The new bond and the euro-region loan have a common paying agent. If Greece defaults on the private bond, it automatically defaults on the public debt.
‘A Sensible Bunch’
It is the first time public creditors agreed to be tied up in such a co-financing with private investors in a restructuring, Lamarche said. The Greek deal was the most difficult negotiation of her career, in part because of the number of European nations and institutions involved, she said, her fingers playing with one of her golden earrings.
The secret sauce is to find creditors who share her objective to reach a deal, Lamarche said.
“It’s our job to identify the bondholders that are constructive and will be able to apply pressure on their more aggressive peers,” she said. “Everybody has their own limitations, but at the end of the day, creditors are a sensible bunch.”
Born near Algiers, the daughter of a French colonel who fought in Algeria’s war of independence, Lamarche was a teenager when she and her family fled by ferry in 1962 amid retaliation attacks against Europeans. Although she “never felt the danger,” Algeria gave her a taste for geopolitics.
“I was a child thrown into a war, and I naturally got interested in international crises,” she said.
Protesting in Paris
While attending the Paris business school HEC, she took part in the student riots in May 1968, getting “the scare of her life” when demonstrators burned the stock exchange. Rothschild’s Gendry, who used the changing times to swap the mandatory skirts for jeans at business school, recalled Lamarche as a strong-willed student who made a point of remaining elegant under any circumstances.
Lamarche won a scholarship to study for a Masters of Business Administration at the University of California at Berkeley, then a hotbed of America’s anti-Vietnam war and hippie movement. There, she stuck to her studies to “graduate in one year, get into business and earn my own money.”
After graduation, she turned down a job with Bank of America Corp. to join a French state-owned institution that helped small businesses export. She quit a few months later after realizing she was paid less than her male colleagues.
She called back Bank of America, working in Paris and London, helping to arrange financing for companies such as Algeria’s state-owned gas producer Sonatrach, and forging friendships with executives such as Christophe de Margerie, who heads French oil company Total SA.
In 1982, she joined Lazard’s international department in Paris, which had been created by Helie de Pourtales, a partner who in the 1970s helped Indonesia reschedule its debt. She and a colleague started a unit that helped lenders swap their sovereign holdings. She hired former Bank of America colleagues, including Eric Lalo, now a managing director of the department. Her team was allowed to invest some of their profit, and the bank started building its own sovereign debt trading book.
When the late Bruce Wasserstein took over Lazard in 2002, deciding to take the firm public in New York and focus on advisory, Lamarche won mandates in Argentina, the Ivory Coast, Gabon and Iraq. Under Pigasse, the unit added advisers such as Cohen, a vice president of the Paris School of Economics, and Mark Walker, a former managing partner at law firm Cleary Gottlieb Steen & Hamilton LLP who has worked on debt negotiations for five decades.
‘Crisis Isn’t Over’
“This department has become very important for Lazard,” Pigasse said. “It gives us unparalleled insight into the European sovereign debt crisis and all the other businesses benefit. Unfortunately, I don’t think the crisis is over, Europe’s growth prospects are bleak.”
Pigasse, a former government cabinet member, Cohen and Walker worked on the Greek talks with Lamarche. Walker, in years of debt negotiations, is known for making aggressive demands and sometimes storming out of the room when talks reach an impasse, according to creditors. Lamarche is known for seeking consensus, they said.
“I don’t know if putting Michele and Mark together was intentional, but it worked because they are complementary,” said Hans Humes, president of New York-based hedge fund Greylock Capital Management LLC, who was part of the private creditors’ committee negotiating with Greece.
Baghdad’s Back Streets
Lamarche’s connections are stunning, Pigasse said.
“I would go to her and say, ‘I need to talk to this finance minister, whom I don’t know, at 3:15 p.m. today.’” he said. “She would come back an hour later apologizing, ‘Sorry, I only got 3:20 p.m. with the prime minister.’”
While most debt negotiations are held in cities such as London, Washington or Paris, Lamarche has also learned her way around the countries she advises. She recalled being shocked by Baghdad’s deserted streets when speeding through the city on a scorching July day in 2009. She regularly visits the west African country of Mauritania, where al-Qaeda in the Islamic Maghreb, the terrorist group that kidnapped and killed foreign hostages, operates.
One day, after visiting Mauritanian officials, she and Cohen found themselves in a dune-buggy stuck in the sand with two guides on an isolated beach. It was getting dark, they risked missing their flight and Cohen started fretting.
‘No Big Deal’
“The whole situation was actually very funny,” Lamarche said. “So we were going to miss our plane. No big deal.”
Lazard’s focus on advisory and its choice not to work for creditors explain why governments hire the bank, according to Pigasse. The credit crisis has accentuated this need, allowing the bank to regain market share lost to the larger institutions in the 1990s, he said.
“If you are JPMorgan Chase & Co. or Citigroup Inc., you’ve probably underwritten sovereign bonds and you have a conflict,” said William D. Cohan, a former Lazard banker and a Bloomberg columnist. “Lazard has a competitive advantage because they have been in it longer. Spain, Portugal, Italy, they want the people who’ve done it for Greece, whether they need to go down that path yet or not,” said Cohan, who wrote a history of Lazard titled “The Last Tycoons.”
Some of Lazard’s work has had varying degrees of success.
More than 10 years after defaulting on $95 billion in debt, Argentina is still excluded from world credit markets and relies on central bank reserves and a local pension agency to pay its debt. The country continues to fight litigation from hedge funds that opposed the restructuring.
No Retirement Plans
Lamarche’s team also advised BTA Bank, which was taken over by the Kazakhstan government in 2009, just before it defaulted on $12 billion of debt. BTA’s bonds were restructured in 2010, and the bank failed to make a $166 million interest payment in January. It is now seeking a second restructuring, with Lazard’s help. Kazakhstan is ranked 120th of 183 nations in Berlin-based Transparency International’s 2011 Corruption Perceptions Index, and parliament changed the constitution in 2007 to allow President Nursultan Nazarbayev to be re-elected indefinitely.
Lamarche, who has raised three daughters from two marriages and spent half her time outside France over the past year, said she doesn’t plan to retire any time soon.
“My job is fascinating intellectually, and it is amazing to help a country jump back on its feet,” she said. “It’s so rewarding.”