Lazard Profit Falls 50% as Asset-Management Revenue Drops

Lazard Ltd. CEO Kenneth Jacobs
Lazard Ltd. Chief Executive Officer Kenneth Jacobs said in a statement, “Uncertainty regarding Europe and the U.S. fiscal outlook continues to be a headwind for our industry, so we remain cautious.” Source: Lazard Ltd. via Bloomberg

Lazard Ltd., the largest independent merger adviser, reported a 50 percent decrease in second-quarter profit as asset-management revenue declined.

Earnings fell to $33 million, or 25 cents a share, from $65.8 million, or 48 cents, a year-earlier, the Hamilton, Bermuda-based firm said today in a statement. Per-share earnings matched the average estimate of 10 analysts surveyed by Bloomberg.

Asset-management revenue declined 13 percent to $206.5 million. Assets under management fell 8 percent to $148 billion as $1.14 billion of inflows failed to offset market declines during the period.

Nelson Peltz’s Trian Fund Management LP last month disclosed a 5.1 percent stake in Lazard, making it the biggest shareholder, according to data compiled by Bloomberg. The fund said Lazard, run by Chief Executive Officer Kenneth Jacobs, is “significantly undervalued” and that earnings per share could increase to more than $3.50 in 2014.

Lazard gained 5.1 percent to close at $25.64 in New York. The firm’s shares have declined 1.8 percent this year.

Jacobs, who has run the firm since 2009, is transforming Lazard from a private partnership to a “transparent, shareholder-friendly” company, Trian said in a June presentation. He’s planning to widen margins, return capital to shareholders and improve governance and transparency, Trian said at the time.

Pay Structure

Peltz criticized Lazard’s pay and cost structure in meetings with senior executives before disclosing the stake, people familiar with the matter said last month. He told Jacobs the firm paid bankers more than deal flow or productivity merited, said the people, who asked not to be named because the talks were private.

Lazard paid out 63 percent of net revenue in compensation, up from 58 percent in last year’s second quarter, even as the total payout remained virtually unchanged at $285.2 million. The compensation expense was affected by vesting grants awarded in previous years, Jacobs said today in an interview.

“This relatively low ratio of 58.1 percent in last year’s second quarter has impacted the quarterly earnings comparison,” Chief Financial Officer Matthieu Bucaille said today on a conference call following the results.

Bucaille said the firm is “aggressively” pursuing cuts in both compensation and non-compensation expenses, and the results should be reflected in earnings next year.

Financial Advisory

Revenue from the firm’s financial-advisory business fell 3 percent to $243 million in the second quarter from a year earlier on a decline in capital markets and restructuring advisory revenue.

Lazard’s merger advisory revenue for the first half of 2012 increased 16 percent to $388 million, even as global deal volume declined 22 percent to $986.7 billion, according to data compiled by Bloomberg. Corporate executives have been hesitant to pursue deals amid Europe’s sovereign-debt crisis and weaker economic growth in the U.S.

“Uncertainty regarding Europe and the U.S. fiscal outlook continues to be a headwind for our industry, so we remain cautious,” Jacobs said in the statement. “Even as we pursue revenue growth, we are equally focused on expense management.”

Lazard named former Citigroup Inc. Chairman Richard Parsons, 64, to its board of directors last month.

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