Lazard Ltd. climbed to the highest price in about 18 months after reporting profit that beat analysts’ estimates and the most annual merger-advisory revenue in four years.
Lazard gained 2.8 percent to $37.70 at 1:41 p.m. in New York, the highest since July 2011. The shares have advanced 26 percent this year after a 14 percent increase in 2012.
Revenue from advising on mergers and acquisitions rose 13 percent to $792.9 million in 2012 as global deal volume in the last three months of 2012 reached the highest level since the third quarter of 2008, according to data compiled by Bloomberg. Chief Executive Officer Kenneth Jacobs said resolution of budget issues including the so-called fiscal cliff of automatic spending cuts and tax increases may help spur the market to additional gains.
“We’re operating not quite at 2007 levels in advisory, but we’re pretty close to it,” Jacobs, 54, said today in a phone interview. “Things are better, and getting past the election and the fiscal cliff, and everybody realizing that life goes on, has helped as well. I think this could be a reasonable year for M&A as a result.”
Fourth-quarter earnings were $81.6 million, or 61 cents a share, compared with $1.4 million, or 1 cent, a year earlier, the Hamilton, Bermuda-based firm said today in a statement. That beat the 33-cent average estimate of 12 analysts surveyed by Bloomberg. Including $103 million in charges from a cost-cutting plan, Lazard had a loss of $5 million, or 5 cents a share.
Net income for the full year rose 9 percent to $194.9 million, or $1.44 a share, from $178.6 million, or $1.31 per share.
Financial-advisory revenue climbed 19 percent in the fourth quarter to $309.3 million from a year earlier, driven by a 40 percent surge in M&A, which increased to $233.5 million. Restructuring revenue fell 36 percent to $48.1 million.
Lazard implemented a cost-cutting plan, targeting $125 million in annual savings, to boost operating leverage through reductions in staff and non-compensation expenses. About $85 million of the savings will come from pay expenses associated with job cuts and $40 million will be from non-compensation expenses including technology and travel, Lazard Chief Operating Officer Alex Stern said on a conference call today.
Lazard cut 200 jobs globally in the fourth quarter, primarily in the financial-advisory business and support functions, Stern said today in an interview.
The firm set aside $341.8 million, or 60 percent of operating revenue, for compensation costs in the fourth quarter, compared with $337 million, or 72 percent, a year earlier.
Advisers including Lazard are set to benefit from an increase in acquisitions after agreements by lawmakers to avoid tax increases and spending cuts, David Trone, an analyst at JMP Securities LLC, said in a January note. Companies have cash and access to cheap credit, and the passage of the fiscal cliff deal should cause executive confidence to increase, Trone wrote.
“We are encouraged by the level of M&A activity in the fourth quarter of 2012,” Jacobs said today on a conference call with analysts following the results. “It indicates that CEO confidence is improving. This has been the missing element for an upturn in the M&A cycle as financing remains cheap and valuations are reasonable.”
Lazard ended 2012 with a record $167 billion in assets under management, an 18 percent increase from a year earlier, according to the statement.
Lazard’s fourth-biggest shareholder is Trian Fund Management LP, the hedge fund run by activist shareholder Nelson Peltz, according to data compiled by Bloomberg. Lazard said in an April shareholder letter it had begun a review of the firm’s businesses after Jacobs took over in 2009 to “better align the interests of employees and shareholders.”