Can Anyone Run Lazard?
A year ago, investment bank Lazard Freres seemed to be getting its house in order. To smooth discord between the recently merged New York and European branches, William R. Loomis, a Lazard veteran, was appointed as the united firm's first American chief executive officer. The bank made several other moves, including setting up a generous compensation plan to stem high-level defections after key New York partner Steven Rattner left in March, 2000.
Today, none of that seems to have made much difference. Lazard is adrift again--just as the entire investment banking business is going through its roughest patch in at least a decade. Loomis resigned on Oct. 24 "to pursue other interests." Says one senior partner: "We all supported Bill. He was saying the right things, and we felt it was going to work." But under Loomis, Lazard's woes worsened. Fights broke out over the profit split among New York, London, and Paris, and frustration mounted over the reluctance of imperious Chairman Michel David-Weill to share control. Now, the question is whether the discord will push David-Weill, 69, to create a viable succession plan.
Insiders say Loomis quit because he lacked the authority to shake up the firm and restore its role as the indispensible transatlantic dealmaker. But one person close to the bank says Loomis may have grown weary of the battle: "Bill's been here for 24 years. Maybe he didn't want to go through another struggle." Loomis, who wasn't available for comment, will stay on as a nonequity partner.
Loomis had a tough task. The merger David-Weill forced on the three houses in early 2000 ran into major problems after the broad market downturn. The deal valued the New York office, traditionally the big moneymaker thanks to its roster of blue-chip American clients, at three times the assumed value of the French and British operations. That meant the American partners got the lion's share of the firm's income. Yet thanks to such coups as the Lazard-engineered takeover by Pirelli of Telecom Italia (TI ), Europe now makes up 77% of the firm's global mergers-and-acquisitions business, compared with 59% in 2000. Lazard's U.S. M&A deals total only $14.5 billion year-to-date, compared with $44 billion a year ago. Lazard's New York office has offset a chunk of its lost M&A work through its restructuring practice. Nonetheless, on Oct. 31, Lazard announced that it will lay off 50 of its 200 New York bankers.
Rebalancing the merger terms is fraught with dangers, since that would alienate the New York crowd. "At the same time," says a European partner, "if you don't rebalance, you're going to continue losing [European] partners. The cake is just too small." Compounding the problem is Lazard's ownership structure, which hives off 40% of earnings to David-Weill and a band of allied families called "capital partners."
What does Lazard need? Almost everyone says strong leadership--to bring in business and to ensure a successor to David-Weill, who has held the reins since 1977. That's easier said than done. Ex-Morgan Stanley Dean Witter & Co. exec John J. Mack was considered for Loomis' job, but he went to Credit Suisse First Boston instead.
WHO'S NEXT? David-Weill has also approached dealmaker Bruce Wasserstein, who sold his own investment bank in January. Sources say Wasserstein declined. "Who would take this job?" asks a close ally of David-Weill. "Bruce would demand absolute control, and I don't think Michel would give it." Then there's Gerardo Braggiotti, who left Italy's Mediobanca in 1997 for Lazard. He masterminded the Pirelli-Telecom Italia deal and is one of the firm's most talented European rainmakers.
One source contends Lazard isn't as immutable as it appears. David-Weill knows he needs a strong successor, this person says. "Things have changed. Michel's not getting younger, and he's not a stupid man by any means." Would Lazard sell out to a big investment bank when business turns up? Insiders note that partners would get very rich from selling their interests. The Lazard saga is far from over.
By John Rossant in Paris, with Julia Lichtblau and Susan Zegel in New York