Lazard Misses Estimates as Asset Management, M&A Fees Fall

  • Operating expenses drop 21% as firm lowers compensation costs
  • Per-share profit of 50 cents misses 65-cent average estimate

Lazard Ltd., the largest independent investment bank, said first-quarter profit rose 19 percent, missing analysts’ estimates as revenue from asset management and advising on mergers declined.

Net income climbed to $66.8 million, or 50 cents a share, from $56 million, or 42 cents, a year earlier, the Bermuda-based firm said Thursday in a statement. That missed the 65-cent average estimate of nine analysts surveyed by Bloomberg. Revenue declined 14 percent to $498.2 million and expenses dropped 21 percent to $399.8 million.

Lazard derives about half its revenue from advising on deals and the rest from asset management. Merger-advisory companies have slipped this year on concern market volatility will cause executives to hesitate in pursuing deals. The financial-advisory business, which includes transactions advice, fell 12 percent to $266 million, while restructuring fees rose after a plunge in fuel prices hurt revenue at energy firms.

“This was a really tough quarter for markets, and I think we did well,” Chief Executive Officer Ken Jacobs said in a telephone interview. He said the firm is advising on a record number of deals, and most will close in the second half of the year. “Confidence always gets shaken by periods of volatility, so it’s going to take a little bit of time to get back to where it was last year.”

Lazard shares dropped 2.3 percent to $38.65 at 9:45 a.m., extending its decline for the year to 14 percent. That compares with a 2.7 percent climb in the Standard & Poor’s 500 Index for 2016.

Asset-management revenue dropped 12 percent to $240 million, and assets under management totaled $191 billion as of the end of March, down 4 percent from a year earlier. About a fifth of the business focuses on emerging-market equities, which have been improving this year.

“On the asset-management side of the business I think we’ve seen a pretty impressive rebound so far,” Jacobs said. “We had very mild outflows for the quarter of about $300 million or so, which again, given the volatility, is really quite good. Gross inflows, about record level, which signals the health of the business as a whole.”

Lazard’s expenses tied to compensation and benefits slipped 10 percent to $297.2 million. Jacobs said the full-year awarded pay ratios will be similar to last year, though the firm will take a “careful look.” He said he expects dealmaking to rebound because companies are still finding the need to fight disinflation and deflationary pressure on profits.

“M&A cycles never move in a straight line, there are ups and downs,” Jacobs said. “It’s not surprising to see a fall-off right now, but it kind of feels like to us it still has a ways to run.”

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