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Investment Banking
Lazard Posts $62.2 Million 3rd-Quarter Profit
October 27, 2010, 7:52 pm

7:52 p.m. | Updated
As deal-making goes, so goes Lazard.
The investment bank said on Wednesday that its earnings jumped 18 percent, to $62.2 million, in the thirdquarter as revenue from its core mergers and strategic advisory business grew substantially.
The firm’s results underscore a steady, if sometimes tepid, recovery in the world of mergers, as corporate boardrooms again gain the confidence to strike deals. Because of its main business of advising on mergers, Lazard is often seen as a bellwether of the deal economy.
Lazard’s results also come abouta year after the death of Bruce Wasserstein, the deal-maker who took the firm public. Under its current chief executive, Kenneth M. Jacobs, pictured, Lazard’s employee ranks and business have been largely stable.
The firm said its deal advisory revenue increased by 29 percent compared with the third quarter last year and by 10 percent from the second quarter this year, outpacing the industry as awhole. (Lazard is currently ranked eighth in Thomson Reuters’s worldwide mergers league tables, as determined by dollar deal volume.)
Bolstering the quarterly results were the closing of major deals like Coca-Cola’s asset swap with its largest bottler and the merger of United Airlines and Continental Airlines. Investment banks generally book fees when deals are completed.
“There is a step up inactivity, certainly in exploratory work for a number of clients,” Michael J. Castellano, Lazard’s chief financial officer, said in an interview. “But the question is of the timing of announcements and the trajectory of deal flow.”
For the quarter, Lazard earned 46 cents a share on revenue of $453 million. The average estimate of analysts surveyed by Thomson Reuters was 42 cents a share.
Butoverall advisory operating revenue fell 2 percent to $254.4 million,hurt by a 45 percent slide in restructuring revenue. Lazard’s bankruptcy advisory business, one of the biggest in the industry and a significant revenue engine in 2009, has slowed from last year’s peak as companies have been able to refinance their debt.
Mr. Castellano said that the firm expected bankruptcy revenue to continue todecline under the current economic conditions. He said Lazard had been moving personnel from restructuring to mergers advisory to fit needs.
Lazard’s other main business, asset management, reported a 32 percent gain in operating revenue to $208 million, as both assets under management and net inflows grew. Earnings at the asset management unit help smooth the volatile profits from deal-making.
Onequestion dogging investment banks is their compensation costs, which firms have been under pressure to contain. At roughly 60 percent of third-quarter operating revenue, or $282.5 million, Lazard’s compensation costs are high compared with its larger rivals and rose when compared with the same period last year. (On a year-to-date basis, they have declined slightly from last year.)
Mr. Castellanoreiterated that the firm was seeking to lower those costs over time and argued that Lazard should be judged on its year-end results. He added that Lazard would continue to make selective hires like that of Naguib Kheraj, the former chief executive of JPMorgan Cazenove, this month.
Lazard’s net income was reported on a fully exchanged basis, which accounted for the minority interest held in thefirm by LAZ-MD Holdings, an entity that was set up when Lazard went public to hold equity for existing and former partners. On a generally accepted accounting principles basis, the firm reported $64.1 million in net income.
Shares in Lazard closed up 1.6 percent, at $36.83, on Wednesday.

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