Lazard profit drops on costs, but still beats Wall Street

NEW YORK -(Dow Jones)- Lazard Ltd.'s (LAZ) first-quarter net income fell 54% on costs tied to cutting staff, yet the investment bank posted a core profit and revenue that easily topped expectations on stronger demand for deal-making advice.


Revenue from advising the Greek government on the largest bond exchange in history along with a string of assignments on merger transactions lifted firm operating revenue 9% from last year's first quarter, to $499 million.


Financial-advisory revenue rose 21% to $277 million. Lazard is advising on three of the 10 largest mergers announced during the first quarter, including GDF Suez SA (GSZ.FR)/Electrabel's $12.6 billion deal for the 30% of International Power PLC (IPR.LN, IPRPY) it doesn't already own, the $10 billion all-stock deal combining Tyco International Ltd.'s (TYC) flow-control business with Pentair Inc. (PNR), and the $6.9 billion sale of Supervisory Board of TNT Express NV (TNTE.AE, TNTEY) to United Parcel Service Inc. (UPS).

The firm also is providing services for several large Chapter 11 bankruptcies including proceedings by Hostess Brands Inc., Eastman Kodak Co. and Tribune Co., among others.


Investment banks across Wall Street have faced a skittish M&A market since last spring as the European sovereign-debt crisis persists and investors worry about the strength of the U.S. economy.


"The macroeconomic environment has improved since last summer but remains uncertain. If this improvement continues, strategic-advisory activity will likely increase," Chief Executive Kenneth M. Jacobs said.


For the first quarter, the firm reported a profit of $25.6 million, or 20 cents a share, compared with a year-earlier profit of $55 million, or 43 cents a share. The current period includes a pretax charge of $25 million tied to reductions in staff.


On a fully exchanged basis, earnings totaled 33 cents a share, down from 43 cents a year earlier but well ahead of the 25 cents expected by analysts polled by Thomson Reuters.


Fully exchanged refers to the full conversion of all outstanding exchangeable interests held by LAZ-MD Holdings--the entity owned by Lazard Group's current and former managing directors, including executive officers.


Lazard, which is one the largest independent advisory firms globally, competes against big Wall Street banks like Goldman as well as smaller firms like Evercore Partners Inc (EVR.N) for positions on big deals. Lazard's first-quarter results were helped by its position on three of the 10 largest M&A deals, as well as its advisory role in Greece's sovereign bond exchange.

Lazard's other major business, asset management, reported a 6 percent decline in revenue. The division faced $200 million in net outflows during the quarter and a corresponding decline in management fees, though results were better than the previous period, when investor activity was at a lull.


Overall, Lazard's net revenue rose 11 percent, to $486 million from $438 million in the year-ago period.


Its operating expenses rose 23 percent, to $448.2 million from $364.6 million a year before, reflecting both the higher compensation costs and higher spending on items like office space, equipment and marketing.


Lazard's net income attributable to common shareholders dropped 54 percent, to $26 million, or 20 cents per share, from $55 million, or 43 cents per share, in the year-ago period.


Adjusting for the one-time charge, Lazard's earnings fell 23 percent, to $44.8 million, or 33 cents per share. Analysts had expected a comparable profit of 25 cents per share, according to Thomson Reuters I/B/E/S.


Lazard's shares were up 1.2 percent to $27.10 in afternoon trading. The stock was up 2.6 percent so far this year as of Thursday's close.