Lazard Ltd (NYSE:LAZ) (FRA:LBJ) reported a drop in its first-quarter profit by 40 percent, pushing overall results well below Street expectations.
The result reflected the quarter-over-quarter volatility inherent in the financial advisory business. The midsize investment bank was hit by a slump in fees in a subdued merger and acquisitions market. However on the positive side, record asset under management helped post a double-digit y/y management fee growth and management’s current restructuring effort appears to be on track.
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Lazard Ltd (NYSE:LAZ) (FRA:LBJ) reported 1Q13 non-GAAP EPS of $0.28 well below the Street consensus $0.31. Its 1Q13 GAAP EPS was $0.12 that includes total pretax charges of $26 million related to ongoing restructuring initiatives.
Interestingly Lazard Ltd (NYSE:LAZ) (FRA:LBJ) and its rivals such as Greenhill & Co., Inc. (NYSE:GHL) and Evercore Partners Inc. (NYSE:EVR) had benefited from a rush of beat-the-clock transactions in the fourth quarter. These deals were largely timed to get done before higher tax rates kicked in for 2013.
The number of deals announced in the first quarter was the lowest in nearly eight years. Besides most of the deals announced were mostly larger deals that would benefit bigger banks who can offer financing capabilities.
Some of the merger-advisory assignments that Lazard Ltd (NYSE:LAZ) (FRA:LBJ) was involved with during the quarter include advising Microsoft Corporation (NASDAQ:MSFT) on its role in Dell Inc. (NASDAQ:DELL)’s $24.4 billion going-private transaction, Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE) on the $29 billion combination of T-Mobile USA and MetroPCS Communications Inc (NYSE:PCS), Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and 3G Capital in their $28 billion acquisition of H.J. Heinz Company (NYSE:HNZ).
Lazard Ltd (NYSE:LAZ) (FRA:LBJ)’s asset management revenue for the first quarter was $240 million, down 2% quarter-on-quarter, but up 14% year-on-year. However its total financial advisory revenues of $168.5 million were down 46% quarter-on-quarter, 17% year-on-year.
Compensation as a percentage of revenue fell to 60 percent from 62.7 percent from a year earlier, still a higher ratio than its bigger Wall Street rivals Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group, Inc. (NYSE:GS).
Raymond James in its today’s report feels the management is on track to complete previously announced cost savings initiatives by the end of 2Q13, besides identifying additional cost saving opportunities. It is felt the full impact of recent and ongoing cost reductions is expected to be in place by 2014.
Lazard Ltd (NYSE:LAZ) (FRA:LBJ) also announced a 25% increase to its quarterly dividend to $0.25 per share from $0.20 per share. It also repurchased roughly 1.8 million shares for $59 million during the quarter.