On Monday, Lazard Ltd. kicked off the week with bad news from its fourth quarter earnings report. The investment firm reported a $4.79 million loss (0.04 cents per share versus 0.37 cents per share estimates). This compared to the previous year’s $99.9 million profit (0.77 cents per share).
So what attributed to the poor numbers? According to The Wall Street Journal, Lazard saw a decline in its advisory revenue and higher-than-expected compensation costs even with its 20 percent discretionary bonus cut at year’s end.
For the fourth quarter, Lazard’s advisory business revenue (including M&A fees, capital markets and restructuring) dropped to $260.5 million (26 percent) from the previous year along with a 20 percent drop in the firm’s asset-management unit. For 2011, revenue for this area declined 11 percent to $992.2 million.
Many of the most well-known hedge fund managers in the world engage in philanthropy, and in doing so, they often reveal their favorite hedge funds through a review of their foundation's public filings. Bill Ackman's Pershing Square Foundation invested in several hedge funds during the fiscal years that ended in September 2019 and September 2020.
At the end of the fourth quarter, average assets under management had fallen to $140.14 billion, down from 2010’s $149.46 billion.
In 2011, Lazard had been an adviser in a number of large deals including Medco Health Solutions Inc. ($34.3 billion sale to Express Scripts Inc.) and Progress Energy Inc. ($25.5 billion announced sale to Duke Energy Corp), according to Bloomberg.
In an interview after earnings were announced by the firm, Lazard Chief Executive Officer Kenneth Jacobs said, “We saw turmoil in the markets beginning in the summer, and by the mid fourth-quarter, you were really feeling the impact of that. Things that were started didn’t get completed. Things that were almost done got pushed off. That’s the nature of what happens when you get periods of turmoil.”
For 2011, Lazard’s net income was $178 million, down 36 percent. Revenue also declined to $1.9 billion (five percent).
Analysts noted a large rise in compensation costs with a 59 percent accrual ratio during the first three quarters of 2011 while the fourth quarter was 72 percent. This came from deferred pay costs from previous years including $70 million from 2007 and 2008.
According to Lazard’s executives, the compensation ratio at 62 percent of annual revenues sits at the high end of targets, again because of deferrals. To stop this in the future, the firm plans to contain this number to 23 percent of total compensation.
Lazard Chief Financial Officer Matthieu Bucaille noted in Monday’s earnings conference call, “More deferral now would just mean more expense in the future, or in other words, current income at the expense of future income.”
In an interview after Monday’s earning announcement, Jacobs acknowledged the tough market conditions in the fourth quarter but appeared more optimistic about 2012 thanks to the market’s good start as well the firm also being “off to a promising start.”
He confidence continued in Monday’s earnings conference call to analysts by saying, “The tone is clearly a little bit better now than it was in the fall.”