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Among the great and the good attending a Paris soirée this week celebrating Lazard’s 175th anniversary was Bruno Roger who joined the firm in 1954 and remains eminence grise at nearly 90. He gave a stirring and extended valedictory about the Franco-American firm’s longstanding leadership in the world of global commerce.
Recent events have many on Wall Street wondering if, however, nostalgia for a bygone golden age is what mostly remains at Lazard.
Amid a deal fee slump, it shuttered several offices and sacked a tenth of its 3,000-person workforce earlier this year. It also announced a chief executive transition. The FT earlier this week reported Lazard had even considered a buyout bid from Abu Dhabi wealth fund ADQ.
Much of the evidence of Lazard’s supposed slide into mediocrity is tied to its stock price. Its shares have oscillated since its 2005 IPO but today at around $30 are not far from its $25 listing price. The S&P 500, for reference, has tripled in that time.
Lazard itself maintains that its franchise, both in its core markets in the US and Europe, remains resilient, especially as plenty of other once-formidable rivals have disappeared since 1848. They may be correct: Lazard looks like poor stock but underneath it is a largely decent business.
In 2005, it generated $865mn in deal fees. By 2021, that figure had doubled. Lazard’s asset management business had gone from about $100bn in managed assets to $200bn in that time period. The problem for stock investors was that effective doubling of the business size was noisy and tied to market swings, instead of a steady line upward.
Outgoing chief executive Ken Jacobs liked to boast that his bank was in the two best areas of high finance, neither business requiring much in the way of capital intensity. Yet, another Wall Street fee-for-service business came to dominate in the 2010s. In 2007, the private capital firm Blackstone listed its shares.
At the depth of the financial crisis those had fallen by 90 per cent. But over time, mutual funds figured out that the management fees that private equity firms charge are big, sticky and do not fluctuate much through market cycles. Blackstone today oversees $1tn and has a market capitalisation of $100bn, while Lazard’s aggregate value is less than $5bn.
“While PE profit-shares are volatile, the management fees are stable because they are based on total capital committed to the funds — which have lives of at least 10 years,” said Steve Kaplan, a finance scholar at the University of Chicago.
“Boutique investment banks rely largely on deal fees which are volatile. They do not have the stable source of income that the PE firms have.”
At a recent investor conference, incoming chief executive Peter Orszag argued that the firm had far fewer bankers in the US than rival Evercore and similarly, far fewer than rival Rothschild in Europe. Whether simply adding bodies to keep up was optimal either for clients or the underlying business is not obvious. Regardless, offering a way to simply get bigger is the kind of red meat that CEOs must serve to public shareholders at such gatherings.
Today, it is not very hard to find retired Lazard partners who claim they counselled management to avoid listing in case it proved an albatross. At the same time they acknowledge that the IPO crystallised their wealth and that the transaction was needed to clean up the firm’s messy ownership structure between existing bankers and previous shareholders.
One measure of Lazard’s underlying consistency has been its dividend. In just under two decades it has gone from 36 cent per share now to $2. Summing those dividends in effect doubles Lazard’s share price alone since its IPO. Even if the past was more glorious, the present has not been too bad.