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October 24, 2013 4:27 pm
Lazard reported an 81 per cent rise in third-quarter profit as revenue increased at both its asset management and advisory businesses.
In the independent investment bank’s first quarter since it completed its restructuring plan, net income rose to $60m as revenue at its asset management arm increased 13 per cent, partly due to strong inflows to emerging markets. Total revenue, adjusted for changes in the value of the bank’s debt, rose 10 per cent to $489m.
Lazard announced a restructuring of its business in the third quarter last year, aiming to cut costs and reposition itself after the global financial crisis. The bank has been under pressure to improve margins after Trian Partners, the activist investment firm run by Nelson Peltz, took a 5 per cent stake.
“We continue to be cautiously optimistic about the environment and confident in our model,” said Ken Jacobs, Lazard chief executive. “We’re starting to sense some optimism regarding the global economy from boardrooms and business leaders, ultimately an encouraging sign for M&A activity.”
Mr Jacobs said deal activity would increase as confidence improved in the macroeconomic environment, with valuations and financing already in good shape. Confidence has been “the missing element”, he said.
Revenue from financial advisory rose 6 per cent in the third quarter to $234m, with revenue growth in merger and acquisition advisory muted at 3 per cent.
The bank worked on deals including advising on the UK Treasury’s disposal of part of its shareholdings in Lloyds, and the $2.8bn sale of Ameristar Casinos to Pinnacle Entertainment.
Excluding some items, earnings per share increased to 46 cents, beating analyst estimates of 36 cents.
The asset management business manages $176bn, a 10 per cent increase from a year ago, and revenues of $248m account for just over half of the bank’s total.
The inflows to emerging markets are encouraging for Lazard, said Howard Chen, analyst at Credit Suisse in New York. “It’s affirmation that there’s still healthy institutional client demand for global and emerging market investing,” he said. “They were a very positive set of results in a still mixed operating backdrop.”
The restructuring advisory business remained robust in the third quarter but slumped in the nine-month period, underscoring the brightening macroeconomic environment five years after the start of the financial crisis. “Our restructuring revenues are probably operating at their low point right now,” said Mr Jacobs.
The overall third-quarter picture for the smaller boutique investment banks remains hazy, analysts say. Evercore Partners said on Wednesday that third-quarter profit more than doubled as advisory revenue increased. At Greenhill, net income dropped 79 per cent to $1.8m.
Lazard has half of its $1bn in debt maturing in 2015 and the remainder maturing in 2017. Mr Jacobs said the bank was unlikely to pay down both tranches with cash but would consider refinancing and other methods.
Lazard’s share price rose 5.5 per cent in early trading to $39.77.
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