International merchant banking group Lazard Ltd yesterday reported its quarterly financial results for the quarter ended December 31st, 2013, and also for its full fiscal, and calendar, year 2013. The company is listed on the New York Stock Exchange.
Lazard Ltd. is the successor company that resulted from the combination of its three famous, national, merchant banking, 150 year old, predecessors, in London, Paris and New York, that merged in the year 2000 and later became a public company in 2005. Lazard is led today by its Chairman and CEO Kenneth Jacobs, who has been with the firm since 1988.
Merchant banking is the traditional term we used to describe a financial advisory firm offering asset management, trading, M&A advice, to clients and, as well, frequently acting as principle in acquiring and running small or large businesses for a time, either with their own money, or their clients money on an agency basis, or often both.
Given its storied history, going back over 150 years, perhaps the term continues to be still relevant when looking at Lazard today, rather than use some of the newer terms that are now fashionable, such as hedge fund, private equity firm or alternative asset manager. Ironically perhaps, Lazard itself sprinkles the new jargon liberally around its own web site and in some of its other promotional materials.
Kenneth Jacobs / Getty
Be that as it may, Lazard reported record operating revenue of US$620 million for the fourth quarter to December 31st, up 8% from fourth-quarter 2012. The company also achieved record annual operating revenue, as well, for the full year of US$2 billion in 2013, up just 3% from full-year 2012.
The company did better with its profits, however, and reported net income, on a regular US GAAP basis, of US$53 million, or US$0.40 per diluted share for the December 31st quarter, compared to a very small loss in the same period in 2012. For the full year Lazard achieved US GAAP net income of US$160 million, or US$1.21 per diluted share, compared to US$84 million for the whole of 2012.
While the GAAP numbers are in themselves excellent results, Lazard also publishes additional numbers on an adjusted basis, something publicly traded companies frequently tend to do if they feel they will look better, which in this case they would indeed do here as well.
Since many other publicly listed companies make different, unilaterally determined, such adjustments, however, it can then become very difficult to compare them all. Accordingly sticking with regular GAAP, even if sometimes deficient at times, is at least consistent for comparative purposes.
To indicate the broad scope of its international business flavour, in the fourth quarter alone Lazard completed 27 major M&A advisory assignments, including the Intercontinental Exchange’s US$11 billion acquisition of NYSE Euronext.
By the end of the year Lazard had another 33 major M&A advisory assignments still ongoing, including the Fiat – Chrysler transaction with VEBA, which closed later in January of 2014.
Lazard also advised on eight major capital raising exercises during the December quarter, including the US$3.6 billion initial public offering of Royal Mail, i.e. the British post office.
Finally, Lazard advised seven Sovereigns on major transactions during the period, including the US Department of the Treasury for its exit from shareholdings in both General Motors and its’ former financing arm Ally Financial (once known as GMAC).
Reflecting these good results, Lazard paid out US$416 to or on behalf of its shareholders during the year, something important where senior managers are also usually shareholders as well. Roughly speaking, about one third each was paid out in dividends, stock repurchases and satisfaction of certain employee tax obligations
Institutional shareholdings are also quite significant, however, with Lazard. At the time of the company’s last proxy statement, soon to be updated, Baltimore based US institutional shareholder T. Rowe Price owned 8.4% of the company and mutual fund Ariel Investments of Chicago owned 5.2%. In addition the French investment firm Natixis, which is owned by French giant banking group BPCE, owned 5.8% and US hedge fund Trian Management, which is led by Nelson Peltz, owned 5.2%.
Altogether these groups control therefore about 25% of the company, and assuming they get along can form a powerful hurdle for other potential predators. Having Nelson Peltz in there though is a bit like having the fox inside the hen-house, but maybe even he likes the cachet that goes with being involved in a firm like Lazard. Of course, true to form, he did at least take good care to criticize the level of Lazard management’s pay-checks before originally disclosing his investment position in 2012.
With about 121 million shares outstanding Lazard currently has a market capitalization of over US$5.2 billion. The shares have approximately doubled in price since their low in October 2011, reflecting the world gradually coming back to life, in the US particularly, after recession.
Earlier the shares had peaked at a price of US$55 in 2007 after going public originally in 2005 at US$25. So they have been up and down a good deal reflecting the financial crash that took place, but are now seemingly on a solid footing again.
Chairman and CEO Kenneth Jacobs himself is indicated to own just over 1 million shares of the company, according to last February’s proxy report. As in most investment firms that are public today, a lot of the compensation of management and its senior executives comes in the form of bonuses.
About Lazard Ltd
Three French brothers, Alexandre, Lazare and Simon Lazard, founded Lazard Frères & Co in 1848. They were dry goods merchants in New Orleans.
By 1851, Simon and two more brothers, Maurice and Elie, had moved to San Francisco to serve miners during the gold rush there. Alexandre moved to New York; with the profits they expanded the business into banking and foreign exchange.
In 1854, Alexandre Lazard again moved, this time to Paris, as the vanguard of the family, seeking to complement their American business. Finally, in 1870 the firm continued to expand its international operations, opening an office in London and thus covering the three main banking centres of the world at that time.
Eventually the firm evolved and grew, becoming three distinct “Houses of Lazard” in the United States, France, and England, separately managed but allied through family ties.
Lazard today has its global headquarters at Rockefeller Center in Midtown Manhattan. The company operates from 40 cities in 26 countries of the world.
Lazard partners advised clients on financial matters and built a cross-border network of high-level relationships in business and government. After World War Two, the American operations of Lazard expanded significantly under the leadership of the financier Andre Meyer, and later of Felix Rohatyn, who transformed the art of relationship building into the modern M&A business.
In 1977 Michel David-Weill took charge with the illness of Meyer, and many years later he formally united the three firms in 2000 as one, under the name Lazard LLC.
In 2002 David-Weill hired Wall Street legend Bruce Wasserstein to become CEO. In 2005 Lazard Ltd became a public company, with nearly two-third of its shares owned by current and former employees at the time. Wasserstein was its first Chairman and CEO. When Wasserstein died unexpectedly in 2009, Lazard’s Board of Directors elected Kenneth M. Jacobs Chairman and CEO.
About Kenneth M. Jacobs
Kenneth Jacobs, age 55, has served as Chairman of the Board of Directors and Chief Executive Officer of Lazard since November 2009.
He has also served as a Managing Director of Lazard since 1991 and was a Deputy Chairman of Lazard from January 2002 until November 2009. Jacobs also served as Chief Executive Officer of Lazard North America from January 2002 until November 2009. He initially joined Lazard in 1988.
Kenneth Jacobs is a member of the Board of Trustees of the University of Chicago and the Brookings Institution. He earned his B.A. in economics from the University of Chicago and an M.B.A. from the Stanford University Graduate School of Business.