By Dan Wilchins and Joe Giannone

NEW YORK (Reuters) - Lazard Ltd (LAZ.N: Quote, Profile, Research) said on Tuesday its quarterly earnings fell a worse-than-expected 71 percent as the merger adviser, which had touted its lack of exposure to the credit crisis, reported portfolio declines and a drop in completed deals.

Revenue declined as merger activity slowed, falling short of analysts' expectations, sending Lazard's shares down as much as 10 percent.

Lazard cautioned that fees from reorganizing companies in bankruptcy could take at least six months to rebound because the deals tend to take time.

"The challenging environment is taking a toll on Lazard's M&A revenue, and the outlook is cloudy at best for the remainder of the year," Citigroup brokerage analyst Prashant Bhatia said in a note.

First-quarter net income slid to $16 million, or 14 cents a share, from $55 million, or 47 cents, a year earlier. Analysts, on average, expected 54 cents a share, according to Reuters Estimates. Figures include adjustments related to partnership interests that will convert to shares.

Lazard recorded a surprising $28.5 million drop in the value of a corporate bond portfolio managed by its Paris bank unit, and a decline in an equity portfolio. The mark-down represents half the earnings reported a year earlier.

Lazard said it changed the way it accounts for the bonds so that future changes in the portfolio's value will not affect net income.

"The unprecedented market and credit environments negatively impacted the value of the debt of even investment grade corporate issuers and, therefore, our Paris bank's portfolio of debt securities," Chief Financial Officer Michael Castellano said in a statement.