NEW YORK Merger adviser Lazard Ltd (LAZ.N) posted a surprise first-quarter loss as advisory fees fell sharply and restructuring charges weighed on results, sending its shares down 5 percent.
Fees from its primary business, advising companies and governments on transactions and strategies, plunged 42 percent to $96.5 million, the firm said on Tuesday. Analysts, who track widely available M&A transaction data, were caught off guard by the decline.
"Restructuring revenues were the only positive standout in the quarter," Pali Capital analyst Doug Sipkin said in a note to clients.
Lazard reported a net loss of $53.5 million, or 77 cents a share, including a previously announced pretax charge of $62.6 million for layoffs and other business changes.
A year earlier, the firm reported net income of $7.8 million, or 14 cents.
Excluding the charge and assuming the full exchange of certain ownership interests, the bank posted a loss of 26 cents a share in the most recent period. On that basis, analysts on average had forecast a profit of 31 cents a share.
Revenue fell 19 percent to $248.4 million, also falling short of expectations.
"This obviously continues to be a tumultuous environment which impacts the timing and level of our revenue," Chief Executive Bruce Wasserstein said in a statement.
Fox-Pitt Kelton analyst David Trone said Lazard's merger advisory fees were more than 40 percent below his forecast, "a severe shortfall considering the transparency of deal data."
Trone said these fees are not likely to recover in the current quarter. "We see no major deals slipping into the second quarter, so this shortfall remains a mystery to us."
In Lazard's restructuring business, advising companies in or near bankruptcy, fees surged fourfold to $61 million. Recession and balky financial markets could push corporate defaults to record levels by the end of this year, Vice Chairman Steven Golub said in an interview.
Revenue from Lazard's asset management business, heavily concentrated in equities, fell 40 percent in the quarter. Assets under management contracted by 11 percent during the period, to $81 billion.
Pali's Sipkin said Lazard's backlog of advisory business improved in the quarter, which bodes well for future results, but he warned asset management could struggle for some time.
Lazard cut back on travel, business development and other areas to bring down operating costs by 24 percent compared with a year earlier. With business slowing, compensation as a percentage of revenue surged to 75 percent.
"On balance, the revenue was very disappointing and management appears to have made no attempt to adjust compensation accordingly," said Trone, who rates Lazard shares "outperform." "We will have to revisit our thesis on Lazard."
Golub said headcount has been slashed by 10 percent since last summer's peak, back down to 2006 levels. He declined to provide detailed employment numbers.
Executives at the firm want investors to ignore the disappointing quarterly loss and focus on future prospects. Golub said fees are expected to rebound in the second half, when a number of deals in the pipeline will be completed.
Lazard also has been adding senior M&A and restructuring advisers, taking advantage to turmoil seen at other Wall Street banks. The firm did not receive government support and so is not under any compensation restrictions.
"We see an opportunity," Golub said. "It's in these downturns that you are able to, and we have been able to, accelerate global hiring at the senior level." A number of addition hires will be announced shortly, he added.
No conference call with analysts was scheduled to discuss the quarterly results.
Lazard shares were down $1.56, or 5 percent, to $29.73 in morning trade on the New York Stock Exchange Tuesday after falling as low as $27.50 earlier in the session. Through Monday, the shares has risen 5 percent this year, lagging a 17 percent rise in the Securities Broker Dealer Index .XBD.
(Reporting by Joseph A. Giannone; editing by John Wallace)