Lazard Ltd. (LAZ) and Evercore Partners Inc. (EVR) posted
fourth-quarter profits boosted by strong asset management results,
but showed diverging trends in their core investment-banking
businesses.
Both expressed optimism about the prospects for deal making, and
their shares rose in an adverse market for most financial
shares.
Lazard swung to a quarterly profit, posting a 25% jump in asset
management operating revenue during the quarter as it received $3.2
billion in net inflows. Revenue at the firm's financial-advisory
unit, which provides advice for transactions such as restructuring
and bankruptcies, rose 12%.
In contrast, Evercore, which has been building up its
institutional equities business in 2010, reported net income of
$3.3 million, more than double from a year earlier. Year-ago
results were hurt by $4 million in charges for stock-based
compensation awards, which Evercore said were voluntarily forfeited
by employees who remained with the company, but recorded under
accounting rules.
Mid-sized investment banks like Lazard and Evercore have taken
market share from "bulge bracket" firms, which were hurt by
exposure to mortgage-backed securities during the financial crisis.
Lazard and Evercore are focused on giving financial advice to
companies, and stand to benefit from an expected improvement in the
merger and acquisition market.
"The outlook for M&A is still improving and the year ended
on a pretty solid note," said Sandler O'Neill + Partners analyst
Devin Ryan, adding that "as long as the market remains stable to
improving," that momentum should continue for these firms.
Shares of Lazard recently traded up 3.6% at $44.32, while
Evercore rose 6.5% to $33.80.
Lazard reported a fourth-quarter profit of $99.9 million, or 77
cents a share, compared with a year-earlier loss of $142.4 million,
or $1.64 a share. Operating revenue rose 19% to $610.1 million.
On a fully exchanged basis, comparable to analyst estimates,
Lazard earned 76 cents a share; analysts polled by Thomson Reuters
had forecast earnings of 63 cents on $532 million in operating
revenue.
Lazard advised on 350 transactions in 2010. Merger advisory
revenues rose to $260 million during the fourth quarter, up 53%
from a year earlier. Conversely, the firm's restructuring business,
which was busy during the downturn, is seeing a cyclical slump.
Revenues in that area fell 22% for the year, to $47.8 million.
But restructuring clients are now turning to the firm for merger
and capital structure advice, according to Kenneth Jacobs, Lazard's
chief executive.
"We are well positioned to benefit from an improvement in the
cycle," Jacobs said on a conference call Wednesday.
Transactions on which Lazard advised during the quarter include
CenturyLink's (CTL) $22 billion Qwest Communications International
Inc. (Q), Novartis AG's (NVS) $12.9 billion purchase of the
remainder of Alcon Inc. (ACL), and Duke Energy Corp.'s (DUK) $26
billion purchase of Progress Energy (PGN).
While Lazard doesn't do any underwriting, it also has a growing
business advising firms on capital raising. Capital markets and
other advisory revenue rose 29% last year, to $112.6 million.
Asset management revenues rose 40% for the year, to $834.7
million, and 25% for the quarter, to $255.7 million, both
records.
Compensation and benefits expenses were flat from 2009,
excluding special charges, at $1.2 billion. Deferred pay, in the
form of restricted stock, made up 38% of pay, something executives
say may help attract bankers who were disappointed with their
deferral-heavy compensation at the bulge bracket firms.
At Evercore, adjusted earnings fell to 27 cents from 41 cents,
but beat Wall Street estimates. Net revenue fell 7.1% to $102.2
million.
Evercore, seeing signs of growth, posted its first quarter of
profits from its investment management business, which contributed
$2.5 million in operating income and $26.4 million in revenue,
partially offsetting lower deal-related activity.
Evercore's investment-banking revenue fell 24% to $75.7 million
on an adjusted basis as the company said deals including the
restructuring of Danaos Corp. (DAC) and Qatar Holding LLC's
acquisition of a 9.1% stake in Hochtief AG (HOT.XE) were pushed
into the first quarter.
During the fourth quarter, the company advised on notable
transactions including the initial public offering of General
Motors Co.(GM), while it has pending deals in the pipeline such as
CenturyLink acquisition of Qwest, and Sanofi-Aventis SA's (SNY)
proposed takeover of Genzyme Corp. (GENZ).
Evercore said it had 98 fee-paying clients in the quarter, up
from 85 last quarter, as it earned advisory fees over $1 million
from 20 clients and one underwriting assignment in the fourth
quarter.
During a conference call with analysts, Evercore Founder and
Executive Chairman Roger Altman said while the fourth quarter was
"a bit weaker than the third quarter" and last year's fourth
quarter, given the firm's recent comparisons, $76 million in
revenue from the business "is really solid."
Altman said the mergers and acquisitions market continues to
recover and strengthen, adding that the industry is "at best 30%"
into a recovery.
-By Brett Philbin, Dow Jones Newswires; 212-416-2173;
brett.philbin@dowjones.com
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