Lazard Group

 

A brief history of the bank

The bank started in 1849 when Lazard Frères & Co. moved to San Francisco in gold rush but expanded its business to include merchant and banking services where it also exchanged foreign currencies (Cohan 2007). Foreign exchange made the company open another office in Paris, which counselled the government on purchases of gold. In 1856, Alexandre Will, another Lazard family member and a cousin to the other three joined the three brothers in the United States and the business continued to grow.  In 1876 the firm focused on financial services and in 1877 opened an office in London and named it Lazard Brothers & Co. The company opened another office in New York in 1880 and joined other firms in Wall Street Banking. In 1908, the office in London separated from the company because the bank of England prohibited foreign companies from owning banks in the country. In 1919, the Lazard brothers disposed part of its shares to S.P. Pearson & Sons, which owned 80% of the shares in that company by 1932 (Cohan 2007). From 1943 to the year 2000, the company had other partners like Pierre David-Weill, Andre Meyer, Felix Rohatyn, Michel David joins it. David Weill was named the senior partner of the company before the Lazard partner was formed in 1984. He later became the head of the company in1989. Lazard capital market was formed in 1995 followed by the creation of single profit pool in 1996 by the three firms. In 1997, all the asset management operations were taken over by Lazard Asset Management. In the year 1999, David-Weill bought a stake in Pearson and in the following year all operations were combined to be under Lazard LL direction (Cohan 2007). 

Analysis of Lazard business operations

Lazard offers execution skills and perspective at global level, which provide deep experience and knowledge at the local market. It offers a wide range of advisory services such as strategic analysis, business mergers and acquisition, public market takeovers, business valuations, market corporate restructurings, divestitures, debt-structuring, structures for incentives through corporate advice for employees as well as IPOs and capital raisings (Geisst 2001). Lazard provides high quality services for its clients and attracts dedicated attention through its business model for advisory services. Although only a limited number of clients are focused by the firm, every assignment by the clients is regarded very important, which is the principle applied across all operations in the company.

In all the advisory services by Lazard, there are fundamentals that are relied on. These include creating a good understanding of all the business operations by the employees and the clients (Geisst 2001). All its corporate transactions are approached through strategic planning in order to focus on the firm’s objectives and needs of the clients. The firm also has regular discipline and rigorous business and financial analysis. The most valuable advisory services by Lazard are not just aimed at a particular transaction but are rather long-term and honest. Lazard is characterized by lack of conflict of interest because there are no engagements with securities trading and does not conduct brokerage services with other financial organizations from a trading and sale standpoint (Hill 2007).

Lazard’s Strategic developments

Lazard strategic development is steered by a team that manages the strategies in the asset class. The first strategy regards emerging income, which aims at generating returns within 3%-6% volatility range over a complete market cycle. The second strategy is about emerging market that is focused to outdo the JP Morgan ELMI+ index and finally the strategy of emerging income plus, which seeks to obtain absolute returns within a 7%-10% volatility range (Hill 2007). These strategies are market currency and local debts that operate within short duration and are diversified globally. They attain exposure in EM countries through local investments. There are many reasons why the income strategies work for Lazard. They have the ability to generate attractive returns that are risk-adjusted. Investors mitigate risks due to low risks in the local market, low correlations as well as various diversification benefits that suppress other assets class. During market shocks, Lazard enjoys resilience because of its experience in the management of EM currency since 1995. The firm implements the strategies in the emerging opportunities with risk-adjusted outcomes. Risk control is therefore high through duration exposure across EM (Lashinsky 2007).      

Key Performance indicators for Lazard

The following table regards global equity and performance update as at 31st January 2013

                         

 

 

Name

3-months

1-years

3-years

Since inception on 01/08/2008

Lazard capital allocator series (% gross fees)

8

11.6

9.4

3.3

Lazard capital allocator series (% net fees)

7.2

8.3

6.1

0.3

MSCI world index

8.4

15.9

10.3

2.9

Global market exposure index (equity only)

9.4

14.8

10.3

3.6

 

In the above table, performance is given as a gross and net of fees where net fees have been obtained using a fee assumption of 3%. Gross of fee performance has been obtained as information, which is supplementary because performance does not include cost of transaction (Lashinsky 2007). However, performance as quoted in the table above is a reflection of past and therefore is not reliable as a future indicator. Account transactions in Lazard follow the policy of inclusion for the full first month of the account investment. Individual return portfolio is determined using portfolio for monthly valuations and includes entire earnings reinvested by the date of payment. At the beginning period, the market values are used to determine composite returns through asset-weighing. Calculations on policies about valuing portfolios to determine performance are provided upon request. The common practice involves presenting composite returns prior to deductions of custody fees (Lashinsky 2007).

Predictions for the future of Lazard

The bottom of Lazard was hit hard by the M&A market that was weak in the last quarter of the year 2012 although the effect was not felt by its bankers. The revenues generated by the bank in advising its clients reduced sharply from the previous year. In the year 2012, Lazard experienced a drop by 4% in its advising revenues that included M&A and the major revenue of the firm. The restructuring revenue also dropped by 33% although it was still at the top in the U.S tables announced for the year. Although the total revenue for the year 2012 dropped by 4% the compensation of the bank dropped by 2.1% and realized operating revenues at 62%. The bank did not meet its bottom-line expectation due to the high compensation (Lashinsky 2007). According to Lazard, discretionary bonuses were significantly reduced but the number of employees increased. The firm predicted a reward for shareholders because of its ability to deploy and retain employees in effort to improve future performance. According to Horowitz who is an analyst, the ratio of compensation exceeded his expectation and although Lazard would wish to reduce it, he says it would be hard this year. However, Lazard is predicting good performance in the near future with an expectation of more cross-border dealings because the balance sheets are strong and the financing are stable (Reich1983).

References

Cohan, W 2007, The last tycoons: the secret history of Lazard Freres & co, Broadway Books, New York.

Geisst, C 2001, The last partnerships: inside the great Wall Street money dynasties, McGraw-Hill, New York.

Hill, A 2007, Lazard history takes ft book, The Financial Times Limited, London

Lashinsky, A 2007, Lazard goes under the microscope, Fortune Magazine, New York.

Reich, C 1983, Financier: the biography of André Meyer: a story of money, power, and the reshaping of American business, William Morrow & Co, New York  

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