Lazard (LAZ) Q2 2016 Earnings

posted in: Earnings Call, Notes | 0

Lazard (LAZ) CEO Ken Jacobs said the market environment remains conducive for more corporate M&A

“The uncertain macro and geopolitical environment led to an industry-wide slowdown for M&A announcements in the first half of this year. But the backdrop remains in place for a sustained period of M&A activity. The global disinflationary environment continues to be a powerful catalyst for M&A, as the companies looked for strategic options to grow or to rationalize their business. Low and negative interest rates through most of the developed world implied that this environment may persist for some time.”

Lazard (LAZ) CEO Ken Jacobs said they took market share in their investment banking business in what is a tough environment for M&A transactions

“Our market share of large M&A transactions remain strong. For the first half of the year, our announced volume was down, but our number of large announcements valued at over $500 million increased 15%, even if the market decreased 5%. In Europe, Lazard played a lead advisory role on two of the largest announcements following the Brexit vote. We advised ARM Holdings on its sale to SoftBank, the largest-ever Asian acquisition of a UK company and Danone on its acquisition of the U.S. company WhiteWave.”

Surprised by the stability of the markets in the Post-brexit aftermath 

“I think we were all pleasantly surprised, especially the markets, by how the markets have performed post-Brexit. So I think we’ve probably, I think, settled down a little bit quicker globally than probably people originally anticipated given the surprise of the vote. Overall, as you know, volatility is never a good thing for confidence and therefore for M&A. I think their stability probably helped, I think what the markets are essentially saying is that there’s an impact of Brexit, I think at this point is largely reflected in what’s happened to the sterling, pound sterling and then also the ups and downs in various stocks in the market.  It doesn’t seem to have had much impact on the U.S. obviously because just when you look at the overall exposure of the U.S. to it, it is pretty minimal, as you’d expect. And with regard to Europe, I think, again, somewhat more benign than most people anticipated. So the effect on volatility, confidence, diminished. I think overall this is again going to be a strong driver for many of the multinationals in Europe to really think about where they’re going to get growth from.”

Benefitting from the large amount of bankruptcies and restructurings going on in the oil & gas business

“Restructuring had another strong quarter. Lazard is ranked number one globally for completed and announced restructuring assignments in the first half of the year. Our activity continues to be centered around the energy and commodity related sectors.”

Seeing good inflows in July

“In July, AUM continued to grow in the improving market environment. We continue to achieve a high level of gross inflows across our platforms, with net inflows in the quarter. Inflows were primarily driven by strategies in our global, multi-regional, and local equity platforms, with significant growth in our quantitative strategies.”

Asset management inflows into passive funds are driving up valuations 

“So I think CEO confidence is probably not at the levels that we saw a year ago, I think that it’s probably a little better than probably we would have guessed post-Brexit, but that’s something to keep an eye on. And on valuation, I mean the challenge on valuation is that we’re in a world where money is essentially free and people are investing heavily in risk-based assets and that’s driven up valuations. And on top of that you’ve had this massive move into passive funds, which, I mean fortunately for us we’ve been able to so far weather well on our Asset Management side, but to the market as a whole, and when you have this kind of movement into passive funds, you kind of have indiscriminate buying of equities, which tends to drive up valuations.”