Lazard Ltd. (LAZ)

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Lazard (LAZ)

Q3 2012 Earnings Call

October 25, 2012 8:00 am ET

Executives

Judi Frost Mackey - Spokeswoman

Kenneth M. Jacobs - Chief Executive Officer and Director

Matthieu Bucaille - Chief Financial Officer

Alexander F. Stern - Chief Operating Officer

Analysts

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Howard Chen - Crédit Suisse AG, Research Division

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Brennan Hawken - UBS Investment Bank, Research Division

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

James F. Mitchell - The Buckingham Research Group Incorporated

Kenneth M. Leon - S&P Equity Research

Presentation

Operator

Good morning, and welcome to Lazard's Third Quarter 2012 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I'll turn the conference over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead.

Judi Frost Mackey

Good morning, and thank you for joining our conference call to review Lazard's results for the third quarter and first 9 months of 2012. Hosting the call today are Ken Jacobs, Lazard's Chairman and Chief Executive Officer; Matthieu Bucaille, Chief Financial Officer; and Alex Stern, Chief Operating Officer. A replay of this call will be available on our website, lazard.com, beginning today after 11 a.m. Eastern Daylight Time.

Today's call may contain forward-looking statements. These statements are based on our current expectations about future events and are subject to known and unknown risks, uncertainties and assumptions. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in Lazard's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Lazard assumes no responsibility for the accuracy or completeness of any of these forward-looking statements. Investors should not rely upon forward-looking statements as predictions of future events. Lazard is under no duty to update any of these forward-looking statements after the date on which they are made.

Today's discussion may also include certain non-GAAP financial measures. A description of these non-GAAP financial measures and their reconciliations to the comparable GAAP measures are contained in our earnings release, which has been issued this morning.

For today's call, we will focus on highlights of our performance. The details of our earnings can be found in our press release issued this morning and in our investor presentation of supplemental information, both of which are posted on our website at lazard.com.

Following their remarks, Ken, Matthieu and Alex will be happy to answer your questions. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Kenneth M. Jacobs

Good morning. Thank you for joining our call. Entering the fourth quarter, Lazard's 9-month operating revenue is near peak levels. While the macroeconomic environment remains challenging, our performance year-to-date underscores the strength of our independent, advice-driven model.

Our M&A and Strategic Advisory business is up 5% for the year, despite a drop in third quarter and even as the global M&A market of completed transactions declined 26%.

Currently, we are advising on 4 of the top 10 M&A transactions announced this year. All 4 are cross-border, demonstrating Lazard's global breadth.

In Asset Management, our global business is at peak levels. AUM, as of September 30, is at $160 billion, near its record high. Operating revenue is up 7% over the second quarter.

Our investment platforms around the world continue to perform well. We have higher demand for our products across asset categories and geographies, from new and existing clients.

Trends in global Financial Services continued to favor Lazard. First, as universal banks and integrated investment banks undergo secular changes to their business models, we are gaining market share as measured by advisory fees. Before the financial crisis, the difference in fee market share between Lazard and the market share leader was approximately 4:1. The difference today is roughly 2:1.

Second, as more than 1/3 of global M&A transactions become cross-border, we are the only independent advisory firm with truly global scale to serve clients. Smaller firms need to invest heavily to gain similar scale, and which still do not have the tightly-knit network that Lazard has developed over decades.

Third, as investors demand diversified investment solutions, our Asset Management business is well positioned to win mandates with innovative offerings and strong investment returns across our platforms.

Fourth, as investment markets evolve in the developing countries, our Asset Management business should be -- should benefit from its global footprint, broad array of solutions and respected brand.

But we're not relying on these positive trends alone. We are driving efficiencies and enhancing operating leverage by reducing our expense base, and we are orienting the firm's growth toward areas where we see the greatest potential return.

Growth initiatives include organic expansion, hiring, opportunistic hiring and deepening relationships across both businesses.

In Financial Advisory, we continue to develop our range of advisory capabilities. We are expanding on relationships in client board rooms by providing advice in areas such as capital structure and corporate preparedness. These services dovetail with our general M&A practice and solidify our role as our clients' most trusted financial advisor.

We are also growing with our advisory clients in developing markets. In the third quarter, we integrated our Brazilian operations based in São Paulo. We created Lazard Africa to leverage our sovereign and corporate expertise in this rapidly growing region for our clients in both developed and developing countries.

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