Lazard: next man up

Replacing a legend is never easy. It is especially tough when the legend departs during a crisis. In the midst of the 2009 recession Bruce Wasserstein, the formidable boss of independent investment bank Lazard, unexpectedly died. The veteran Lazard banker Kenneth Jacobs took control just as deal revenue was drying up. By 2011, Lazard shares had sunk to $20 - below its 2005 listing price - from $35 when Mr Jacobs assumed power.

Today the shares are above $55, an all-time high. Much of the rally is down to resurgent deal markets and weaker competition from big banks hobbled by the crisis. But steering a global business where the core assets are humans with big egos is tricky, even under the best conditions.

Over his seven years as chief executive, Mr Wasserstein saved Lazard. He engineered a listing that paid off the restive French families that had owned much of the firm. He also attracted star bankers to replenish Lazard's depleted ranks. But the way to get rainmakers to come aboard is to pay them richly. By 2009, the fat paychecks and little business sent Lazard's compensation to revenue ratio soaring to an ugly 70 per cent.

In 2012, activist investor Nelson Peltz noticed Lazard's underperformance and argued that it could be turned round. At roughly the same time, Mr Jacobs set out his own plan to reach a group 25 per cent operating margin by 2014, up from 17 per cent in 2011.

That target was hit by the fourth quarter of 2014. Two improvements stand out. First, while annual advisory revenue of $1.2bn is near an all-time high, the number of senior bankers is below the pre-crisis level. Second, Lazard's best business now may be its asset management unit. Assets under management, close to $200bn, have increased at about 10 per cent annual rate since 2009. Despite its obscurity, its revenue is essentially the same as the banking arm's, with a margin above 30 per cent. A 25 per cent margin is a reasonable aim on the banking side (at least while deal activity holds up). Mr Jacobs can now set his sights on a 30 per cent firm-wide margin when Lazard reports earnings this week.

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