Lazard to cut 10% of staff to contain costs amid dealmaking chill

Lazard said on Friday that it would cut 10 per cent of its staff over the course of 2023, citing a continuing deep chill in deal activity and high costs from adding staff during the pandemic.

Revenue from its deal advisory business fell 29 per cent in the first quarter from a year ago, according to earnings released on Friday. While asset management fees proved more resilient, overall Lazard reported an unexpected loss of $23mn.

“Candidly, things have really deteriorated, I think, overall in the external environment relative to where we were in December and again in February,” Lazard chief executive Ken Jacobs said in an earnings call, admitting his previous optimism over a rally in the deal market had been misplaced. “And so consequently, we just felt it was time to take some action.”

The bank had avoided any large reduction in staff at the end of 2022 but said revenue would not recover for several quarters, forcing it to bring its cost base in line with what it believed deal volumes were most likely to resemble in 2024. It said that future growth in senior bankers would be concentrated in its core US and European operations.

“There’s probably some build-up in capacity generally across the business, which could be reduced at this time without necessarily affecting productive capacity,” Jacobs said.

According to securities filings, the number of managing directors in the Lazard financial advisory business grew from 163 to 212 between the end of 2019 and the end of 2022. It had 3,400 employees in total as of the end of last year.

The bank said current deal activity had reached lows not seen since a decade ago — after the record volume of transactions in 2021 had forced investment banks to pay up to retain and attract people at all levels.

Overhead costs in the quarter soared 21 per cent due to banker travel, investment in technology and inflation.

“We’ve seen big increases across the industry in salary. That means benefits are going up. That’s very sticky. It’s very hard to get that out of the system,” Jacobs said on the call.

Lazard shares fell 4 per cent on Friday and they are down 11 per cent for the year.

While full-service and boutique banks have all recorded smaller deal fees in 2023, few have yet announced deep redundancies. Goldman Sachs had cut more than 6 per cent of its employees in January, a move driven by losses from its expensive foray into consumer banking.

“I just think this is a changing environment, a changing cycle. And unfortunately, these are the times where you have to do these things, and these are tough decisions,” said Jacobs. - FT