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Lazard Ltd.'s (LAZ) first-quarter net income fell 54% on costs tied to cutting staff, yet the investment bank posted a core profit and revenue that easily topped expectations on stronger demand for deal-making advice.
Revenue from advising the Greek government on the largest bond exchange in history along with a string of assignments on merger transactions lifted firm operating revenue 9% from last year's first quarter, to $499 million.
Financial-advisory revenue rose 21% to $277 million. Lazard is advising on three of the 10 largest mergers announced during the first quarter, including GDF Suez SA (GSZ.FR)/Electrabel's $12.6 billion deal for the 30% of International Power PLC (IPR.LN, IPRPY) it doesn't already own, the $10 billion all-stock deal combining Tyco International Ltd.'s (TYC) flow-control business with Pentair Inc. (PNR), and the $6.9 billion sale of Supervisory Board of TNT Express NV (TNTE.AE, TNTEY) to United Parcel Service Inc. (UPS).
The firm also is providing services for several large Chapter 11 bankruptcies including proceedings by Hostess Brands Inc., Eastman Kodak Co. and Tribune Co., among others.
Investment banks across Wall Street have faced a skittish M&A market since last spring as the European sovereign-debt crisis persists and investors worry about the strength of the U.S. economy.
"The macroeconomic environment has improved since last summer but remains uncertain. If this improvement continues, strategic-advisory activity will likely increase," Chief Executive Kenneth M. Jacobs said.
For the first quarter, the firm reported a profit of $25.6 million, or 20 cents a share, compared with a year-earlier profit of $55 million, or 43 cents a share. The current period includes a pretax charge of $25 million tied to reductions in staff.
On a fully exchanged basis, earnings totaled 33 cents a share, down from 43 cents a year earlier but well ahead of the 25 cents expected by analysts polled by Thomson Reuters.
Fully exchanged refers to the full conversion of all outstanding exchangeable interests held by LAZ-MD Holdings--the entity owned by Lazard Group's current and former managing directors, including executive officers.
Asset-management revenue fell 6% from last year's first quarter to $210 million. Assets under management increased 11% from the end of 2011, mostly on price appreciation.
The firm said profits are being hurt by high levels of amortization expenses from deferred compensation granted in previous years, particularly in 2008. Lazard is trying to hold down those costs.
"Our goal remains to grow annual awarded compensation expense at a slower rate than revenue growth," Lazard said in its earnings report.
Net revenue rose 11% to $486 million. Analysts expected $452 million in revenue.
The firm increased its dividend by 25% to 20 cents a share.
Shares rose 3% to $27.58 shortly after Friday's open. The stock is up 5.6% year to date.
-By Liz Moyer, Dow Jones Newswires; 212-416-2512; email@example.com and Mia Lamar, Dow Jones Newswires; 212-416-3207; firstname.lastname@example.org