Lazard Times

Happy Wednesday, and welcome back to Dry Powder.

I was more than a little surprised by the recent news that Lazard is firing 10 percent of its workforce—the first instance of mass layoffs in its nearly 175-year history. I have a soft spot for the firm, having worked at the investment bank between 1989 and 1995 (and wrote a bestseller about its remarkable history). In today’s issue, a look around the dark valley where the firm finds itself—and how it can climb back out.

Lazard Times

How Wall Street’s most mysterious, enigmatic, and flamboyant firm—“l’haute banque d’affaires vis-à-vis the world”—was brought down by fate and tragedy, and what it can do to become exceptional again.

WILLIAM D. COHAN

Most readers know by now that I have a soft spot for Lazard, the international investment bank where I worked for six years between 1989 and 1995. And, of course, Lazard was the subject of my first bestseller, The Last Tycoons, which was published in 2007 and won the 2007 Business Book of the Year Award, courtesy of the Financial Times and, ahem, Goldman Sachs. I bring this up only because former Goldman C.E.O. Lloyd Blankfein gave me the award at a modern branch of the London public library and I repaid him by writing my third book about Goldman. (Lloyd, let’s catch up again soon.) I was a banker at Lazard in the years before its Wasserstein-ization, before it joined the Wall Street herd and became a public company, in 2005. Back then, Lazard was a private partnership and one of the hot places to be on Wall Street if you wanted to advise C.E.O.s on their most important M&A transactions and if you had a taste for the mysterious, the enigmatic, and the flamboyant. It bears repeating what the late Michel David-Weill, the patriarch of Lazard and the fourth-generation heir of the founding family, liked to say, without irony, that the bank was a “haute banque d’affaires vis-à-vis the world.” He then proceeded to describe what he meant: “To me it is a state of mind, not an activity. It is a firm which puts itself at a level parallel with the level at which decisions are made in enterprises. It means that you remain at the decision-making level, that you give advice at that level, that you think at that level and that you remain exclusively at that level.” You can’t make this stuff up. Anyway, Lazard always punched above its weight. Somehow, we worked on many of the most important deals of that era, such as Viacom’s acquisition of Paramount; IBM’s acquisition of Lotus; the restructuring of EuroDisney; and KKR’s historic acquisition of RJR Nabisco, among many others. It was the kind of place that could somehow accommodate all of the likes of Felix Rohatyn, perhaps the best investment banker of the 20th Century; Michael Blumenthal, a former Treasury Secretary, who was a notorious flameout at the firm even though two spartan partner’s offices were combined and then totally refurbished to try to impress him; and Édouard Stern, Michel’s wealthy son-in-law and possible successor. That’s all why I was so stunned by the recent news that Lazard, with an employee count of some 3,400 people, was firing 10 percent of its workforce, or some 340 people. Lazard had never had a mass layoff in its long, nearly 175-year history. Sure, people would come and go. There were plenty of voluntary departures and many involuntary departures. But a wholesale lopping off of 340 employees after a terrible first quarter of 2023? And the closing of the Lazard offices in Argentina, Chile, Colombia, Peru and Panama and the slimming down of its presence in Canada for the second time? That was not the Lazard way, and certainly not something the Lazard I knew, under the often wacky and paternalistic leadership of Felix and Michel, would do.

Stockholm Syndrome

Working at Lazard, back in those days, was rough. With 72 partners in banking and 72 non-partners—vice-presidents, associates and analysts, fresh from college—the usual investment-banking pyramid was fabulously discombobulated. We peons always had way too much work to do and way too much pressure on us to get it done. It was relentless. We all suffered from Stockholm Syndrome. The ratty offices didn’t help either. There was no air conditioning in the Lazard offices back then. In the summer, it got very steamy. Clothes came off, especially during the late night hours, long after the partners had gone home but while we were still working away. Fortunately, the windows at One Rockefeller Center could be opened; there were no screens. On December 10, 1984, Danny Davis, then thirty and considered one of the top salesmen in Lazard’s tiny equity department, “calmly handed a co-worker the phone numbers of his next of kin,” opened one of the windows on the thirty-first floor of One Rockefeller Plaza, and jumped out, plunging to his death. He left a wife and one young child and a new $300,000 Tudor home in Scarsdale they were renovating. Part of the enigma of Lazard was the fact that, unlike nearly every other firm on Wall Street, it did not bother recruiting for new bankers at the nation’s top MBA programs. As I was graduating with my Columbia MBA, in May 1987, I managed to get an interview at Lazard with two partners, Jonathan Kagan and Ali Wambold. I really wanted to get a job there but didn’t know much about the firm other than it was French, a private partnership, and mysterious. I hadn’t yet read Financier, Cary Reich’s wonderful biography of Andre Meyer, the famous Lazard partner who fled the Nazis during World War II and then ran Lazard, in New York, with an iron fist until his death in 1977, which was when Michel and Felix took over. I had managed to finagle my way into an interview with Kagan and Wambold because my father, an accountant in Worcester, Massachusetts, knew a guy whose son worked on the Lazard bond desk, such as it was. I had my interviews with Kagan and Wambold, who struck me as arrogant and condescending. I never heard from them again. I didn’t even get a “ding” letter, which is Wall Street’s way of telling you that the interview process had come to an end. They just ghosted me.

Revco

Of course, that made me want to work at Lazard even more. Finally, as my second year at GE Capital was coming to an end—I had spent the year working for Jim Fishel, the avuncular chief credit officer at the company—I got a call from Jon Foster, an M&A banker who had taken a job with Lazard. Foster and I had crossed paths when I worked on a potential financing deal for his clients at his old firm, and he wanted to know if I was looking for something new. He told me the firm wanted to hire a new associate in banking. Was I interested? Why, yes, I most certainly was. Somehow, this time, I made it through the interview process and was hired. The firm dispensed with my final scheduled interview with Bill Loomis, then the head of banking at the firm, because he was stuck in London working on Isosceles, plc.’s buyout of Gateway, a large British supermarket chain. I was the only associate hired in banking in 1989. There was no H.R. department back then, and no training. It was sink or swim time. I sat in the office I shared with Don Edwards, who was working on the management buyout of United Airlines (which later failed to happen), doing nothing for three months while Don slaved away, night after night. Finally, after Russell Sarachek went on vacation, I got staffed on the restructuring of Revco, a big drugstore chain that Solomon Brothers had bought in a leveraged buyout that went bankrupt. Sarachek came back from vacation but never got back on the Revco deal. I was now working for David Supino and Sandy Lamb in Lazard’s highly regarded restructuring group. By and large, I loved being at Lazard. I have always been a Francophile. I spent part of my honeymoon in Paris and can speak conversational French, which comes in handy during my many visits to the country over the years. I learned how to do deals from a collection of outstanding bankers, including Supino and Loomis, Al Garner, Christina Mohr, Michael Price, Steve Golub, the late Jonathan O’ Herron (who never spoke to me again after I wrote the Lazard book), Kim Fennebresque, Lewis Rinaldini, and even Felix, on occasion. My peers were also exceptional, many of whom went on to achieve great things after leaving Lazard, including David Resnick, Don Edwards, Jeffrey Leeds, David Tunnell, Dan Zwirn, Purnima Puri, Mark Pincus and Pablo Legorreta, to name a few. But that was all before big changes hit Lazard after September 11, from Bruce Wassertsein taking over as C.E.O., to the I.P.O. four years later and then Michel’s departure and Bruce’s sudden death, which seemed to have taken some of the special wind out of Lazard’s sails.

Awaiting the Payoff

I decided to dig a little deeper again into the Lazard story, as I have many times since my book came out in April 2007. When Bruce, who effectively swiped the firm from Michel as part of the 2005 I.P.O., died suddenly in October 2009, I wrote a piece in Vanity Fair about his death. By then, of course, Michel was long gone from the firm. So was Edouard Stern, who might have been his successor. Edouard kept a rather large safe bolted to the floor of his 31st floor office at One Rockefeller Center. Inside he kept a change of underwear, or so the rumor mill had it. In February 2005, his mistress of four years murdered him with one of his antique pistols in his apartment in Geneva. At the time of his death, he was wearing a full-body latex suit and had just insulted the lady by calling her a derogatory name. (He and I were supposed to meet a month later in New York City to do an interview for my Lazard book; that did not happen, obviously.) The new leader of the firm was Ken Jacobs, once my titular peer in the ranks of Lazard vice-presidents. Jacobs, who started his career at Goldman Sachs, was a survivor. As leading bankers such as Bill Loomis, Ken Fennebresque, Gerardo Braggiotti, Ken Wilson, Ira Harris and Steve Rattner left the firm, Jacobs stayed around and worked his way up the ladder. He was, and presumably still is, a Jedi master of Wall Street’s Dark Arts of Political Infighting. With Wasserstein’s sudden death, the Lazard board of directors turned to Jacobs. That was nearly 14 years ago, and Jacobs is still there, as C.E.O. During his tenure, the Lazard stock has gone from about $40 a share to about $29 a share, a decline of 27.5 percent. At the same time, the stock of Evercore, another investment banking boutique that is one of Lazard’s main competitors, has gone from $7.72 a share to $108 a share, an increase of nearly 1,300 percent. Meanwhile, the S&P 500 has gone from 1,109 to 4,138, an increase of 273.1 percent. So, you know, Lazard’s stock has not done great. That’s been noticed, especially by the Lazard employees who receive Lazard stock as part of their compensation. In November 2021, Jacobs took a flier on a “diversity bet,” as Bloomberg described it, by an investment in something called Independence Point Advisers, a small advisory firm owned and run by women and known on Wall Street as “Salomon Sisters.” That was a noble effort, especially since Lazard has never been particularly hospitable to its women bankers, although two of the firm’s senior executives are women, including its chief financial officer, and four of its nine board members are women. (See Chapter 14 of The Last Tycoons: It’s a White Man’s World.) But that investment in Salomon Sisters has been written off. Last October, Jacobs also decided to create something called Lazard Geopolitical Advisory to advise C.E.O.s and corporate directors about geopolitical risks. Based in Austin, Texas, the group includes, among others, Jami Miscik, the former deputy director of intelligence at the C.I.A.; General John Abizaid, the former head of U.S. Central Command, and William McRaven, the head of U.S. special operations when Navy Seals killed Osama bin Laden. It competes with the likes of Kissinger Associates, the Eurasia Group, and Teneo’s WestExec’s Advisors. It’s early days for the group, of course, but my sources tell me the firm is still awaiting a payoff. Lazard is also a much bigger firm now than it was when I was there. In addition to thousands of more people, Lazard is now fully global, despite the office closings in South America and the slimming down of Canada. In 2022, Lazard had nearly $2.8 billion in revenue, $1.7 billion of which came from financial advisory and $1.1 billion of which came from managing around $225 billion in assets for Lazard’s asset management clients. For the year, Lazard’s net income was $358 million, down 32 percent from the $528 million the firm made in 2021. (By comparison, the mighty J.P. Morgan Chase made $48 billion in net income in 2021 and $36 billion in net income in 2022.)

“Culling Will Happen”

After I wrote last month about Lazard’s tough first quarter and the resulting layoffs, I got a call from Peter Orszag, the Obama-era Director of the Office of Management and Budget, who moved to Lazard in February 2016 and is now C.E.O. of Lazard’s advisory business. We had a lovely conversation about where Lazard is now and where it might be headed. Orszag was quick to point out that Lazard is doing just fine and is not in the business of tooting its own horn. (I politely disagreed with him, since I discovered a veritable trove of self-promotional articles about the firm in the writing of my book.) He said that neither Ray McGuire, my old colleague from Merrill Lynch who had just joined Lazard as its President, nor Marcus Schenck, a former Goldman partner, would have come to Lazard recently if it were floundering. Among others, he sang the praises of George Bilicic, who runs the firm’s power, energy and infrastructure advisory business, as well as those of his partners Mark McMaster and David Gluckman. He said it was important for Lazard to try things, like investing in Independence Point Advisors and the Geopolitical Advisory team, which he said is “working really well” and getting the firm into more and more boardrooms. “If the Lazard brand is about smart, connected people with deep content, these folks do that,” Orszag said. “They expand the set of relationships.” He added that “Some things work and some things don’t,” but the firm was committed to trying various strategic initiatives, regardless. As for the layoffs of 340 people, Orszag said it was painful but necessary to make sure that Lazard continues to have professionals who were both “highly relevant and highly productive” and that over the years, too many people who were neither had continued to be paid and employed. “It kind of drags the whole franchise down,” he said. He said he’s “really excited” about Lazard’s future. “We’re going to be really adamant, especially going forward, about high productivity growth,” he said. “Culling will happen, as it should at a place that puts a lot of emphasis on being exceptional.” Once upon a time, Lazard was certainly exceptional. That period began in the years after World War II, after Andre Meyer made his escape from Paris to New York and took over the running of the firm. He made the firm a pioneer in both advising C.E.O.s and in principal investing. Its exceptionalism continued with Felix and Michel and then with Bruce, albeit with a different vibe. During the 14 years since Bruce’s unexpected death, under the leadership of Ken Jacobs, who has been extremely well paid throughout, Lazard has grown bigger and more robust, for sure. But its stock has underperformed badly while its many chief competitors—among them, Centerview Partners, Moelis & Co., PJT Partners and the aforementioned Evercore—have thrived. It’s enough to make you wonder what advice Lazard would be giving itself if it had the courage to hire a financial advisor to review its own strategic alternatives. I hope being exceptional is still on the agenda.