Morning Coffee: Why Lazard is hiring while revenues collapse. Curious quirks of Ted Pick
To listen to Peter Orszag, the new CEO of Lazard, talk about the bank's results yesterday, you might assume that things are going well there. According to its presentation, Lazard wants to hire 10-15 managing directors 'net' every year. In an interview with Financial News, Orszag declared that these bankers will cover everything from technology to industrials, healthcare and energy and that Lazard will also be hiring for Germany, America, restructuring and its private capital business.
Why the fervor? In the Lazard investor call, Orszag reiterated his vision: by 2030, revenues will have doubled, split equally between Lazard's advisory and asset management arms; the return on equity will be 10-15%. To achieve this, there will be "double-digit revenue growth annually on average." There will be "aggressive lateral hiring." The halcyon days are coming.
So, how's this all going? In the third quarter, revenues in Lazard's financial advisory business were down 42% year-on-year. In the first nine months of 2023, they were down 30%. There are double-digit changes in revenue, but they're in the wrong direction.
The combination of big hiring and big drops in revenue doesn't bode well for big pay. In third quarter, Lazard cut compensation spending by 16% year-on-year, and the bank's compensation spending is down 4% for the year as a whole. With revenues falling by more than compensation, paying people is already consuming 71% of the money Lazard brings in.
Orszag, who spent most of his career in government and only became a banker in 2016, seems untroubled by all of this. Speaking yesterday, he said the "headwinds are easing" and there are signs of an M&A revival. It's all about, "the interplay between the catalyst of activity, including ongoing technological innovation, shifts in global supply chains, the life sciences revolution and the energy transition and the headwinds, which include a divergence in expectations between buyers and sellers because of the impact on valuations from the sharp increase in interest rates, the uncertainty in financing markets and regulatory concerns," he explained.
If this is the case, you might expect other banks to be hiring too. And indeed, Jefferies and Deutsche Bank are doing just that. But Goldman Sachs says its deal pipeline is feeble and Bank of America's CFO says he's "tired" of predicting when the comeback might happen.
If deals don't come back? Orszag has another element to his plan. He also intends for bankers at Lazard to up their productivity: "If each of our Advisory MDs generates an additional $1 million in revenue, the effect is to free up more than $50 million in total each year to invest in new lateral hires without any adverse impact on our compensation margin," he declared yesterday.
So, existing MDs will be expected to work harder, while earning less, to pay for their new colleagues? Good luck.
Separately, you may have thought you knew everything about Ted Pick, the incoming CEO of Morgan Stanley after yesterday's flurry of Pick profiles. But the Wall Street Journal's late iteration contains the sort of revelations that it's worth reopening your mind for.
Pick has his downsides, says the WSJ. He can be a "hothead", who goes "off on subordinates." He can be "harsh" to people who display disloyalty. He likes to get people in his office for an hour to talk about their day, and he interrogates MDs about their deals.
He also has idiosyncrasies. He will lie on the couch in his office and look at the ceiling while processing difficult information. He once asked colleagues to beat him at math questions; they fired out multiplications involving large numbers and Pick processed them before anyone else, including someone using a calculator.
Pick is 55 on Halloween. Depending upon your take on the new Morgan Stanley CEO, he could make a good fancy dress outfit. Pick himself may be on the town: the New York Post suggests he is, or has been in the past, a drinker and a party animal.
James Gorman on Ted Pick: “He’s wicked smart and he’s very street smart.” (WSJ)
If Saperstein or Simkowitz had got the job, Pick would probably have left Morgan Stanley. (Semafor)
People are having a hard time at the European Central Bank. 39% of staff said their workload was not manageable and 35% said work was harming their mental health. (Financial News)
Jefferies hired Amanda Wu from Morgan Stanley as its head of fixed income in Asia. (Bloomberg)
At one point yesterday, Standard Chartered shares fell 18% in London after it took a $186m charge on Chinese real estate and an impairment of $700m on China Bohai Bank, in which it has a 16% stake. (Bloomberg)
Nomura set up its China business after pandemic and was going to hire 500 people. It's changed its mind. (Bloomberg)
What happened when I attempted the morning routine of Jamie Dimon: "My energy dissipated by 10:30. During a 1 p.m. staff meeting, I stood up fearing my eyes might close if I sat down." (WSJ)
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