In light of the failures like Lehman Brothers, the talk is that the investment-banking model is essentially broken. As a result, Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) are now crusty-old bank holding companies.
But, there are still some investment banks left -- such as Lazard Ltd. (NYSE: LAZ). For the most part, the firm has weathered the financial storm pretty well. However, Q3 was still rough for Lazard; there was a net loss of $77 million or $1.17 per share (which compares to a profit of $40.3 million or $0.73 per share in the same period last year). Yes, you can blame the market instability as well as some purchases of the asset management business. Keep in mind that Lazard was a prime broker with Lehman.
For the most part, Lazard remains focused on advisory services, especially in M&A. And, the firm keeps snagging marquee deals, like the transactions for Gaz de France and Fortis NV. Unfortunately, with the credit crunch, it's becoming extremely difficult to finance acquisitions. It looks like Lazard may show continued weakness for awhile.
Although, one bright spot is M&A in the financial services industry. With the injection of billions in federal investments, it looks like we will see a pick-up in dealmaking in the sector.
The credit crunch should be bad news for investment banks, right? Not necessarily. After all, strategic buyers have been aggressive lately, perhaps because there's not much competition from private equity operators.
One of the beneficiaries is Lazard (NYSE: LAZ), which reported its Q2 numbers. Eearnings came to $64.6 million, or 54 cents per share, which compares to $61.5 million, or 53 cents per share in the same period a year ago.
Simply put, Lazard has been snagging some choice client engagements. For example, Q2's revenues on merger assignments spiked 37% to $225.1 million.
In fact, the firm is an advisor on InBev's $52 billion deal to purchase Anheuser-Busch Cos. (NYSE: BUD). Another high-profile assignment is Gaz de France's 44.6 billion euro deal with Suez.
Keep in mind that Lazard has worked on about $100 billion in announced deals in July alone. This is certainly a nice momentum boost.
Besides, Lazard has a strong restructuring division. While the business is still fairly small – at $32.7 million – there should be lots of potential for growth. Just look at some of the major bankruptcies lately, such as Mervyn's, Steve & Barry's, Linen 'n Things and so on.
The New York Post reports that concerns remain over Apple, Inc. (NASDAQ: AAPL) CEO Steve Jobs health after he appeared thin at recent developers conferences. This is making investors nervous since it's not likely that anyone can do as good a job as Apple CEO. And Apple's board may have a duty to report on Jobs' health if he can't perform his duties.
I became familiar with this legal requirement two years ago when questions were raised to me about the health of Lazard Ltd. (NYSE: LAZ) CEO, Bruce Wasserstein. The basic requirement for a board is unclear. As I wrote: "it appears that there are two conflicting points of view on the topic. On the one hand, the illness of the CEO -- particularly one as highly regarded as Wasserstein -- is material information under Regulation Fair Disclosure (FD) that could cause an investor to sell if it was disclosed. On the other hand, laws such as The Health Insurance Portability Act (HIPAA) protect the privacy of employee medical records."
In 2003, Jobs had a bout with pancreatic cancer. He recently appears to have lost a significant amount of weight according to the Post. In the case of Jobs, he seems to be appearing in public and doing his job, but the prospect that he might soon be out of Apple's developing picture does not bode well for investors. The lack of comment from Apple seems ominous to me. Meanwhile, Apple is expected to report EPS of $1.08 on revenue of $7.36 billion, according to First Call estimates.
The stock is up 150% over the last year but with its move into the consumer marker BlackBerry maker Research in Motion Limited (NASDAQ: RIMM) is entering the fickle world of consumer trendiness, reported the Wall Street Journal's "Heard on the Street". Analysts are concerned about how big the consumer market can be for them, and then there's Apple Inc (NASDAQ: AAPL) and Nokia Corporation (NYSE: NOK) beating down the consumer path. Smart products will help, but price is an issue, and the shares could face a hard fall.
The Wall Street Journal reported that Wachovia Corporation (NYSE: WB) acknowledged it has hired The Goldman Sachs Group Inc (NYSE: GS) to study its troubled portfolios of mortgages, a move which many believe indicates the bank is gauging the market value of the loans in order to eventually sell them.
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Lazard Ltd (NYSE: LAZ) was hired by UBS AG (NYSE: UBS) to undertake a strategic review of the Swiss bank's businesses, the New York Post learned.
The New York Post also reported some reported turmoil at Live Nation Inc (NYSE: LYV), following the abrupt departure of the concert promoter's chairman, Michael Cohl. Employees in the unit that was led by Cohl fear that the company will lay some of them off, and CEO Michael Rapino is accused of not being strongly committed to the company's mega-deal strategy.
The Boston Herald reported that its unions were told the newspaper will lay off 130 to 160 workers, under its new plan to outsource printing operations elsewhere in the state.
Journal Register (NYSE: JRC) may be the first large, listed newspaper company to go into Chapter 11. With falling revenue and high debt, the company, which publishes a number of papers including the New Haven Register, hired Lazard as it faces delisting from the New York Stock Exchange.
JRC has been the most likely chain to hit trouble for some time. It bought a number of papers in Michigan four years ago and the deep trouble in the economy there has bedeviled the parent company. According toThe New York Times, "If the company were to seek bankruptcy protection, as analysts said was possible, it would be a first in recent memory for a publicly traded newspaper company, John Morton, a longtime newspaper analyst, said."
The company's 10-K shows that revenue in 2007 dropped to $463 million from $507 million the year before. Industry analysts believe that ad revenue across all newspapers in the U.S. will drop another 8% this year.
Journal Register operating income before write-offs was $63 million in 2007, but interest expense was $41 million, leaving almost no margin for a further drop. The company has $625 million in debt.
The newspaper industry is dying more quickly now and there will be other defaults in the next year or two. Large chains like McClatchy (NYSE: MNI) face severe debt problems. Its lenders may end up owning the company.
Douglas A. McIntyre is an editor at 247wallst.com.
Bruce Wasserstein's New York Magazine published a list of Wall Street titans who have seen their personal net worth decline in the last year. One name was conspicuously absent from that list: Bruce Wasserstein, who would rank second on the list of biggest losers if he not decided to exclude himself from his own publication. This type of omission has a proud history, as I have never seen Steve Forbes's name on his magazine's rich list.
Nevertheless, here are the top three biggest losers when Wasserstein's name is added accompanied by the amount they have lost:
Lazard Ltd.'s (NYSE: LAZ) CEO Bruce Wasserstein's net worth has fallen fallen $260 million. (This is calculated by multiplying Wasserstein's 11,394,504 shares by Lazard's stock tumble -- from its May 2007 high of $56.90 to January 24, 2008's $34.09); and
The fourth quarter was brutal for investment banks. But for Lazard Ltd. (NYSE: LAZ), things weren't so bad. After all, the company focuses on corporate advisory, and as a result didn't get dinged by principal trading and investments in subprime deals.
In Q4, Lazard's earnings spiked 43% to $122.6 million, or $0.104 per share. Revenues were up 26% to $618 million.
The main boost came from advisory fees, such as for M&A transactions and restructurings. This business increased 27% to $313.6 million in revenues. Oh, and restructuring revenues were up 58% to $32.3 million. In light of the wreckage in the market, I suspect that this segment will continue to thrive.
Of course, a key to the success is Bruce Wasserstein, who is Lazard's CEO and uber dealmaker. For his efforts, he got a hefty $96.3 million restricted stock grant as well as a five-year employment agreement.
However, with the credit crunch and economic uncertainty, the M&A market has been fairly soft in January. If this continues, Lazard will certainly feel some pain.
But in today's trading, Lazard's stock was up 4.46% to $37.25.
At a talk on September 20th at New York's 92nd Street Y, Lazard Ltd. (NYSE: LAZ) CEO Bruce Wasserstein took a swipe at Time Warner Inc. (NYSE: TWX), BloggingStocks' parent, for its moribund stock price. At the same time, Wasserstein patted himself on the back for taking all his chips off the table when the stock levitated above $18 following the publication of a Lazard report on Time Warner.
Lazard, which was hired by corporate raider Carl Icahn in February 2006, authored a 343 page report that argued for a breakup of Time Warner and a big stock buyback. Beyond its $5 million fee, Lazard's reward from Icahn was a bonus based on how far above $18 Time Warner stock went. Lazard's report estimated that Time Warner's breakup value ranged between $23.30 and $26.57. Following the report, Time Warner stock rose -- peaking at $22.73 on January 12, 2007 -- before declining to its current $18.99 -- about 50 cents a share above its price in February 2006.
While he claimed to like Time Warner management -- he called CEO Dick Parsons "a lovely, well-liked guy" and president Jeff Bewkes, "a highly regarded management kind of guy" -- Wasserstein blamed Time Warner's moribund stock price on their decision not to follow the recommendations in his report. Wasserstein thought Time Warner took one of his ideas -- a $20 billion stock buyback (Time Warner bought back $12 billion) -- but ignored his other suggestions -- to do more spin-offs and to run AOL more effectively.
MarketWatch reports that the United Auto Workers (UAW) ended its strike against General Motors Corp. (NYSE: GM) due to a settlement reached early this morning. 74,000 production workers will return to work. GM shares are up 8% in pre-market trading. This deal will benefit the reputation of Lazard Ltd. (NYSE: LAZ) which represented the UAW.
Details have not been revealed. On the surface it appears that the UAW got something it wanted as did GM. The new four-year contract agreement gives the UAW an independent retiree health-care trust -- estimated to cost GM $51 billion. The Associated Press reports that it would also give workers bonuses and lump-sum payments. Meanwhile, GM will be able to boost its competitiveness -- getting more flexibility to hire new workers at lower costs -- helping to reduce what GM claims is a $25-per-hour labor cost disparity with its Japanese competitors.
The health care trust GM is establishing would pay about 70% of GM's $51 billion pension obligation, or $36 billion, into a Voluntary Employees Beneficiary Association (VEBA). The UAW would manage the VEBA for 340,000 GM hourly retirees and spouses. If the VEBA's investments appreciate enough in value, those 340,000 pensioners will have their pension obligations satisfied. If not, it will be the UAW's fault.
To reach $51 billion in, say, five years, the VEBA will need to achieve a 7.2% annual rate of return -- sounds like a profitable job for Lazard!
This week, investment bank Lazard (NYSE: LAZ) reported its quarterly earnings. As should be no surprise, the results were solid -- with profits of $61.5 million, or 53 cents.
True, this compares to $62.9 million, or $0.60 per share in earnings in the same period a year ago. Then again, investment banking can be volatile (a couple engagements can have a big impact). And there is lots of competition, such as from biggies like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS).
But, with a hefty stock price, Lazard has also been buying up some rivals, such as Australia-based Carnegie, Wylie & Co.
What's more, Lazard's Chairman, Steve Golub, had some interesting insights regarding the problems with private equity and tightening credit.
Interestingly enough, it could be a boost for M&A. How? Well, first of all, valuations are better.
And, assuming private equity firms are having issues, it could make it easier for strategic buyers to purchase companies.
Assuming all this pans it, it would of course be a very nice thing for Lazard.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
The Wall Street Journal (subscription required) reported that online auctioneer eBay Inc (NASDAQ: EBAY) has resumed advertising with Google Inc (NASDAQ: GOOG), after having pulled its ads to prove that it didn't need to spend as heavily on Google's AdWords.
The Financial Times reported that some inside and outside of Lazard Ltd (NYSE: LAZ) are questioning if CEO Bruce Wassertein has given the company a sustainable model that will be able to thrive without the current "dealmaking binge."
According to the Financial Times, citing people familiar with the situation, News Corporation's (NYSE: NWS) Rupert Murdoch is looking beyond its $5B offer for Dow Jones and Company Inc (NYSE: DJ) in search of Internet acquisitions or a deal involving MySpace.
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Also concerning News Corp and Dow Jones, the U.K. Times reported that the Bancroft family, which controls Dow Jones, asked late Friday for two seats on News Corp's board, which is one more than Rupert Murdoch has been willing to offer.
Last week I blogged on Britain banning Rockstar's Manhunt 2, owned by Take-Two Interactive (NASDAQ: TTWO) for the game's "unremitting bleakness and callousness of tone." I said that banning games stifles creative freedom and has the ability to destroy an industry -- from game makers to retailers, and, most importantly, consumers.
Well that's exactly what has happened folks.
Following bans in Britain and Ireland, as well as an "Adults Only" rating in the United States, GamesIndustry.biz has told us that Take-Two temporarily shelved Manhunt 2.
Manhunt 2 was scheduled for release on July 10 on the Sony Corp. (NYSE: SNE) PlayStation 2, PSP, and Nintendo's (OTC: NTDOY) Wii consoles. However, both Sony and Nintendo carry an Adults Only policy, which leaves little room for compromise. Even if the game were to ship with the AO rating, many retailers -- including Wal-Mart Stores (NYSE: WMT) -- will not put Manhunt 2 on the shelves.
Take-Two could still appeal the rating of a more toned-down version that fits the "Mature" rating for players 17 and older. However, the AP's Matt Slagle reports that the decision to suspend distribution of Manhunt 2 could actually boost demand, according to industry analysts. Colin Sebastian, an analyst at Lazard Capital Markets, tells Slagle that he doesn't believe the game will hurt Take-Two's bottom line in the long term, and he considers the recent controversy over the game to be great exposure. "It's free publicity," Sebastian said. "Consumer backlash is a risk, but at the end of the day if it's rated 'M' the retailers will take it."
Investor's didn't seem phased on the news. Shares of Take-Two Interactive were up for the week and closed +1.02% on Friday, to $20.82.
In light of the failures like Lehman Brothers, the talk is that the investment-banking model is essentially broken. As a result, Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) are now crusty-old bank holding companies.
Here are some highlights from this past week's 
The credit crunch should be bad news for investment banks, right? Not necessarily. After all, strategic buyers have been aggressive lately, perhaps because there's not much competition from private equity operators.
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Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
