Boutiques Bearing Up
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Wall Street’s M&A shops are hitting a few wobbles after a good run. Lazard missed second-quarter estimates on Thursday, if only by a penny, because of lower growth in advisory fees than peers. Evercore delivered a similar underperformance as compensation expenses more than doubled. And Greenhill has been frantically trying to calm nerves about departing executives.
On the surface, the confluence of issues might suggest specialist financial firms are struggling to keep up momentum won in the past few years. The credit crisis was a boon. Losses by trading desks and treasury departments at larger rivals made the likes of Lazard look more attractive to both clients and bankers. The fear has always been that a recovery for the bulge bracket could spark a reversal of fortunes.
But each looks robust enough to ride out these latest bumps. Greenhill’s mini-exodus isn’t as worrying as first appeared when investors wiped 12 percent off the stock in a single day not long ago. Most of those leaving were no longer front-line bankers. And while Evercore’s pay more than doubled from a year ago, it was only just ahead of the impressive jump in advisory fees. At 70 percent of revenue, compensation still looks high and needs to come down, but it’s not out of whack from previous quarters.
As for Lazard, run by Ken Jacobs, its 17 percent increase in M&A revenue from a year ago might look lackluster next to Evercore’s, and even more so against the jumps of at least 70 percent enjoyed by Goldman Sachs and Morgan Stanley. But Lazard’s business also held up better than many last year.
What’s more, Lazard has fingers in more pies than its smaller rivals. Its M&A revenue was more than double Evercore’s in the three months to June. And it also boasts a strong asset-management business, which has almost doubled revenue in just two years and now accounts for almost half the firm’s top line.
Of course, the danger still remains that megabanks will be more aggressive about using their balance sheet to steal market share. For now, though, despite these latest troubles, independent M&A shops should be able to keep holding their own.