Lazard Inc (LAZ) 2006 Q2 法說會逐字稿

Good day everyone and welcome to today's Lazard's Second Quarter Results Conference Call. Today's call is being recorded. We will now begin the call.

Thank you. Good morning ladies and gentlemen. I am Judy Frost Mackey, Senior Vice President and Director of Global Communications at Lazard. We are pleased to welcome you to this conference call to review Lazard's results for the first half and second quarter of 2006. Participating on the call today are Bruce Wasserstein, Lazard's Chairman and Chief Executive Officer, Steve Golub, Vice Chairman, and Mike Castellano, Chief Financial Officer.

Today's call may contain forward-looking statements. These forward-looking statements are based on our current anticipations and projections about future events. They are subject to known and unknown risk, uncertainties and assumptions.

There are important factors that could cause our actual results, level of activity, performance of achievements to differ materially from those expressed or implied by the forward-looking statements. These factors include but are not limited to those discussed in Lazard's filings with the Securities and Exchange Commission. Management cannot guarantee future results, the level of activity, performance, or achievements. Moreover Lazard assumes no responsibility for the accuracy or completeness for any of these forward-looking statements.

Investors should not rely upon forward-looking statements as predictions of future events. Lazard is under no duty to update any of these forward-looking statements after the date on which they are made. Further investors should keep in mind that Lazard's quarterly revenues and profits can fluctuate materially depending on many factors including the number and size of completed transactions on which we advise as well as on seasonal factors.

As such Lazard management believes that annual results are the most meaningful. Accordingly Lazard revenues and profits in any particular quarter may not be indicative of future results. It is for this reason that Lazard does not plan double conference calls each quarter but rather hold them twice a year to review our first half and full year results.

I'll turn the call over to Mr. Wasserstein.

Good morning. And thank you for joining us to discuss Lazard's first half and second quarter to '06 results. This morning we announced record first half operating revenues of $762 million with financial advisory revenue increasing 31% to $484 million and asset management revenue increasing 15% to $249 million. Net income increased 82% for the first half to $115 million on a pro forma fully exchange basis for $1.11 per share and increased 97% for the second quarter to $63 million on the same basis or $0.60 per share.

We are pleased with these results. We went public over a year ago. And the timing is opportune for some reflection. Since that time we have delivered on our promises and established a track record of success. With our new structure we've been able to demonstrate the strength of a Lazard franchise and the power of our simple business model in both our financial advisory and asset management businesses.

In financial advisory we have advised on some of the most complex and important transactions reinforcing our leadership position. We achieved significant market share. But more importantly even stronger wallet share in this positive environment.

In asset management we are pleased that we have made steady progress as we have won new mandates with expended product offerings. We are benefiting from the investments we have made in senior investment talent and our global distribution efforts. Lazard's success in asset management is a tribute to the sheen and leadership we have in place.

What then distinguishes the Lazard franchise? First we are a focused firm of major scale. Financial advisory accounts for some 65% of our revenue and has approximately 900 dedicated colleagues. Our share of advisory fees gives us the similar size and scale to many of our larger competitors. Many of these firms are dominated by other activities with advice thinly representing less than 15% of their total business. We are squarely in the M&A's special bracket with revenues that are multiples of the so called boutiques.

Secondly Lazard's heritage is as a truly global firm. Our people are deeply routed in their local markets around the world. With 2,200 employees worldwide we have an impressive depth of resources and a strong global infrastructure in place. This global infrastructure is not easily replicated. And represents a significant [inaudible] to entry.

Third our business as structured and as run has significant operating leverage. We have been able to control cost while growing revenue. Hypothetically if our revenues were to grow in the high single digits under our turn operating model we should be able to increase earnings by some 20 odd percent.

Fourth Lazard provides an environment that breeds success. Allows for individual creativity and rewards people competitively. This has allowed us to attract and retain some of the most effective people in the business. We see ourselves as the best home for professionals who want to focus on giving advice.

Fifth our premier brand and reputation as trusted advisors has been established by over 150 years of history. And our distinctive tailored approach to advising clients. This blends professional discipline with creativity and the integrity of a relationship perspective.

Sixth we've made significant investments in our platform for the long term. Among those investments we have focused on a number of growth industries such as Biotech where we have established a strong practice. Another example is the recent creation of our alternative capital finance group.

This group's focused on pipes and on registered direct offerings. Areas of corporate finance that we think will experience considerable growth. The scale of our platform allows us to sort new investment initiatives by product additions and by geographical expansion or enhancement of the depth over our offerings.

When we look toward the future we are pleased with our prospects. And our plan is to maintain high earnings growth over time. Of course any given period may vary depending on market conditions.

In closing, I believe that Lazard's unique collection of assets and capabilities distinguishes us from our competition and cannot be replicated. We are committed to leveraging the Lazard franchise for the benefit of our shareholders, clients, and employees. And believe we are on a positive path toward continued growth. I'll now turn the call over to Steve who will discuss our business and financial performance in more detail.

Good morning. And thank you for joining us today. As Bruce mentioned we are exceptionally pleased with our results for the first half and second quarter of 2006. Our financial results demonstrate the enhanced productivity of our professionals and the continued demand for world class independent advice.

We achieved record first half operating revenues of $762 million. An increase of 28% over the first half of last year reflecting solid growth in both our financial advisory and asset management businesses. Our financial advisory business achieved 31% revenue growth to a record $484 million for the first half of 2006 led by strong performance in mergers and acquisitions and private fund advisory.

For the first half of 2006 M&A revenue increased 29% to a record $392 million driven by the continued strong productivity of our people and the continued strong environment for mergers and acquisitions activity. Corporate finance [inaudible] our revenue more than doubled to $58 million principally as a result of a higher level of private equity fund raising.

Resolved M&A group advised on a number of notable transactions that closed during the second quarter including SuperValu's 17 billion Consortium acquisition of Albertsons, Pfizer's12 billion euro consortium acquisition of Waterloo, Paris and Rine Rome, Duke Energies 14 billion merger with synergy and Sprint Nextel's 10 billion purchase from Nextel parts.

Our M&A backlog continues to build and reflects several important announced M&A transactions including Gaz de France's 37 billion year a merger with Suez, Abertis almost 23 billion euro merger with Autostrade, Pfizer's 16.6 billion sale of its consumer healthcare business to Johnson & Johnson, Fisher Scientific's 12.8 billion merger with Thermal Electron, and Casa de Pan's reorganization of its partnership with Casa de Depo among other transactions.

Our market leading financial restructuring franchise is continuing its work on a number of notable restructuring assignments including those involving Eurotunnel, Olympic Airlines, Suncom Wireless, Collins & Aikman, Meridian Automotive, and Tower Automotive. Additionally we continue to advise Calpine's unsecured credited committee, Northwest Airlines credited committee, and the UAW with connection with Delphi's bankruptcy and with regard to alternatives for restructuring Ford Motor Companies post retirement healthcare obligations.

Industry wide financial restructuring activity remain relatively flat with no increase in the amount of corporate [inaudible]. Our private fund advisory group continues to contribute to our revenue in a meaningful way. A number of large fund closings in the second quarter of 2006 resulted in more than doubling first half corporate finance and other revenue [inaudible] relative to the same period last year. It's important to remind our investors that the recognition of revenue from our fund raising activities as well as our entire financial advisory business is based on completed transactions and therefore can very significantly from quarter to quarter.

Turning to our asset management business we reported 15% revenue growth for the first half of 2006 to a record $29 million. Management fees increase 12% to $216 million. And incentive fees nearly doubled to $14 million for the first half of 2006. Access under management at the end of the second quarter were almost $94 billion representing a 6% increase over the level year end 2005 due principally to market appreciation and declined slightly from the first quarter 2006 record level.

This decline during the quarter was largely due to the timing of inflows and outflows resulting in a net outflow of $1.6 billion in the second quarter. We continue to attract assets in global and regional products. Overall we are extremely pleased with our year to date 2006 financial performance which reflects broad based strength and momentum across all the businesses and regions of our global franchise. We believe we continue to be positioned for long term growth. I will now turn the call over to Mike Castellano who will provide more details on our financial results.

Thanks Steve. I feel certain of my remarks on comparing our results to the pro form of 2005 results mentioned in our earnings release. Since the structure and financing in the firm changed significantly with our IPO in May of 2005. And since the historical results prior to the IPO treat the company as a partnership for accounting purposes and therefore historical results the periods prior to the IPO on May 10 and subsequent are not comparable.

As Bruce and Steve have commented, first [inaudible] operating revenues increased to a record level as Lazard's second quarter results continue the strong momentum of our first quarter performance. For the second quarter of 2006 each of our businesses increased revenue both sequentially and year over year. For the second quarter of 2006 compared to the second quarter of 2005 financial advisory revenue increased 24% to $262 million reflecting increases in our productivity and industry wide completed mergers and acquisitions.

M&A revenue increased 9% to $198 million for the second quarter of 2006 marking the best quarterly performance in M&A revenue since the fourth quarter of 2000. Financial restructuring revenue increased to $21 million from $16 million from the second quarter of '05 which was last years low end quarter for financial restructuring revenue. Corporate finance and other revenue increased to $43 million from $13 million in 2005 principally driven by a number of large closings during the second quarter of 2006 in our private fund advisory group including Francisco Partners $2.3 billion fund and TDR Capitals $2.1 billion fund.

Asset management revenues increased 19% for the second quarter of 2006 to $130 million reflecting growth in both management and incentive fees. Management fees increased 16% in the second quarter of 2006 which is higher than the 12% growth in average assets under management compared to the second quarter of 2005 principally due to a shift in AUM from higher feed based alternative investment products.

Management fees for the second quarter of 2006 represents the highest quarterly management fees ever achieved. The increase in incentive fees to $7 million for the second quarter 2006 from $3 million from the same period of '05 reflects better performance in certain funds that provide for such incentive fees with a measurement date in the second quarter.

Our compensation from benefits expense operating revenue ratio was maintained at 57% for the first half and the second quarter of 2006. Compensation and benefits expense increased 27% to $424 million for the first half of 2006 which is modestly less than the 28% growth and operating revenue for the same period and increased 23% to $234 million for the second quarter compared to the pro former 2005 figures for the comparable period.

Land compensation expenses were $126 million or 16.5% of operating revenue. And $68 million or 16.6% of operating revenue for the first half and second quarter of 2006 respectively. Non compensation expenses were pro former 20.1 and 19.3% of operating revenue for the respective 2005 period.

The decrease in the ratio is due to operating leverage from higher operating revenue and cost containment initiatives offset by increases in professional fees principally due to consulting fees related to legal and outsource services as well as cost to comply with Sarbane's Oxley.

The strong operating leverage drove 72% and 49% increases in operating revenue for the first half and second quarter of 2006 respectively to $170 - to $163 million and $185 million. We remain committed to containing our annual non compensation costs. The effective income tax rate assuming full exchange of outstanding exchangeable interest was 28% for both the first half and second quarter of 2006. The effective tax rate for these periods before exchange of exchangeable interest was 21 and 22% respectively.

On May 15, 2006 we completed the termination of our joint venture relationship in Italy and recorded a gain of approximately $14 million excluding transaction and other costs which is included in corporate revenue in the three and six month periods ended June 30, 2006. This gain resulted in an approximate $5 million increase to operating income.

Pro forma net income on a fully exchange basis increased 82% to $115 million or $1.11 per diluted share of the first half of 2006 and 97% to $63 million or $0.60 per dilutes share for the second quarter. Our continued growth and earnings is a result of several factors including strong growth and revenue and our operating leverage achieved through our ability to contain cost.

I'll now turn the call back to Bruce.

Thanks for joining us today. We remain committed to executing on our strategy and creating significant value. At this time we welcome your questions.

[OPERATOR INSTRUCTIONS]. And we'll go first to Prashant Bhatia of Citigroup. Please go ahead.

Hi. You talked about the backlog building during the quarter. Can you give us a feel for the backlog on the advisory side in terms of maybe how it compared to where you started last quarter for the beginning of the year?

Yes, this is Steve Golub. We don't give out information on our backlog. I think what we tried to do in our earnings release if you look at Page 4 of our earnings release we tried to list the board relevant transaction that we've announced but haven't completed at this point in time. And historically what we've said and what we continue to say is, “Hey, the industry and the environment is pretty good in M&A. And we think we're well positioned within the industry.”

Okay. But it's fair to assume that it's growth over the quarter when you said the backlog continues to build?

I think you could look at what we probably disclosed on our Web site and in our earnings release in terms of the relevant transactions and that is what we try to provide to investors and everybody in terms of understanding what's happening in our organization.

Okay. And then just in general on the investments that you're making, can you give us a little bit of a feel for where you're adding headcount or MD's? And how you plan to build out the other parts of the business over the next year or so?

Bruce mentioned his remarks what - we've set up a new group, our alternative capital finance group. We hired a gentleman named [Richard Gormel] who started with us recently in the heights area. We think that as you look at areas of corporate finance that I'd say [inaudible] and register direct offerings here in the US has some significant potential for growth.

And we wanted to be a part of that in the areas such as Biotech and alternative energy where the pipes type transactions are prevalent. We think we could be helpful in that regard. We've added some people in Europe. We've added a gentleman in the industrial group in Germany. We've added some people in real estate in France.

And we continue to opportunistically look around the globe for adding people that we think will be accretive for our franchise. We obviously announced we opened an office Beijing and in China in March of this year. Over the last several years on the emerging market we have a relatively new team in Australia from a couple of years ago.

We have a new gentleman running our operations in India. That's a new person that we've hired running our operations in Singapore. Somebody new in Korea. A relative we knew joined venture in Brazil. So that we've invested to create a global infrastructure for our financial advisory business.

Okay. And then finally in the asset management business of the roughly 94 billion in AUN, is there a way you could give us a feel for what percent of that asset pool is out performing the relevant benchmarks and maybe what percent's under performing?

Yes we really haven't given out that type of information at all. It's fair to say though if you look at our revenue mix in this order and how we're performing, that we're performing pretty well in some of the regional and global products as we've indicated. But we're not providing percentages.

Okay. Great. Thank you.

Yes, hi. This is Bruce. I think it's a matter of public records that a number of these products have won awards or public recognition on their performance. And I think if you Google it you'll be able to see that many of the European or international products in particular merging markets things of that sort have done quite well in terms of public recognition. And in the long term obviously what we're doing is taking our three year plan, positioning ourselves for growth. And we're pleased with the pace of how it's going and in asset management.

On the people side of your question we look at it in a couple of different ways. One is unlike other people who I've seen the analysts model, we're in a little bit of a different situation because the bulk of the machine is built.

And that is we get a lot of operating leverage out of both the increase in the market or increases in marketing or the return on prior investments or a few people added to leverage the machine. What I'm saying is if you get a marketer who's incremental they're able to leverage off a preexisting processing machine. So to get incremental revenue you don't need the entire layers of infrastructure. We already have that infrastructure in place.

And therefore as Steve said we continue to look for two sources of incremental revenue. One is leveraging, developing the people who are here because one of our biggest assets are the young people who we've been able to develop. And as they grow we see [inaudible] as a tremendous opportunity.

It's not a situation where we have to go to the outside to go get the increment. What we need to do is retain and continue to develop the fabulous talent that we think we have. And we've been able to do that. It's obviously been an attractive place for people to be in and to stay.

Secondly there are markets and niches where if we found the right guy or woman we would obviously pursue them. And you will see that upon a very selective basis. We will make some incremental hires. But we are very selective about what we're doing because we're pleased with the hand we've got.

Okay thanks. That's helpful.

Okay and we'll take our next question from Susan Katzke with Credit Suisse. Please go ahead.

Thanks. I have a couple different unrelated questions here. On the asset management flows are there any particular products were the money is flowing out? Is it one or two discreet products or is it just a little bit here and there?

What we have flows out in certain international equity products. On the other hand we've had significant inflows in some of the global products and regional products over in Europe. But it's been in the international equities areas. And historically, not recently it had been back in US fixed income.

I think more broadly if you look at this company historically it was a US focused traditional product orientation. Some files over time have become less appealing to institutions. And so we've had a shift in between what people - what the market is interested in.

And I think what we've adopted is the idea of trying to focus on where investors will be and also reinforcing this global platform. So we've taken a number of years to pay our dues for building up this global structure.

And it's fairly unusual for an asset management company to have the global structure we do. But we think for the long term that's a tremendous opportunity because again, once you've set up that structure you have a lot of leverage on incremental opportunities. So that's in the strategy. And I guess since the offering we said we had a long term view on asset management. And as we've said today we are seeing the progress in the plant.

Okay. And then I guess I'm a little surprised and actually it's a good think to hear your heights and RD business are going to be in the public company. But can you explain how those will work with the - I don't want to call it the private company - but your capital market [inaudible] in the public company because I would assume there's a lot of relationship leverage there.

The question is you were surprised at the pipes?

That it's not going to be part of the capital market [inaudible] it's not in the public company.

Okay. Let me just make --

So how does it work?

--a semantic, you know, clarification or just a clarification. Capital market is in - the origination of capital markets is in the public company. It's just the private company which is what you're thinking of is just a basically sales and trading.

Okay.

And so the idea was originally not to have the risk on either the capital or regulatory side for a focus sales and trading operation. But obviously as part of our process we are involved every day in capital structures and advice as to it. Pipes business is basically alike any private placement business.

In fact we've been doing the pipes business under a different name for years. We restructured much of the utility mystery in the last couple of years with basically private placements of public securities. So that's a traditional business of the firm. What we've been fortunate in is being able to hire a team that's focused on this technique in particular growth industries which compliments our work in particularly in Biotech technology some of the emerging energy markets, things of that sort.

The only thing I'd add to what Bruce is saying is if you think about the structuring business we view as a capital market [inaudible]. There's a feeling of restructuring balance sheet so that the capability on capital markets advice is one that we've always had within the company.

Okay. That's right. I appreciate the clarification. And one more question. Within the M&A advisory area, has there been any shift in the mix of publicly announced transactions versus private activity? You know, in certain quarters the level of private activity has certainly enhanced the fees that you're generating. And that's harder to see the mix from what we can run from geologic or what have you.

It's an important point which is - and I think will be unfortunately increasingly confusing to the way analysts look at these companies because the easy way for people to look at things is to look at the so called market share numbers. But you'll - if you dig to the public [inaudible] reports you'll see there's an increasing spread or disparity between fees on for financial advisory. And whatever these market share numbers are.

And the reason for that is that is market share positions have been increasingly bundled with other services. And people may anxiously be providing meaningful advice services or may not be. And all we can say is that as you can publicly verify although we have a very good market share numbers our wallet share number, that is our share of actual fees paid, which we think has something to do with the contribution or role is making is much higher. And that trend will continue.

Now another factor is the one that you say which is that as there are private transactions, whether those are divisional sales, things of that sort they may not register on the government advisory [inaudible] private equity, resellings, other private equity companies. A lot of the real estate - large spoke real estate businesses.

Those don't show up through those normal matrices although at this point, things are a little clearer and easier for people because - or should be - now they've got a year of our operating as a public company. And people can see that it's a simple model and can see the dilemma that you're pointing out that in fact that you've got to trace the revenue line if you want to find out a reasonable financial measurement of how people are doing.

And it's quite surprising when you actually do that. That is like I recently saw some analyst reports making distinctions among firms and seemed to miss the point that, you know, the special bracket in M&A is not what they thought it was because they don't track the revenue line. And deftly by the way we're right in the middle of the special bracket on the M&A side despite the size of competition. So that gives you a feel for your question.

Okay great. Thank you so much.

And we'll go next to William Tanona from Goldman Sachs. Please go ahead.

Hey good morning. Just in terms of thinking about the backlog building. Is there any region in particular that tends to be or is growing faster than say the US or is international growing faster than domestically at this point?

No it would be fair to say to you as we look at our first six months and our recent results that what we've see is - it's across geographies and across industries. There aren't any particular areas that are growing more than others. We see it as a - being pretty broad based. So that's not to say that in any quarter, you know, one geography might not be a little more than another geography. But look at a broad brush over a period of time we see it fairly diversified.

It's a very interesting question because the M&A business is not one homogeneous business. Every industry has different things propelling it. Obviously you could have an environment where it - for example commodity companies could have accelerated M&A activity at the same time that industrial companies are not active and in geographies economies differ.

But our experience has been that although there are those macro factors at the moment, things seem to be going pretty much on a tandem level for us. But that's partly because its, you know, our business has a mix between doing some of the consortium and private equity deals representing the large corporation, representing the governments and having a geographic spread. And so you get blends of activity.

And for example again an analyst report people seem to have the assumption that as interest rates shift that - or commodity prices go up that there's a direct functional relationship to the M&A business. And if you go back in history, that's true with the extremes, but not true during what I'd call the standard deviation as a bulk of the period because what is a shift of different buyers for things and different assets become interesting. If the equity market goes down, the people who like bargains start coming in. If commodities look more attractive, then you get a phenomenon like the, you know, like the early 80s.

So the [specular] trend over the next, you know, if you want to call it the next decade is that there will be more of the internationalization of focused businesses which means that the arbitrage that exists between public companies and private equity will continue. Businesses will consolidate and try to get a more global approach there will be these divestitures. And of course within that period there will be ups and downs and as history had indicated some degree of cycles.

And - but he secular trend is quite strong. And, of course, that's why we have invested in having this strong reorganization practice.

That's helpful. And I guess to that point as well I mean you think about what's happened in the markets over the last couple of months and it doesn't appear that people are necessarily dialing back in terms of looking for financial advisory help. And that seems to be the case with you as well. I guess at what point do you think that, you know, people might become a little bit more cautious as they think about strategic advisory?

Well, yes that goes to your point which is different environments are suitable for different folks.

Yes.

If you're a cash rich big company who's always been pining for some international deal, if everybody else has a problem you don't. If on the other, you know, if at the moment there's plenty of capital which hasn't afforded the private equity people. And obviously they're doing more the syndicate deals in fact there's a trade off for them between the cost of financing and the cost of the deal. Market went down, that offsets to some degree the cost of the financing although there's plenty of financing at the moment.

So you've got to get a much more complex calculation than this, gee, interest rates should be up or something of that - or the market's down and assume the relationship. What the basic mistake people make I think is assuming the M&A business is related to the fortunes of how a big diversified financial institution works. That may be or may not be and it's not for me to say what the impact on someone's lending business will be.

But that's different than being a focused advice business. It's a different business. It's just different which is why we emphasize the point that although our revenues on the advice side are similar to many of these big institutions their fortunes are dictated by the stock market and interest rates. That may be true. But the advice part of the business is related to other issues.

Excellent. That's helpful. And then I guess just switching gears a little bit and looking at some of the expense items. Obviously we saw a little bit of a jump about 10 million on the non-comp side. Was most of that just related to the [intefsa], you know, reorg if you will or was there something else that made those non-comp expenses jump up so dramatically quarter over quarter?

Yes, Bill. It's Mike Castellano. I think, you know, one of the things that is effecting that comparison, we talked about it in the first quarter is the first quarter itself was I'll say uniquely low because we had a $4 million credit from a recovery from some VAT expenses from prior years. So, you know, looking at it, you know, you still do have a delta of about 6 million on an adjusted basis quarter over quarter.

And that's coming from a couple of different areas. One, you know, the [intefsa] cost that had something in there but not the bulk of the increase. There was also cost related to [inaudible] continuing to be a public company.

We're further into the Sarbanes Oxley effort. Just in those costs you will begin to ratchet up throughout the rest of the years. We go to the different phases of that. We've also had some increase cost from outsourcing where particularly in the asset management business with some of the regulatory changes that have been made, we made a conscious decision rather than do some of that work internally to turn to some of the outsourcing providers to do that net that's having an impact on that line too.

But generally speaking, you know, we are focused on that line, we know how important that is to our financial model. I was trying to keep a containment on that cost but to be able to drive the leverage. And that, you know, you see some of that in the fact that the percentage of non-comp cost to revenue, you know, is still holding down at a pretty low level by historical standards for the quarter into the six months.

Its right around 16-1/2% of operating revenue which is down from the roughly 19% that we had last year. And, you know, in the mid 20's that you saw in the pre IPO 2004 period. So.

Also the Sarbanes expenditures are partly the start up expenditure for…

It's a start up expense and there will be, you know, some more of that talked about this year. And hopefully as many other companies have seen as you go into the second year of it that moderates quite a bit.

Great. Well, that's helpful. Thank you guys.

And we'll go next to Michael Hecht with Banc of America Securities. Please go ahead.

Hi Mike.

Hi. Good morning, how you doing? Can you hear me okay?

Yes. Very good. Thanks.

Okay. Thanks. Hey Bruce thanks for the overview or recap of the strategy. I think - well it sounds like you guys are pretty happy with where you are today. Are there any capabilities or verticals you'd look to add, you know, by sector, or geography in financial advisor or perhaps anything you'd look to add in asset management to further your progress there?

You know, since our background is basically strategic, we think about a lot of things. That's very different than doing something about some of these issues. I think we have a gentleman called [Alex Stern] whose job is to think about these strategic matters. But essentially what we realize is that Lazard is a unique brand. The brand vastly overshadows the structure of the company as is.

And the question is what should we do if anything? And obviously we take a very disciplined approach to these things. But we obviously think about more debt in certain industries on the advisory side. Some of the growth industries like what we've done so far in Biotech which is a, you know, would probably be a, you know - has been a great story for us. Where we buy investment has created a lot of depth.

And what we've been doing we're developing an industry like we have in the last three years, the global utility business not only here but throughout Europe. And in asset management there are a series of question that frankly all our investors have asked. Which is given the platform and nature of the company, are there other things we should be doing? And we obviously think about that. And certainly have developed a new suite of products over the last couple of the years. And I would expect that to continue and in fact accelerate.

So, you know, I think we're at an exciting time because we have said that we had a two part plan which was to stabilize and clean up the company that was. And that's over and done. Company is clean and, you know, prospering by definition as you can see by the results.

And so now we're focused on the future. And we tend to think of though the future not as next quarter or next year but where we'll be three to five years from now and trying to be wise about that. And we'll be thinking about those questions. All ideas are appreciated.

Okay great. Thanks. I just wanted to follow up with a question on advanced word structure and inside I mean can you just give us a little more color on the competitive dynamic you're seeing out there with more of the diversified investment banks entering the business? I mean, I understand the credit environment is quite good right now, which might limit big upsides for business generally. But with bankruptcy reform having changed, you know, the competitive landscape, do you think this is going to limit your participation in any way once we do see an uptake to corporate to fall activity?

The answer is no.

Okay. And then just I guess last question on capital management, you know, out look there. I mean you guys [inaudible] repurchased some shares to manage dilution of the share. Can you - any thinking updates on paying down debt versus additional repurchase activity versus investments in private equity or acquisitions?

You know, Mike, you know, at this point, you know, as we said I think a few times we have really no intentions or plan in the near term to pay down debt. As you know, the equity security units and the debt that we issued in connection with that that purchase contract comes due in May of 2008. And additional equity will be coming into the company.

And so as we're looking at that, of course we're, you know, continuing to do our planning for, you know, where we might, you know, want to make some additional investments standing out product lines et cetera and how to best utilize those funds.

But right now, you know, the debt we raised was basically ten year debt. We wanted to make sure we had, you know, sufficient resources to carry us through cycles in the beginning. And right now we're very comfortable with that level. And don't really see that as being a priority right now.

Okay. Great. Thanks guys.

And we have no more questions in the queue. I'd like to turn the call back over to Mr. Wasserstein for any additional or closing remarks.

Thank you very much. I think that will be the end of our call today. Thank you for joining us today.

And ladies and gentlemen that does conclude today's conference. And we thank you for your participation.