Lazard Inc (LAZ) 2009 Q2 法說會逐字稿

Good morning and welcome to Lazard's second quarter 2009 earnings conference call. This conference is being recorded. At this time, all participants are in a listen-only mode. Following the remarks, we will conduct a question-and-answer session. Instructions will be provided at that time.

(Operator Instructions)

At this time I would like to turn the conference over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead, ma'am.

Good morning, and thank you for joining this conference call to review Lazard's results for the second quarter of 2009.

Participating on the call today are Lazard's Chairman and Chief Executive Officer, Bruce Wasserstein; Chief FInancial Officer, Mike Castellano; and Vice Chairman, Steve Golub.

A replay of this call will be available on our website, www.Lazard.com, beginning after 1:00 Eastern Time.

Today's call may contain forward-looking statements. These statements are based on our current expectations about future events, and are subject to known and unknown risks, uncertainties and assumptions. There are important factors that could cause our actual results, performance or 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, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Lazard assumes no responsibility for the accuracy or completeness of 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.

Today's discussion may include certain non-GAAP financial measures. A description of these non-GAAP financial measures, and the reconciliation to the comparable GAAP measures, are contained in the earnings release which has been filed with the SEC, and our current report on Form 8-K.

For today's call, we will focus on highlights of our performance, and our investor presentation. The details of our earnings can be found in our press release issued this morning and our investor presentation, both of which are posted on our website at www.Lazard.com.

Bruce Wasserstein will first discuss our strategy and distinct position for future growth; Mike Castellano will report on highlights of our results; and Steve Golub will conclude with highlights of our business activities. They will be happy to answer any questions following their remarks.

I will now turn the call over to our Chairman and Chief Executive, Bruce Wasserstein.

Thank you, and good morning.

We are pleased with our second quarter results and to have raised the dividend. We have performed well in these turbulent markets. We have emerged into a special bracket advisory firm, and a leading global platform asset manager. We feel these trends will be reinforced in the years to come.

During the first half of 2009, Lazard continued to invest in our businesses to support the firm's ongoing five-year strategy to create growth opportunities. We have accelerated our major global senior-level hiring initiative. We have hired a number of senior professionals in our financial advisory business including global communications, oil and gas, Australian M&A, European healthcare, industrials and financial institutions, as well as the US middle market.

Over the past several years, we have built the foundation for a world-class asset management business. We are recruiting new teams and seating new strategies. Earlier this month we announced as an alternative asset manager the establishment of a Chicago-based private equity business with The Edgewater Funds, a Chicago-based private equity firm. We are proud of our asset management business and its products. As of today, our assets under management are over $100 billion, and we are in a net inflow position year-to-date. In June, Thad Shelly joined us to lead a newly-formed US wealth management business that will provide customized investment management and financial planning services to high net worth investors.

On the operations side of our business under Mike Castellano's leadership, we are modernizing and integrating our I.T. platform and global back office, and consolidating our infrastructure for our multi-office platform. We have accelerated the control systems and management disciplines of the firm. We are pleased to have named Alex Stern as the Chief Operating Officer of the firm, and recruited a new Global Treasurer and designated a Global Risk Manager.

In thinking about the future, we thought we'd give you a sense of our plans. We are planning for a gradual increase in traditional M&A activity, reaching the prior period highs in about four years. In addition, new markets such as China, India, Brazil, Australia and Russia, are becoming more active. We are also broadening our client base through new hires and initiatives such as Lazard's middle market and wealth management. Our strategy has included broadening the advice we are providing to our clients in this difficult environment. That includes advice to governments and sovereign funds, advice for capital raising, such as rights offerings in Europe, and the capital structure mandates for major companies. The advisory business at Lazard is now much broader than M&A.

We also believe the high levels of defaults will continue over the next four years. Therefore, our restructuring activity will continue to be very active. In addition, we continue to win mandates in asset management, and to have superior performance in many products. We are now poised for the next phase of our growth strategy, providing a broader range of investment services, and benefiting from the dislocation of larger asset managers.

We are committed to our distinct franchise. We are more focused than the financial supermarkets, and have multiples of scale over what some call the mini-me's or boutiques. We believe we are very well positioned for the upside in the recovery. Globalization, and effectively managing assets, are the imperatives of the economy as a future. Therefore, the combination of an increased M&A volume, broader advisory services, highly active restructuring activity, and increased assets under management from new markets, asset appreciation and new products, should propel our growth. Of course, we recognize the need to expect the unexpected, and any plans may need to be adapted. Our firm remains dedicated to providing the highest quality advice and creative solutions for our clients.

Mike will now comment on our performance. Mike?

Thank you, Bruce.

We continue to have strong fundamentals. We are differentiated from both the boutiques and the major firms, and we are well positioned for growth. We are encouraged by the significant sequential improvement in our business and financial results from the first quarter of this year. Net income on a fully-exchanged basis was $43 million or $0.34 per share diluted for the second quarter, compared to $65 million or $0.54 per share diluted for the second quarter of 2008. This compared to the net loss of $30 million or $0.26 per share diluted for the first quarter of 2009.

Operating revenue was $399 million for the second quarter, compared to $494 million for the second quarter of 2008, and $273 million for the first quarter of 2009; or a 46% sequential improvement. M&A and strategic advisory, restructuring and asset management all contributed to the improvement from the first quarter. Sequentially, M&A and strategic advisory revenue was up 40%. Restructuring revenue was up 53% to an all-time quarterly record. Restructuring revenue, I should point out, included fees from several transactions that were completed during the quarter.

Meanwhile, asset management was up 28%. Assets under management at the end of the second quarter were $98 billion, representing a 21% increase during the quarter, primarily due to market appreciation. I should point out that we have continued to have strong inflows during the month of July, which aggregated $2.3 billion so far this month, giving us positive net inflows for the year. As Bruce mentioned, this brings us to more than $100 billion of assets under management as of today.

On the expense side, we continue to focus on containing discretionary spending. You will note that compensation and benefits expense in the second quarter decreased 15% from the second quarter of 2008, reducing the compensation expense to operating revenue to 65.9% for the first half of the year. Non-compensation expense in the second quarter decreased 20% from the second quarter of 2008, and represented 19.9% of operating revenue.

A quick word on our compensation expense. Our compensation ratio for the first half of 2009 is not necessarily representative of the ratio for the full year. The timing of our actual operating revenue during the year will impact the comp ratio for each quarter. The ratio may also be impacted in the short-term by our global senior-level hiring initiative and competitive situations to meet our employee retention objectives. Our plan is for compensation expenses to usually be below 57.5% of operating revenue in any year, and to average below 57.5% over time in our existing businesses. Of course, as in the first half of 2009, this ratio may rise above 57.5% during periods of significant revenue decline.

Finally, I would like to make a few points that I think are sometimes missed by commentators, that again can be found in our investor presentation. We are a uniquely global-scale specialized firm; the strength and depth of our senior professionals and our investment -- our senior bankers and our investment professionals, our broadened advisory scope, and our presence in nearly 40 markets around the world, positions us in a special bracket of advisory firms considerably broader and deeper than the boutiques. Our diverse advisory revenue streams include traditional M&A, as well as strategic advisory, restructuring and capital structure advisory; therefore, we have less volatility. In fact, our advisory revenues over the past 12 months are among the top firms, slightly higher than Citicorp's. And in addition, our advisory revenues are four times larger than the two public boutiques.

We have a unique global asset management business. We have an increasingly international client base, with assets under management now evenly divided between the US and non-US clients. We have had strong and improving performance from several broad platforms. We have been winning new mandates, and had net flows last year when many asset managers were experiencing significant outflows.

Our fundamentals and financial position are strong. We ended the quarter with over $1 billion in cash and liquid investments. We have a low-risk, diversified business. We avoided all black swan events. We have no long-term debt maturities before May 2015. And as you know, we have no principal trading or lending [problems]. In addition, we are returning value to our shareholders through our share repurchases, and the 25% increase in our dividend. Our employee ownership at 52% is aligned with the interest of our shareholders. And we were the only major investment bank to which the US Government did not provide emergency financial support from the taxpayers.

In summary, our historical performance and growth opportunities clearly differentiate us, and we believe it may be time for a positive re-rating.

Steve will now discuss our financial advisory and asset management businesses.

Thank you, Mike. Good morning everyone.

We believe our financial advisory and asset management businesses are poised to capture the upturn in the next cycle. We have increased our market share in M&A and strategic advisory assignments, adding new global and complex mandates in the second quarter. These included advising Xstrata and its planned offer to merge with Anglo American; BHP and its Western Australian I&R production joint venture with Rio Tinto; Barclays in its sale of Barclays Global Investors business; BlackRock; and Amazon.com in its acquisition of Zappos.com, among others.

Our global restructuring team, paired with our M&A industry specialist bankers, has advised on more than 100 restructuring assignments worldwide in 2009, of which the majority are non-bankruptcy assignments. We have advised debtors and creditors on 20 of the top 30 Chapter 11 bankruptcies during the past 18 months, including nine of the top ten bankruptcies filed in 2009. Notable assignments by our restructuring teams in Europe and the United States include advising Capmark Financial, Cemex, Evraz, INEOS, Kellwood and the first-lien lenders to Monier. We have also advised on Chapter 11 bankruptcies for Charter Communications, Lehman Brothers, Nortel, RH Donnelley and Tribune Co., among others.

We fully expect that defaults will continue to increase to record levels, which will continue to drive our high level of restructuring activity. At the same time, as equity markets start to rise, and our asset management business continues to gather assets and deliver superior solutions for clients, we expect that business to continue to rebound. Importantly, we are continuing to invest for superior returns and future growth.

In summary, Lazard is a unique, global-scale, specialized intellectual capital firm. We believe it is better to over-achieve than to over-promise, and the facts speak for themselves. Although we expect our results to continue to fluctuate from quarter to quarter, we are confident in our abilities to continue to forge a path to growth.

This concludes our remarks, and we will now take your questions.

Thank you.

(Operator Instructions)

We will take our first question from Guy Moszkowski from Banc of America.

Good morning. My first question is sort of a follow-up to the last set of comments. Is there any way that you can make an argument to give you confidence that the M&A cycle has bottomed in terms of what you are seeing globally, in terms of the pipeline or backlog of deal activity that you are seeing? And if there is any granularity to that, from a geographic perspective, that would be useful.

I guess -- this is Bruce -- I think the first point is that the M&A business, as you know, has evolved into not being one-dimensional. What I mean by that is the traditional business that people are building much of their regression models from looks to the past, and that's a different model than what will be the future. Now why? First of all, different industries are active. We feel that industries, for example, technology, financial services, are going to be highly active, minerals globally will be active, and obviously if you think of it in a geographic sense, the world outside the United States and Europe is actually becoming incrementally active. So it's a little difficult looking back at some of these historic trends, because they are mostly US-centric. Even Europe is more active, and in fact in our business, one reason our business is somewhat different is because we do have a broad geographic base. We do have a window on the rest of the world; we're obviously very active in Europe, and our European activity well balances the US.

What we can tell you here is that in the last month or so, the strategics have again begun opening their files and thinking more about growth in the future. That is, that coping with the financial crisis by virtue of cost control is not the path of future growth for companies, and the question is strategically how best to position the major companies for the time ahead. And I think you will see over the next six months, when you begin looking at that backlog, the [corroboration] of that.

However, the important point to make as regards Lazard is that a lot of our advice is broader, and broader in the sense that strategic advice, first of all, has become broader than actually doing the deal. Often, as you know, we tell people about recommendations on not doing deals at this time. But, secondly, there is a lot of asset redeployment thinking going on, there is a lot of incremental concerns about some companies regarding defense, which is more of a new phenomenon, but obviously as prices are relative low and some companies are quite liquid, or are getting stronger stock, there is concern among others about takeovers, so that's also part of the business.

What is particularly growing for us is general capital structure advice, especially for major corporations. That is, given the volatility on the financing markets and the pattern of interest rate curves, what's the right dividend policy, what's the right debt policy? And that's obviously very much integrated with the the question of asset deployment.

The last point I'd make is on financing itself, financing has become a much more sophisticated matter; that is, people want to get independent advice as to what their best financing sources may be, whether that's through investments in private placements, or it may be public deals, what type of securities, et cetera; and rather than merely buying a product from a product salesperson, what they'd like to know is to have a sense of perspective and strategic overlay to that, and that's one of our better businesses.

Thanks. Just as a follow up, maybe you can give us an idea of the size of our Asian business at this point, because that's an area where clearly you haven't had the penetration that you've had historically in the US and Europe. Maybe it would be useful to have a sense of the number of bankers that you have involved at this point, and the kind of revenue generation you are seeing in Asia?

Sure. I think in the deck there are statistics, but let me put out some caveats on those statistics. The way I think about it is that roughly 10% of revenues come from outside US and Europe; on the deck, what it says is 7%. The deck is based on country of origin of the assignment, or where the working team is based. So, for example, this morning it was publicly announced that we are doing a transaction - a telecom transaction in Sierra Leone, just to give you an example. That's booked out of Paris, because the teams in Paris -- just to give you an idea, if you look at it more holistically, we have a very broad and growing connection with what we define as the world outside of the US and Europe, and why? Well, it goes to all parts of the firm, and I think it's a very important theme.

One, on the advice side, obviously people are getting more active around the world, even -- just to show you the complications, if you take a transaction like InBev, that involved a Belgian company buying a US company, this is Anheuser-Busch/InBev, but it's largely -- a large control block is in Brazil. So in order to execute that, you had to have a Brazilian presence, a Belgian presence, an expertise in beer, and obviously the US execution capabilities. That's more the hallmark of transactions for the future.

We obviously have quite a leading firm in Australia, obviously we did the -- we worked on the BHP transaction, wherever it's booked, that's out of Australia. We have done a number of -- quite active with sovereigns on the advisory side that are around the world. We're active in financial services in particular around the world, including in Eastern Europe. So all of that is active.

But I wanted to raise two other points, which are not as obvious perhaps. One is restructuring. In restructuring, which is now broadly defined -- the old definition was reorganizations or bankruptcies, that's not what the business is today; the business is basically people who are thinking about their credit structures, negotiating it and understanding that over the next couple of years they may be distressed. And that is the activity that may result in extension of credits or placements, or sale of assets, not necessarily chapter filings. That activity has become very broadly international, and I would say that it used to be 100% US business. Our business is now roughly a third of restructuring, to think of it, outside the US.

Similarly, our government advisory, which happens to be booked in a particular way, is obviously around the world, and you may have seen Guy publicly -- as an example, our restructuring of the Ecuadorian debt would be an obvious example wherever it's booked.

The last major point I want to make is asset management, which is that is truly a global platform, and wherever the people are located, depending how you counted, a third to a half of the subject matter are non-US companies, and much of which -- one of our strongest products is our global thematics and emerging markets type of products. We've got global products in most regions of the world, and a strong record in many products. So that's an important part of what we think is our distinctive characteristics; we feel we are a global citizen. That's reflected in the revenues today, and with be even more so, we think, in the future.

Great, thank you very much.

Thank you. We will now move on to our next question from Devin Ryan with Sandler O'Neill & Partners.

Good morning. Looking at the record restructuring revenues, can you guys give us a sense of what percentage was from retainers and how much was from success fees? Then just thinking about your pipeline of mandates, has that continued to increase even as it appears that deal closings are starting to pick up? I know you guys gave us the number of approximate mandates in the past.

As far as the breakout between retainers and completions, for various reasons we don't really give a precise number there. As you can see from some of the things that are listed in the release, there have been a number of restructurings that did close during the quarter, and that probably accounts for some of the differences between the various estimates out there in what we had. But I think the ,ore important second question that you had is how is the backlog looking, if you will, and there I guess I'm limited to saying that we have been working on over 100 transactions this year. That compares to in the first quarter I think we referred to about 80, so net/net it continues to build.

The -- as Bruce mentioned, our outlook for -- and again most other people's outlook for prospects of the default, is that is going to continue for some time, probably into next year at least, and we think that the activity levels here will remain high. And as we also said, the other difference again between now versus the past, it is a much more global activity both in terms of companies that are needing this kind of assistance and our capabilities, where at this point roughly a third of our business is outside the US.

Just to elaborate a little bit -- this is Bruce -- on that point, the restructuring -- the differentiation between retainer and what you were calling transactions was -- was very relevant. It's less relevant today, because a fair percentage of the business isn't a transaction in the old sense of a Chapter 11 completing; that's why you don't see those numbers in some public backlog. It's the advisory side of things, and it's not so much it's retainers or not, it's that it's an advisory assignment.

And I think on -- secondly, on defaults, you've seen those charts in various publications, and we think there will be a high levels of defaults for the next four years. There will be a different pattern than before, it's a more extended pattern. But there is another difference from the last cycle here which is it's again a global phenomenon, and so the mix by breadth is different, but also the product is broader. So what was before a narrow product, which was who were you representing on Chapter 11s, and you could go quantify the Chapter 11s and look at their longevity, in fact now you have two differences. One, the period of defaults are stretched out over time, and secondly the aggregate amount of defaults is higher. And thirdly, a lot of our advice relates to people who are not in any default; it's people avoiding being in that position, and that makes a big difference. This will be -- we believe -- a very good business for the next four years or so.

This the Steve. The only thing I would like to add to it is, when you look at the last cycle of restructuring in 2002/2003, the business today is much more a global business, and the investments that we've made in people in continental Europe and the UK are really increasing our ability to deliver a quality product in Europe, and we've seen that in the current trends that we have been seeing, and you can see it in the number of European assignments that we are doing right now.

That's helpful. Just one on asset management. I believe that some of the asset management fees are built on beginning of period AUM; is it fair to assume that revenues in the second quarter maybe aren't fully reflecting that 21% sequential AUM increase just because of that dynamic?

Roughly -- generalizations are always dangerous. Roughly half of our mandates are based upon beginning of the quarter and half are based upon the end of the quarter.

Okay. I can take that. Then just lastly, of the $2.3 billion of July inflows, were those from prior commitments, were those from new mandates that you won? And any additional color here on that inflow would be helpful.

One of the things that we have been seeing, that I think we talked to many of you on occasions in the past, is that we have been encouraged that we continued to win new mandates over really the last year or so. But as we have all experienced, the funding of those mandates basically shut down in the third quarter of last year with all the turmoil that went out there. So we had this backlog, but nobody was funding. So you saw the outflows that continued into -- although modest, continued into the first quarter. What you have now seen is, for whatever the reason, people have gotten more comfortable, they are not looking at that black hole anymore, and are more comfortable now going into the market, and you saw that then reflected again in the second quarter, where we had some modest net inflows in the quarter, and then this rather large amount of funding that came in throughout the month of July, to the point where we've actually got net positive flows for the year.

Thanks very much.

Go ahead, sir.

Hello?

Thank you. We will move on to Howard Chen from Credit Suisse.

Good morning, everyone.

Good morning, Howard.

Thanks for taking my questions. My first one, just regarding the competitive landscape, I wanted to get a sense of what you are seeing along the lines of balance sheet intensity of the advisory business, and if that's changed at all through the cycle? The cost of capital has clearly gone up, and are you seeing any stressed competitors attempting to use the balance sheet more aggressively?

I think the question of competition is an interesting one. We are in a particular part of this business. It's perhaps a slightly different business than other people, which is the -- we are at the high-end quality service part of the business and/or premium part of the business, and there aren't very many people in that space. I won't mention how many, but very few. And the reason for that is because again to offer that, you have to have global scale and a depth in the industry expertise in those areas. So people who essentially are getting business by time and product aren't in that business. That's the supermarket approach, and right now you're in a situation where the supermarkets are out of stock of their favorite, most popular lines of material, money. So that's one phenomenon.

But that's never been an issue for us; that is, competing with the financial supermarkets, because generally what we find is the more people are pressing engagement by virtue of having money, the more the sophisticated companies feel they need independent advice at a global sophisticated scale, and that's the reason for our distinct position. So we regard that as a positive phenomenon, although obviously there are policy questions at the moment that -- essentially, there seems to be a very limited number of institutions actually lending, and that's more of a public policy issue.

On the other side of what our General Counsel and others call the mini-me's or others call the boutiques, you know that's a different business. It's a completely different business. I've been interested in reading the analysts' reports, and I think there are some basic statistical facts that are important to focus on. The first point is scale. If you look at the chart in our deck, you will see that our scale in advisory itself is larger than -- out the same size as Citi and Deutsche Bank, at the moment somewhat larger, and four times the size of the largest mini-me or boutique. That's a completely different business, and obviously the global scale is lacking and the depth is lacking, and we don't regard them as long-term threats or competitors to this niche that we are in. They're in a different niche.

In the analysts' reports, people talk about increased market share by boutiques, but if you exclude Lazard, which some people put in into their statistics, you will find out that the total is insignificant, and you can see that in the deck. That's there. And the group is relatively small in those areas, so we don't see that, and obviously that's why in the deck we show the peg ratio versus price, show that -- Mike's point, that relative to where we are, the peg ratios, et cetera, to value are low.

The other point, though, is, when you look at us, looking at that method of valuation, how much credit did people give us for having a large, high quality, global asset manager in our business? And the proportions are all off. But it's up to you all to figure that out, it's your business, not ours.

That's very helpful, thanks, Bruce. Separately, could you just touch a bit on where the firm still has a desire to build human capital, whether it be by product, industry or geography? And just in general, your thoughts on the competitive landscape for talent today?

Talent, competitive landscape, and then if you -- if you could re-ask the first part of the question, but on the talent, hiring talent is always competitive. But I think competitive, there are two aspects to it. One is the organization, its focus, what it's like to be there. Then there is obviously compensation. What we don't want to attract is people who are only after short-term money. That's not our culture; we have been around for 160 years, and we say in our corporate objectives obviously our objectives are to do well by our clients, and for obviously our shareholders and employees. And with the employees, our objective is for three things, for people to be proud of what they are doing, number one. Number two, for them to have fun. And number three, for people to be fairly paid.

And those are very critically important elements, because it creates the culture of the type of people we want, which is different than perhaps other people might want. And competitively, there are people out there who want to offer economic packages. Curiously, some of the TARP banks are using the Government money to attempt to pay high amounts. I can -- we've had particular cases where someone offered over three times what we offered somebody, just as [indication] of the level of desperation that's involved in some of these places.

But in the end, we'll do very well competitively on hiring, and I think for people who are interested in the advisory product, this would be, we feel, the place of fine choice, would be the one or two people that are most attracted, and its partly whether we are or brand X depends partly on the personality and type of of person.

And the first part of the question is what type of people were we looking for?

No, a little bit different, Bruce. The first part of the question was about where in the firm you're still looking to make strategic hires, whether it be by product group and [history], or geography?

Okay. The -- we are really looking at it in two dimensions. One, we are looking for exceptional people, and that's the most important thing to us, because that is strategic. We think we have been able to hire some exceptional people, we think we will continue to be able to hire and will hire some exceptional people, and over the next six months watch this space.

But there is another overlay, which is your question strategically where we would you like to get people? We want to build up further financial institutions in Europe. We are adding in selective industry areas. We are obviously continuing to build up in Asia. And so those are among the areas that we would continue to hire. I would expect, though, these are our good times for attracting people, despite everything I said about pay and competition, because we have a comparative advantage as both an attractive place to work and as a stable institution, and the combination of that means that we have been flooded with resumes; our difficulty is really sorting through who would be a good long-term fit for us.

Great. Thanks for all the thoughts, first, and congratulations on a strong quarter.

We have time for one final question, and that question will come from David Trone with Fox-Pitt.

Thank you. You guys gave a lot of color on restructuring, and I'm trying to get some magnitude on the forecast, and I know you don't give guidance on this kind of thing but is it -- you put up $93 million this quarter in restructuring; is it unreasonable, when this peaks in some quarter next year let's say, is it unreasonable that you could have $200 million quarter? Or is that just -- is that plausible or just crazy?

Here's the first thing, we don't do things by the quarter. We don't even try to do things by the quarter, and it's not the way we think about things. But the second point that you made was a -- I think you're thinking of this restructuring cycle as peaking, or -- and the way we think about it, I don't know where the exact peak is, but think of it as a plateau; that is, that there will be a high level that will continue with ups and downs for a number of years, I've said four years, and I say that because it's what I can reasonably foresee. But, again, that's a matter of personal opinion, no promise.

So maybe a better way to ask it is, is it possible for this activity level to double?

Just sort of mulling that over. The activity level, doubling of pure activity level, that's a lot of speculation there because depends upon how quickly some things get done, which is a function of the financing markets, et cetera. I think the way that Bruce mentioned it is the best way to look at it, the way we look at it, is unlike in the last cycle where you came to 2003 and then it just died. It was a very simple -- or a very insular group of telecoms with corporate governance problems, and then it just dies. What we -- the way we are looking at this is it is more likely to be more of a continuum, Bruce just used the word plateau, where the plateau might be, but we think there will be a steady level of activity for the next couple of years.

Okay.

High levels.

In a way, what you are getting at, though, is true, and I'm not talking about doubling or anything like that, but there is a shift in the algorithm here on restructuring, in two ways. One, the base level and upside level is higher, because more companies are affected globally, and the activity, which is not the old Chapter 11, but reorganizing companies and adapting to future financial changes, but also operational changes, is a broader topic and subject. And so, therefore, the aggregate volume over time will be higher, but it will be spread out over a longer period. And therefore when you think about us, you know that's what I was I guess trying to get at, is as some of you said, what's -- how do I look at adding up parts of the Company?

And what I was trying to get at was that, if you look out you say okay, obviously here advisory plus our broad definition of asset management is the revenue side, Mike's already given you a fair idea on the cost side and compensation side. So when you look at the revenue side, you say all right, what is the trend in the parts of the advisory revenue, and the first would be what's the cycle on traditional M&A, that old regression analysis that people did where they had the chart where M&A activity, according to some of your research reports, varied between 6% and 11% of market value, depending on where you are in the cycle, or whatever metrics you want to use. But that's the traditional, that's the US market.

And so then you got to go, wait a minute, there is a rest of the world out there. And that's Europe, and remember when you define Europe it's not the old Europe, it's Europe and Eastern Europe, and that's changed, and the rest of the world. Latin America as a whole is more active, and obviously Asia.

Then you got to pick up, for us in particular, the increasing breadth of our general advisory business, both with A, governments, B, general advisory, and capital structure advisory. Those three things are an added dimension. And then you have -- the other point on advisory is going to a client base that's broader than we have traditionally, and that is from two areas. One is from increased hirings, who may be good with going further in penetration of general corporates. But also our middle market initiative, which when the M&A cycle picks up, really has we think a strong momentum to it.

Then we turn to asset management in the broadest sense, and that's traditional asset management, any new products we might have any new initiatives, including wealth management, merchant banking, et cetera, et cetera. So you have to add all those up and look over a period of time, and what we've tried to do was give you the macro view over the next four years or so.

Okay, great. Then just one kind of quantitative question. I guess tangible equities are about 127; so it looks like the return on tangible equities is roughly 34%? Is that about right?

I tell you, we really don't pay attention to or care about that, because the definition of these things are not very relevant to us. I mean, you saw what -- you know, the numbers that are relevant to us is we are sitting on $1 billion in cash, and it's nice to look at the GAAP book value, $300 million, whatever, but it's not terribly relevant to predicting the future performance in our view; you may have a different view of that, and Michael may have a different view.

I'll just say a little bit on that. Frankly, as Bruce said, we don't go in to that kind of a precise calculation; what we look at, as we said, we have extremely liquid balance sheet. We generated a couple of hundred, probably $300 million of free cash flow from the business last year, and you can see what it is for the first six months of this year, which we could use in many of -- different ways, whether its the share buybacks that you have seen us do, whether it is the acquisitions such as we just did, or any other host of things to do. We just felt at this point in time, it was an appropriate thing to increase the dividend.

Okay, thank you.

That is the end of our questions today. Thank you. And this does conclude the Lazard conference call. Have a great day.