Lazard Inc (LAZ) 2011 Q4 法說會逐字稿

Good morning and welcome to Lazard's fourth quarter and full-year 2011 earnings conference call. This call 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'd like to turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead.

Good morning and thank you for joining our conference call to review Lazard's results for the fourth quarter and full year of 2011. Hosting the call today are Lazard's Chairman and Chief Executive Officer, Ken Jacobs, and Chief Financial Officer, Matthieu Bucaille. A replay of this call will be available on our website www.lazard.com beginning today shortly after the call.

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, level of activity, 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 and Form 10K, 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 also 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 our 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. The details of our earnings can be found in our press release issued this morning and in our Investor presentation of supplemental information, both of which are posted on our website at Lazard.com. Ken and Matthew will be happy to answer your questions following their remarks. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Good morning. Thank you for joining our call. The financial markets were difficult in 2011 and Lazard had a challenging fourth quarter. Yet, our franchise is better positioned today than ever before with significant operating leverage in both our businesses, Financial Advisory and Asset Management as macroeconomic conditions improve. We entered 2012 with a broad and deep platform, the best people and an unrivaled network of relationships with corporations, governments and investing institutions around the world. We achieved record revenues through the third quarter. In the fourth quarter, we experienced a revenue decline in Financial Advisory and a slowdown in Asset Management. Both were primarily caused by the market turmoil centered in Europe which began in summer and continued to year-end. The fourth quarter revenue declined combined with our discipline on compensation deferrals led to a drop in fourth quarter earnings.

In Financial Advisory, full-year operating revenue decreased 11% from 2010. Fourth quarter revenue increased 3% from the third quarter but declined 26% from the strong fourth quarter of 2010. In Financial Advisory, each quarter in 2011 was better than the previous one from a revenue perspective. Asset Management achieved record operating revenue for the year, up 6% from 2010, driven by a 14% increase in management fees, offset by lower performance fees. Fourth quarter revenue declined 20% from year ago levels, primarily driven by lower performance fees in our Alternatives business.

I'd like to cover three topics in my remarks. First, our macro outlook. Second, our compensation approach and goals, and third, some perspective on Lazard today. Let's start with the outlook. Across developed and developing markets, confidence is improving. We believe the US is enjoying a slow but steady recovery. The developing markets have stabilized and their long-term growth story appears intact. In Europe, business conditions will likely remain difficult for some time. A recovery in M&A appears increasingly likely. In the developed world, multinational corporations have limited opportunities for organic growth, yet they have strong balance sheets and record amounts of cash and financing is available. Developing market champions are also looking for opportunities in the developed world. As a result, we expect to see more cross-border activity.

Our Strategic Advisory business is in a strong position to benefit from these trends. We are the leading independent advisor globally with deep roots in every major developed market and most developing markets throughout the world. We have strong operating leverage for an M&A recovery in Europe and the US. We are increasingly well positioned in Asia, Latin America, and the Middle East. On the restructuring front, we expect to see an increase in European activity this year as financial sector pressure tightens credit. This should affect mid-sized, highly leveraged and privately owned companies. In the US, we expect less activity as the economy recovers and financing is available.

Our Capital Structure Advisory business is a powerful complement to our M&A and Strategic Advisory work. We expect it to grow, especially in Europe, as the deleveraging of developed economies continues. Equity markets are off to a good start this year. In our Asset Management business, the outlook is excellent. Despite the volatile markets in 2011, we are building from a position of strength. We now have more than 20 strategies with over $1.5 billion in Assets Under Management. Relative performance has been strong in all our major platforms and we're extending our franchise across our key investment platforms and geographies.

As investor confidence builds and global markets recover, our Asset Management business model is well positioned. Half our clients are non-US, and our global export/import local model thrives on cross-border flows. We see considerable pent-up demand among institutions. Investors are sitting on cash they want to put to work. The growth of global pension systems and sovereign wealth funds is an area where we see great potential to leverage Lazard's global footprint. In developing markets in particular, we see opportunities to leverage our banking relationships to open doors for Asset Management and vice versa.

Now I'd like to review our approach to compensation since 2009. As we said before, we believe the best way to manage our business is to focus on current year awarded compensation and maintain control over deferrals. The concept of awarded compensation simply considers the cost of all pay including deferrals in the year as awarded to the employee. It's the way that any of us thinks about our own compensation in a given year. And awarded compensation for us includes all of our investments in new hires. We think this is the best way to manage and track compensation costs.

Under GAAP, reported period compensation reflects current salaries, benefits, and cash compensation and deferral amounts from prior years. Current year deferrals are not included in current year GAAP compensation, making it difficult to assess current year awarded compensation costs. We understand that most of you will continue to model our business and compare us to competitors through a GAAP lens. Disclosing awarded compensation should help you to judge the compensation trends in our business, assess the quality of our earnings, and more accurately, model our GAAP compensation costs going forward.

Now let's turn to our compensation goals. First, we are committed to growing awarded compensation at a slower rate than revenue growth. We accomplished this in 2009 and 2010. In 2011, revenues declined and we reduced compensation in line with the decrease in revenue including our investment in new hires during the year. Matthew will discuss this in more detail. Second, we will remain disciplined regarding deferral rates as we have been since 2009. Our firm-wide deferral rate was approximately 23% in 2011 and in 2010, and in 2009, it was about 22%. Third, we are committed to achieving a compensation-to-revenue ratio over the cycle in the mid- to high-50s percentage range on both a GAAP and awarded compensation basis while maintaining control of deferrals. It will be challenging to meet this goal in 2012 because of the burden of deferred grants made in 2008 and our commitment to stay disciplined on deferrals, but the goal is achievable for 2013 on both a GAAP and awarded basis while maintaining control of deferrals.

Lazard is in excellent financial health. We continue to generate significant cash flow. Our model requires minimal capital to operate and there is a high conversion of stated earnings to cash flow. In April of 2012, we plan to increase the quarterly dividend on our outstanding common stock by 25% to $0.20 per share. This follows the 28% increase in our quarterly dividend in April 2011. We are following through on our goal of returning cash to shareholders. In the last few years, we've bought back shares of our stock to more than offset potential dilution of year-end equity grants. We are committed to doing so in 2012 as well.

I'll conclude with a perspective on Lazard today. The year is off to a promising start. Our Financial Advisory business is more active than at this time last year. Our competitive position continues to strengthen. We're engaged in some of the largest and most high profile transactions around the world. Last year, we were involved in 3 of the 10 largest M&A transactions as well as groundbreaking spin-offs and asset sales. We remain active in highly complex cross-border transactions and some of the largest restructuring assignments. Asset Management has a strong tailwind of good performance, investor demand, and rebounding markets. Most of our hedge fund assets are already above their high watermarks. Our Assets Under Management are near their average level of last year. Our financial strength has allowed us to keep investing in our business.

In Financial Advisory, we've complemented our already deep ranks of senior bankers in a range of practice areas and geographies. In Asset Management, we've hired senior investment professionals and extended our platform by launching new strategies in emerging markets, equities, and fixed income. Entering 2012 as the leading global independent advisory firm, we see substantial growth opportunities ahead. Lazard has significant operating leverage in both our businesses as the macroeconomic environment improves. My colleagues and I are the largest and longest term shareholders in Lazard. We believe the steps we've taken are the right steps to build value for our shareholders over the long term. We look forward to answering your questions today and in the months to come. Matthew will now provide more detail on our results and we'll highlight some of our work for clients. Thank you.

Thank you, and good morning. I will now provide more color in four areas -- Net income and revenue, business activity in Financial Advisory and Asset Management, operating expense and capital management. This morning, we reported adjusted diluted net income per share of $1.31 for the year and $0.01 for the fourth quarter. These results were primarily due to the decline in our revenues in the fourth quarter and to our discipline regarding compensation deferrals. Also contributing to the decline was the impact of compensation obligations from 2008 and 2007. Annual operating revenue of $1.884 billion for 2011 was down 5% from 2010. Fourth quarter operating revenue was $469 million, a 23% decline from a historically strong 2010 fourth quarter.

Financial Advisory revenue was down 11% in 2011 from 2010. This decline primarily reflected a 33% decrease in restructuring revenue as activity slowed throughout the year. While fourth quarter revenue declined, our Strategic Advisory business was and continues to be active. As Ken mentioned, we advised on 3 of the 10 largest M&A transactions announced in 2011. These included Medco Health Solutions $29 billion merger with Express Scripts; Progress Energy's $26 billion merger with Duke Energy; and Google's $12.5 billion acquisition of Motorola Mobility. We played an active role in some of the most notable corporate demergers and spin-offs such as the ITT and Tyco transactions.

On Sovereign Advisory business; our Sovereign advisory business continues to be involved in the most important and high-profile global assignments, including advising the Government of Greece in its ongoing debt negotiations and the US Treasury with respect to General Motors and many others. Our world leading restructuring group has been retained for some of the largest and most complex assignments including Kodak, the creditors of Hostess, and the Allied Pilots Association regarding American Airlines Chapter 11 proceedings.

In Asset Management, our firm achieved record operating revenues and management fees. Operating revenue was $883 million for 2011, 6% higher than 2010. This reflected record management fees of $818 million. Management fees were 14% higher than 2010, principally because of a higher level of average Assets Under Management and a better business mix. Global stock market volatility in the second part of the year depressed AUM and incentive fees, in particular in Alternatives, which are typically earned in the fourth quarter. This led to a fourth quarter decline in operating revenue to $204 million, 6% lower than the third quarter of 2011 and 20% lower than the fourth quarter of 2010.

We had net outflows of $1 billion for the year and $294 million in the fourth quarter. These relatively limited net outflows were primarily due to clients' delayed investment decisions and delayed funding of new mandates in the third and fourth quarters. Assets Under Management ended 2011 at $141 billion versus $152 billion on average during the year. However, as of the end of January, our AUM has already reached approximately $150 billion, a level near our 2011 average. Our pipeline of new mandates continue to grow.

Turning now to operating expense and first of all, to compensation. The 2011 adjusted GAAP compensation and benefits expense was $1.168 billion, roughly even with 2010. The ratio of adjusted GAAP compensation to operating revenue was 62% compared to 59% in 2010. Three key factors contributed to the increase of our GAAP ratio. First, the 5% decline in operating revenue versus 2010. Second, the 20% increase of amortization of prior year's deferrals from $241 million in 2010 to $289 million in 2011. Third, in order to avoid a further increase of deferrals in future years, we maintain 2011 deferrals at 23% of compensation, the same level as in 2010. More deferrals now would just mean more expense in the future, or in other words, current income at the expense of future income.

In order to better assess our compensation costs, let us look at awarded compensation. Our awarded compensation ratio was 61.7% in 2011, roughly even with the 2010 ratio of 61.5%. Overall, awarded compensation was down from $1.217 billion in 2010 to $1.163 billion in 2011, in line with a 5% decline in operating revenue. But firm-wide, discretionary bonuses declined by approximately 20%. Over the course of the year, we made significant investments in both of our businesses. These investments are included in our awarded compensation expense. So our 2011 awarded compensation not only reflects the impact of our revenue decline but also the investments made over the course of the year. During the first quarter of 2012, we expect to incur expenses of approximately $25 million to $30 million associated with the year-end process.

Non-compensation. We had $400 million in expenses for 2011, 9% higher than in 2010. Our non-compensation expense ratio for the full-year 2011 was 21% versus 19% in 2010. As discussed in the past, the increase was attributable primarily to costs associated with investments in our business which we initiated in the first half of 2011, higher activity levels primarily in Asset Management, and the weakening of the US dollar versus foreign currency on average during the year. The impact of some of these investments will continue to be felt in 2012 but we have launched initiatives to partially offset this cost.

These include optimization and centralization of our purchasing, acceleration of our back office integration, and technology investments for greater efficiency. Finally, in 2011, we accelerated our active Capital Management policies with a goal of reducing risk and increasing return to shareholders. As Ken mentioned, in April 2012, our Board of Directors plan to increase the quarterly dividend of our outstanding common stock by 25% to $0.20 per share. This follows a 28% increase in our quarterly dividend in April 2011. In July, we reduced leverage by repurchasing $150 million of subordinated debt at a discount.

Going forward, we will continue to consider opportunistic ways to reduce or extend our debt. Our balance sheet is strong and liquid. We also increased return to shareholders with accelerated stock repurchases. During the year, we repurchased 6.2 million shares at attractive prices, enough to more than offset new RSU grants, reducing our fully diluted number of shares outstanding. As of the end of 2011, we still had $212 million available for additional share repurchase. Going forward, we remain focused on quality, revenue and earnings growth, operational leverage, and active capital management. This concludes our remarks. We're now happy to take your questions.

(Operator Instructions) Guy Moszkowski with Bank of America Merrill Lynch.

Good morning. Just -- I'm going to focus in a little bit on the compensation, although, obviously you gave a fairly detailed discussion. First of all, the negative operating leverage issues that you were talking about, do you feel that they equally impacted the Asset Management and the Financial Advisory businesses or was that issue more pronounced in one than the other?

Guy, I'm not sure I follow your question exactly. Can you give me a little more background or give me a little detail to it on the operating leverage?

So I guess the question is, to the extent that fixed comp issues either because of hiring or because of deferred comp charges hit your businesses heavily given that revenue was down. Was that impact more severe in Financial Advisory, in Asset Management, or was it pretty much equal across both businesses?

Okay, so let me break the question into two parts. One is, the fixed costs associated with our business on the comp side. I would say that when you look at GAAP, you've got three components, obviously. You've got salaries, benefits -- you have salaries and benefits and then you have the cash bonuses and then you have the amortization of costs from prior years.

What we did in terms of the salary -- the cash bonuses is really the discretionary part of GAAP compensation, and there, I think as you can see from the Press Release, we were very aggressive. We took down discretionary bonuses by approximately 20%. In terms of how that hits the business, I'd say the following.

The Advisory business was really the business that was off this year so the disproportionate impact of the decline in bonuses was felt by the Advisory side of the business. The Asset Management business was essentially up this year, and so the impact was much less on the Asset Management side than it was on the Advisory side. I hope that goes to your question?

Yes, no, that helps. I mean the implication is that maybe more of the discretionary hiring that led to that $50 million increase in base salary and benefits was more of that in Financial Advisory, as well?

Probably a little bit more in Financial Advisory than the Asset Management side, but on the other hand, on the Advisory side, we were also more aggressive over the course of the entire year of managing in and managing out. On the Asset Management side, I'd say it's net-net, we were adding.

Was most of the $50 million increase in the base salary and benefits due to additional headcount or did you have meaningful base salary increases?

I'd say it's a mix, and some part of it is due to the salary increases at the end of last year. You just think about the base of the number of employees we have and a cost of living cut type of increase and you can see the impact that would have, and then some of it, obviously, is associated with the hirings.

Given what happened over the course of the year, in terms of just the business flow and obviously, a lot of that is cyclical and I guess to some extent, politics and therefore, a decline in confidence. But overall, are you still comfortable that you've hired appropriately or in retrospect, do you feel like you may have overhired? I guess the corollary to that is, do you feel like in any way you might be top-heavy?

Okay, good question. Look, we were actually pretty careful about hiring in 2010 and we became a little bit more aggressive in 2011, and we're probably a little bit more aggressive right now. Our view on hiring has always been, you do it when people aren't. In a sense, you cyclically -- you have to be countercyclical about hiring.

When things get expensive, you want to sit on the sidelines. When things start to become a little bit looser and more reasonable is the time to hire. And frankly speaking, 2010, '09 comp, 2010 was probably a pretty difficult year to hire. 2011, we saw more opportunities, so we became a little bit more aggressive but, and I think in 2012, we're going to also see some more opportunities.

Most of this has been what I would say fill out of places where we needed to fill out. China, a little bit in the Middle East, a little bit in Latin America. Then also, I'd say in the developed markets, it's really been pretty much complementing and building on strengths that we already have. Now, I think we're pretty comfortable with the hires we've made.

Okay, and then final question is going to just be on Asset Management. And you referred to some of the strategies that you think are -- have gained traction and I guess, look attractive for marketing purposes. I was wondering if you could give us a little bit more of a sense for what those are?

Okay. Matthieu, do you want to take a shot at that?

Yes, well in some of the strategies where we have most traction include emerging market debt, global equities, and fixed income. As you know, we've also made a number of investments across all of our platforms during the year and we also expanded in real estate, so that's I think the key highlights.

Okay, that's great. Thanks very much.

Howard Chen with Credit Suisse.

Ken, following up on your operating leverage remarks in the prepared commentary, just any thoughts on framing the size or timing of that operating leverage? Could you highlight some of the initiatives that you all are doing outside of comp to control expenses, maybe as the top line environment remains soft, or that gives you some cushion as things improve?

Okay. First, look, from a macroeconomic outlook standpoint, two markets -- or obviously two Businesses, the Advisory and the Asset Management business. On the Advisory side, needless to say, if there's a recovery in the M&A markets that's going to have a positive impact on us.

With regard to that, I've said this before, there are three factors we look at -- confidence, financing, valuation. I think generally speaking, our sense is since the low point of November and December, confidence has improved pretty much everywhere, save for some parts in Europe. But even there, I think even in the recent weeks since the actions of ECB over December, it's probably improved a bit, as well.

On the financing front, clearly in the US and the developing world, markets are open. In Europe for the large companies, there's still quite a bit of accessibility to capital. I think for the mid-tier companies and the more highly leveraged companies, there's some credit crunch going on there. So, but generally speaking, the financing environment is okay, and obviously, the improvement in the equity markets in recent weeks helps that, as well.

On the valuation front, things are still reasonable and then the real challenge for companies is organic growth, and so, if you've got a challenge around organic growth then we think it's inevitable that there's going to be more M&A activity. So, we're keeping a careful eye on that and the tone is clearly a little bit better now than it was in the Fall.

On the Asset Management side, obviously, the recovery of the equity markets really helps us. I think the products that we have and the performance we have in those products all position us very well for any recovery. We see a lot of pent-up demand amongst institutions globally, especially for the kinds of things we do, so actually, I think we're really pretty well-positioned to really take advantage of the operating leverage we have in the business if there's any kind of recovery.

Now, to your question on the expense side, look, in our business, we really have three expenses. We have comp, we have non-comp and we have interest expense. On the interest expense side, unfortunately, we're locked into debt that comes due in 2015, and every time I say I'd like to do something about it, the debt trades up in price. So, we keep a careful eye on it but I'm not sure there's that much we can do on that in the near term.

With regard to comp, I think as you look through our disclosures and you have further conversations with us, I think you'll see we've been quite aggressive. We have not only taken down comp on a discretionary basis by 20% but we've managed also to offset, in real terms, any of the hires we've made over the course of the year and have actual comp decline in line with revenues.

So, I think we've done a pretty good job on the comp side this year. And appropriately so. At decline in revenues in the business, there should be a sharing of the downside, clearly, with the employees and the people in the business, just as there is on the upside.

On the non-comp side, that falls into two categories, a portion that's fixed, a portion that's somewhat variable. The fixed portion is things like rents and the like there. We probably have a tick up in 2012 just by virtue of having to renew some leases that were 20 years old, for instance, in New York. But, on the other hand, we think we've found -- we'll find enough savings in the business over the course of next year to probably offset that.

With regard to the other half of comp, which is more variable, there, if revenues go up, probably those go up, but probably not quite as quickly as revenues. If revenues go down, they probably go down, but again, you don't quite go down quite as quickly as revenues. So, that's probably a good summary of the non-comp picture.

Very comprehensive.

Needless to say look, on the macroeconomic environment, we're going to be as thoughtful about it as anyone and to the extent the recovery doesn't come, then we'll continue to tighten things up.

Very helpful. Thanks, Ken and then just maybe a follow-up on that. If we look at the profitability of the firm over the past few years, the mix between Financial Advisory to Asset Management has changed pretty dramatically. Given Asset Management businesses historically have a lower comp ratio, why doesn't that help you maybe even more?

It does and actually, I think if you look back over the Disclosure we have on, I think it's Page 13, you'll see that the overall awarded comp ratio, which is really the best measure of what we pay in any given year in terms of compensation has trended down pretty substantially since 2006, 2007, 2008 and such. So, I think that's first. The second is, look, there are two different businesses managed differently with very different cost structures and to just give you a little perspective on it, to help you think this through, in 2011, when we got finished with the year, the Financial Advisory business in a down year was operating on an awarded compensation basis at a ratio of about 63%.

We're confident that if revenue rebounds to historic levels, we can manage this business to about 60% or lower over time. In 2010, as an example, when revenues were about $1.12 billion, this business was at 60%. Our Asset Management business today has an awarded comp at the end of the year of about 43% and corporate and support, or really support functions, were about 8% of the firm revenue. This will decrease as revenues grow. That is, the support functions will not grow anywhere near as quickly as revenues will.

So, to help you think about this, while we have no idea really what 2013 revenues will be at this point, with a similar mix of business though, and assuming a growth environment, that's consistent with the forecasts for 2013 that you guys have out there right now, we believe that we can achieve the compensation ratio I discussed above on both a GAAP and awarded compensation basis. We think we can do that while keeping control of the deferrals.

Great. That's helpful. Thanks, Ken and then just a --

Just a word of qualification on that, just so you guys know. I mean, look, a lot of this is premised on, a part of this is premised on the environment we're in today. We think there's a nice tailwind coming from the changes going on in the Financial Services sector, so we're counting in part on that, but I think that's a pretty reasonable assumption. Also, I don't want to mislead anyone. Look, this environment could create a lot of attractive investment or acquisition opportunities that could change the mix of our business in either direction. So, that's just one thing to think about as we go forward, okay?

Great, thanks, Ken and then final one for me. The Asset Management flow picture is fairly tepid for the industry and you're certainly feeling a little bit, as well. The flow has gotten a bit weaker, in a sense, the 10-Q, but I know there's a lot of noise within that. Could you speak to any of your current thoughts on the backlog for new mandates and just what Ashish and all are seeing in that business, thanks?

Yes, sure, I think, look, the month of January felt pretty good to us on new mandates and interest. I think right now, we're really starting to see the pipeline on the Asset Management side, mandates start to build and we're feeling pretty good about it. I mean that combined with the fact that the AUM is back to the average level of last year and that we're above high watermark on virtually all our performance fee-related funds gives us some comfort.

Great.

And just to add to that, one of the things we have working in our favor is 2011 investment performance has been good across virtually the whole platform.

Great. Thanks.

Chris Kotowski with Oppenheimer & Company.

Yes, I wonder, the investments in people that you made this year, one is, are you for 2012, is that contractually locked in or is there room on the -- and flexibility on the discretionary bonus side for that?

Sure. Good question.

In 2012.

Right. Good question. The answer is, that for the most part, the hiring we do does not come with any long contractual obligations at all. That's one of the nice things about this particular environment is that the contractual obligations fall off pretty quickly in terms of guarantees and things like that.

What we do incur which we, again on Page 13 you'll see, is we incur, oftentimes, you have to pick up deferrals or past stock grants or things like that when you hire somebody, but those don't carryover into the future if we're expensing them right now on the awarded compensation, which is the way we do it.

Okay.

So, we get a lot of flexibility as time goes on.

And then a business outlook question, just the economic turmoil in Europe, I mean has this really put the European M&A cycle on hold indefinitely in your opinion?

No. I don't think so. And this is a very subtle point. Europe has been pretty muted for M&A activity for the last two years or so. 2010 was a little bit better, I'm not sure what the league table statistics and all that show but from a tenor standpoint, '10 was a better year than '11. '11 was a tough year from an M&A perspective.

We think that in the short-term, we think that assuming there's not a shock in Europe, in the short term, medium term, there should actually be quite a pick-up on the part of cross-border activity for the larger Multinationals. There's a real pent-up demand here amongst the large Multinationals in Europe as a result of the last couple years of shocks and uncertainty. These companies are fundamentally not a lot different from the Multinationals in the US and some of the emerging market champions.

Their businesses are highly diversified, highly global. So, I would expect assuming that confidence settles down a little bit, or improves a little bit in Europe and there's some -- you get some stability in the market there, that we're going to probably start to see quite a bit of pick-up on the part of the Multinationals, in Europe in terms of M&A. That's our sense.

Okay, all right. That's it for me, thank you.

Devin Ryan with Sandler O'Neill.

I understand and agree with the view to keep deferrals related to 2011 comp under control, but just wanted to get maybe some comments, if you could speak a little bit to the timing of how you accrued comp throughout the year, and maybe why it wasn't a little bit better incorporated into results in the first three quarters. Was it a function of just timing of the hiring throughout the year, or did something change in your revenue view late in the year, or was there something else there?

Okay, good question. Look, in the end, when comp decisions are made in the fourth quarter every year, as a result of how the firm does, and how the different businesses perform and also some view on what's going on in the marketplace. So in a way, and we've been very -- I've said this many times in Investor meetings, is that you don't really know comp until the fourth quarter each year and the accrual is a guess but it's based on the current conditions at that particular time. It really -- you're not paying people quarter by quarter. So that's number one.

Number two is, look, we were operating at record revenue levels through the third quarter and while there was turmoil in the markets beginning some time over the Summer into the Fall, it really wasn't evident to us where we were going to end up on revenues until the fourth quarter. As a result of that, we also didn't know where we were going to end up on compensation either, and as you can probably tell, a small revenue change has a high degree of impact on GAAP compensation, because so much of GAAP reflects the past so, really, it's a decision around deferrals. We made that when we saw everything.

Okay, great, thanks and then just one on the non-comps. Can you remind me what the jump in intangible amortization was related to in the fourth quarter and then from a timing perspective, at what point in 2012 would -- or should we expect to see the impact of some of the initiatives that you guys discussed on (multiple speakers) --

I'm sorry. Your first question was about the increase of the amortization?

Intangibles.

Intangibles. Okay. The increase in the intangibles this year was mainly due to the fact that at Edgewater, our Private Equity business, there was some carried interest being paid on some of their investments. We therefore had to accelerate the amortization of the intangibles that we had recorded at the time of the acquisition corresponding to these potential capital gains and some of their investments. So, that's the explanation on the increasing the amortization of intangibles.

That's essentially a one-time item then, correct?

Yes, yes. Then with respect to the impact of the investments, yes, the investments will impact mainly two lines. One is, as Ken mentioned, occupancy. We have an increase in the new lease of the Rockefeller Plaza that will impact the full year of 2012. We also have some impact of new IT investments, which will also impact the 2012 numbers, maybe the first part a little bit more than the second part.

Also, referring to the cost initiatives that Ken discussed, a number of them we've initiated in the second part of 2011 and they will ramp up as time goes by. So, we should see probably more of the impact of those cost savings in the second part of the year rather than the first part of the year.

Okay, great. Thanks for that color, and then just lastly, one on the restructuring side. You guys obviously have probably a better view than anyone into what's currently going on in the restructuring market.

So, would just love to get your view of whether activities improving, declining, remaining stable and then just any view of maybe what the base restructuring level, maybe from a revenue perspective would look like in the cycle relative to maybe what was experienced in similar points in prior cycles. That would be very helpful.

Okay, so first, I think you really have to separate the US market from the European market on restructuring for 2012. We're likely to see a pick-up in restructuring levels in Europe in 2012. There's a credit crunch under way for medium size, small, privately held or highly leveraged companies. They are primarily financed by the -- primary financing in Europe is by the banks, not by the capital markets, particularly for that group. Obviously, the banks are under a lot of pressure in Europe, and so consequently credit is tight. So, I think we're going to see a pick-up of activity there next year.

In the US, I think activity levels are going to probably be a little bit less because the macroeconomic environment is improving, and financing is, generally speaking, available. So, you'll probably see a little bit of a decline or some decline in the US. It may be offset, maybe a little bit more than offset, but offset by what's going on in Europe.

Okay. So, those two things together looking at maybe the cycle relative to maybe when we were in the early 2000s to the end of the prior cycle and the trail-off. It seems like we're at a higher run rate. Is that fair to say?

I think it's a higher run rate, in part because it's a more global business for us than it was at that point in time. So, that's probably a good assumption.

Okay, great. Okay. Thanks for taking my questions.

(Operator Instructions) Daniel Harris with Goldman Sachs.

Okay, people want to follow-up, they can have a follow-up.

Thanks, Ken. Good morning. Over the last few years, we've all learned to look at you guys on an annual basis versus any one period in time, which can tend to be choppy. So, thinking about 2011 versus 2010, and the industry more broadly, most of your peers reported an advisory number that was up in the high single, low double digit numbers and your more independent peers were up noticeably higher. So, what do you attribute the weakness to this year in your results versus the industry more broadly?

Yes, actually I look at, we try to look at this from cycle to cycle. So in fact, if you look from '09 to '11, on the strategic advisory business, I think the numbers compare pretty favorably to just about anybody.

Number one, we had a very strong fourth quarter in 2010. I think it was, if not a record, next to a record fourth quarter in 2010. So, we probably got a little lucky on some closings in 2010 that could have easily slipped into 2011, as an example. So, that's one issue, or one point.

The second point is, look, geographically when you compare us to the boutiques, I think you'll find that we have a little bit, obviously, more exposure to Europe, so some of the pick-up in the overall Advisory revenues have been muted by the activity levels in Europe. The flip side of it is, we've done, I think on any basis, very well in the United States and if you were to compare us apples-to-apples in the United States as an example to some of the boutiques that are based here, I think you'd see our performance is at least as good, if not outstrips them.

Okay, thank you.

Joel Jeffrey with KBW.

Just a quick follow-up on Devin's question. Given how you accrued for comp last year, do you think you'll be a little bit more aggressive in the early part of 2012?

When you say aggressive, you mean?

Well, accrue at a higher rate than you had it at -- in 2011.

I would expect so.

Okay, great and just one quick follow-up. In terms of the $25 million to $30 million comp expense you're thinking about for 1Q, that is solely a 1Q issue or will that also be an impact into later quarters?

Look, that's based on where we are right now in terms of year-end process and the environment we're in. As I said before, we think the environment's improving and so consequently, we're pretty comfortable with the operating leverage we have in the business in this environment and the environment that looks like is unfolding, but as I've said repeatedly since '09, we are going to be very disciplined about our business.

Okay, thanks.

James Mitchell with Buckingham Research.

Good morning. Just as you mentioned, it's difficult to buyback 7% debt in this kind of environment. Why not, in a tough environment perhaps go into a bit of a net debt position versus neutral today for your shareholders to buyback more stock, aggressively build cash over the next couple years when the debt comes due. Why not accelerate a buyback even more aggressively?

That's a good question. So number one is, we did raise the dividend because we think that's a very efficient way to get back cash to shareholders who are holding our stock for the long term including obviously, the employee base, which are the longest term shareholders of the Company.

The second, and very importantly is, we have this balance, which I've talked about before, between wanting to maintain investment grade, which we do, and at the same time, be able to aggressively manage our balance sheet. So, in a very difficult macroeconomic climate, you probably have to be a little bit more sensitive to that, and as the climate starts to improve, I think you probably have more flexibility. So, needless to say, we're going to take a very careful look at that as the next year or so unfolds.

I think our record over the course of the last couple years has been to really improve the capital management, and again, over the last couple years or so, it's been a pretty choppy macroeconomic environment with these shocks. So consequently, we haven't wanted to test fate on this issue, but if things, as things starts to improve, we have more flexibility, and you can be sure we're going to be looking at this very closely.

Okay, thanks.

Steven Gavios with Jennison.

Good morning, everybody. So, on this compensation issue, I know you talked in your remarks about the financial. There was an impact from hiring and other growth decisions that you've made. Can you give us some color on what financial impact that had on the comp?

Sure. Now let's separate out the issues. There's GAAP comp and there's what we call awarded comp. Awarded comp is what we pay people in a given year, okay?

So let me focus my remarks first on the awarded comp, because that's the actual comp and that's what you really -- that's how you can really assess what's going on. There -- we probably made net about, call it, $50 million of hires this year, and we offset a large part of that with exits over the course of the year, and on top of that, we took down discretionary compensation by roughly $100 million. I think that should give you some flavor as to how it worked.

Okay.

All right? Okay. There are a couple small offsets in there. We have foreign exchange, which worked in the wrong direction on some of the comp stuff for us this year, which is unfortunate. And then, also, needless to say as you increase salaries, you also, particularly in Europe, get an increase in benefits, and so that had some impact, as well. So, the numbers don't quite round exactly. Okay?

Let me touch on the GAAP side for a moment, because I just think it's worth noting this. On the GAAP compensation cost, particularly on the amortization, I think you're going to find that -- you will find that in 2012, we will be at a run rate reflective of the compensation policies that we instituted in 2009. However, there's about, I would guess it's close to $50 -- $43 million worth of compensation costs in GAAP in 2012 that are associated with the 2008 grants. So, I think you'll find that those costs are going to trend a little bit higher than they would, those costs in 2012 will be a little bit higher than they would be on a normal run rate, based on the policies we put in place in '09.

Right. Which I imagine was what was behind your earlier comment about 2012 being a tough year to reach your compensation goal targets, right?

On GAAP, that's correct, all right? But again, the decision on the deferrals was, we just want to get off this treadmill. I mean, to keep deferring would just have made this harder and harder each year and eventually I just don't think this is the right way to manage the Business.

Okay, thank you.

And this does conclude today's question-and-answer session.

Okay. Thank you.

Thank you.

Thank you and this now concludes the Lazard conference call.