Lazard Inc (LAZ) 2014 Q1 法說會逐字稿

Good morning and welcome to Lazard's first-quarter 2014 earnings conference call. This call is being recorded. At this time all participants are in 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 will turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications.

Good morning, and thank you for joining our conference call to review Lazard's results for the first quarter of 2014.

Hosting the call today are Ken Jacobs, Lazard's Chairman and Chief Executive Officer; and Matthieu Bucaille, Chief Financial Officer. A replay of this call will be available on our website at Lazard.com beginning today after 10 AM.

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, levels of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statement.

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 report on 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 for 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, and a description of these non GAAP financial measures and their reconciliation with the comparable GAAP measures are contained in our earnings release which has been issued this morning.

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 and supplemental information; both of which are posted on our website. Following their remarks, Ken and Matthieu will be happy to answer your questions.

I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Thank you, Judi. Good morning.

Lazard's first-quarter results reflect strong performance in both our businesses. We achieved record first-quarter operating revenue of $540 million, with first-quarter records in asset management, and M&A advisory. Our revenue streams were balanced and diversified across regions, sectors, and client type, underscoring the breadth and depth of Lazard's global franchise.

Financial advisory results were driven by increased activity in North America, Europe, and Asia Pacific. Recent M&A announcements highlight Lazard's competitive strength in large, complex and strategic assignments.

Since the end of the first quarter, among the transactions we've announced or we are advising on, are Glaxo's new client's three-part transaction with Novartis in consumer, oncology and vaccines; General Electric's acquisition of Alstom's Thermal, Renewables and Grid businesses; Pepco's sale to Epsilon; and TIAA-CREF's acquisition of Nuveen.

Gross quarter M&A accounted for about half of our first-quarter completions. These included transformative, strategic transactions such as Fiat's acquisition of the remaining [stage] in Chrysler and Shires purchase of ViroPharma.

Our investments in capital advisory and (inaudible) advisory continue to produce results, as we advised corporations and governments on balance sheet, capital raising and privatizations. In the last 12 months Lazard has advised on 40% of European FPOs with independent advisers, and in the US we recently advised the Treasury Department on sale of Allied Financial common stock in a $2.4 billion IPO.

Asset management has continued its steady growth, operating revenue increased to a first-quarter record of 9% over the last year's first quarter. As of March 31, AUM reached a record high of $189 billion with net influence for the quarter driven by our broad range of equity and fixed-income statistics.

Our RFP pipeline remains healthy. We are seeing demand for international global emerging markets, local and multi-asset strategies in both fixed income and equities.

We continue to expand our investment platforms and our global distribution network. In the first quarter Lazard Asset Management opened the Dubai office. This our second asset management office in the Middle East.

Now Matthieu will provide color on our financial results and capital management.

Thank you, Ken.

Lazard's operating revenue increased 31% in the first quarter, while adjusted net income increased 119%, reflecting the substantial operating leverage of our business model. Financial advisory operating revenue increased 64% of strong performance in M&A and other advisory, compared to a relatively low level of completions in the first quarter of 2013.

Financial advisory strong first quarter was partially offset by declines in restructuring and capital raising. Restructuring results reflected the continued low-level of corporate defaults. Capital raising results were effected by the timing of private fund [final] closing. And also reflected the evolution of our business towards a capital structure advisory.

As we have said previously, whether operating revenue was above or below expectations our advisory feed, in particular, flip trades from quarter to quarter. One quarter does not necessarily make a trend.

Therefore looking at our performance for the last 12 month basis is a generally more meaningful and quality comparison. On this basis financial advisory operating revenue increased 16% and M&A and other advisory increased 23%.

In asset management, our record first quarter was driven by 9% year-over-year increase in management fees, in line with average AUM [growth]. On a sequential basis, management fees grew 1%, also in line with average AUM. During the quarter, AUM increased by $2.5 million from the end of last year.

The increase was driven by net influence of $0.8 million, as well as market and foreign-exchange adjustments of $1.7 billion. Inflows were balanced and diversified, driven by a number of our emerging markets, global, and multi-regional strategies. The inflows were partially offset by net outflows, primarily in one global equity and one local equities strategy.

Turning to expenses. Because full-year revenue and the year-end compensation environments are difficult to predict at this point, we are accruing compensation of 58.8% adjusted compensation ratio, which is consistent with the full-year 2013 ratio. This compared to a 60% adjusted compensation ratio in the first quarter of last year.

Adjusted compensation expense increased just 3%. This primarily reflected increased outsourcing expenses in our asset management business.

Finally, regarding capital management, year to date we have returned $225 million to shareholders, primarily through dividends and share repurchases. We have already largely achieved our objective of offsetting the potential dilution from 2013 year-end equity risk.

In conclusion, we remain focused on our target of a 25% operating margin in 2014, assuming a similar level of activity in both of our businesses from 2012, and we are be maintaining a discipline of [comp] even as we continue to invest in growth.

Ken will now conclude our remarks.

Thank you, Matthieu.

This year has begun stronger than last year and we're cautiously optimistic about the macro-economic environment. As always, we are focused on the long term rather than single quarter.

The US continues to lead the global recovery and Europe is stabilizing, and increasing global M&A activity is a sign that COs and Boards are gaining confidence in the recovery. Based on the investments we've made and the efficiencies we created in our business, Lazard is in an excellent position. We have an unrivaled global network of relationships with key decision-makers in business, government, and investing institutions.

Our Asset management is a world-class global franchise with a strong pattern of performance across equity and fixed income. Financial advisory is built-to-scale globally with e-groups in every major region of the world. The high concentration of senior-level expertise at Lazard is a powerful competitive advantage, particularly when it comes to advising on complex, global and strategic assignments.

Both of our businesses have capacity for increased activity and organic growth. We have substantial operating leverage to drive profitable growth. Our firm continues to generate significant cash flow and we are returning capital to our shareholders.

Let's open the call to questions.

(Operator Instruction)

Alex Lovsin, Goldman Sachs.

Ken, I was hoping you could spend a minute on (inaudible). It seems like the M&A environment there is starting to get a little bit better. And given you guys significant presence in the region I was hoping you could spend a minute on what are hearing from the corporate clients there, and how should we think about the activity there over the next 12 to 18 months if things continue to recover on the macro front.

Okay. Look, I think generally speaking Europe has lagged activity in the US for the better part of the last year or so. And we're laser focused on three things that tend to drive the M&A cycle evaluation, financing, sentiment.

Evaluations are a little bit richer than they've been historically, but if you're constructive about the macro environment then you probably are pretty constructive about evaluations longer term. Financing continues to be readily available at the end of the crisis.

And balance sheet of companies are strong, both across the developed world. And sentiments is really starting to improve as a result, we believe, of improvement in the macro environment, both in the US and more stability in Europe, and that has now become more broadly accepted, not only of US, but also probably more broadly accepted in Europe. And that is the sentiment to shift the we've all been waiting for to help kick start the M&A cycle. And that seems to be in place in the US, or increasingly in place in the US, and I think we are beginning to see it take root in Europe as well.

Got it. And then just a broader question on the margins for the business for you guys. Clearly the start of the year was pretty robust. M&A continues to get a little bit better.

So without getting too far ahead of ourselves it feels like the revenue opportunity for this year could be better than it was in 2012. Assuming that's the backdrop, and again it's a big if, but how should we think about the margin opportunity above the 25% target if the environment in the revenue back drop continues to improve?

We started to improve -- our targets were initiated when we were at about a 12% operating margin for the business and 25 sounded a long way away at that time. We're closing in on it. We are laser focused on the 25%, and needless to say to the extent that we have additional performance on revenue, we are going to balance it carefully between investment and return to shareholders.

As you know everything we do in terms of investment gets expensed through the P&L. So consequently we are going to be thoughtful about the mix between the two. The key thing, at this point, is to stay laser focused on the 25% margin.

Okay. Thank you.

Devin Ryan, JMP Securities.

Good morning, guys. How are you?

Hi, Devin.

With respect to the emerging markets volatility in the first quarter, it didn't really seem to have much impact on the asset management business. Just curious if there is any impact on flows there at all or if there's any anticipation of a lag impact. I know that the investors are institutional so they tend to move a little bit lower, so just curious if you're seeing anything as a result of that emerging markets volatility?

We keep a careful eye this because, obviously, volatility in markets is something that can affect flows. With that said, we had net inflows across our emerging-market platform in the first quarter, which is a good sign. We continue to have decent performance, and importantly our RF activity continues to be pretty good. So overall, the volatility is something, as I said earlier, that we're going to keep a careful eye on, but we have been fortunate so far.

Okay, great. And then with respect to the M&A business. Appreciate some of the color there.

But are there any industries in particular that you'd highlight where you feel like maybe that sense of urgency has changed? Where there's been a couple of deals and it creates a little bit of a domino effect. Is there any industries where you feel like that is happening, or could happen as a result of certain larger deals that of maybe occurred more recently?

We've seen activity across the breadth of our sectors and also across various regions. It was a good quarter and the announcements since the end of the quarter have also been pretty good for us.

If you step back and look at the market as a whole, clearly there's been a pickup in activity in the healthcare sector. This is really probably a function of the fundamental restructuring of the healthcare sector that's been going on in the United States. And the impact that has on really everybody that is in the healthcare universe from Pharma companies, to device and supply companies, to service sector. So that probably continues for a while.

The TMP sectors been pretty active. Its technology last year has probably shifted a little bit now to the cable companies, telecom providers. Clearly the shifts in the cable space are going to have impact on a lot of people. So consequently that probably continues for a while in the United States. And we are seeing similar types of activity in Europe in the same industry.

[I think] was a little more active for us, and probably industrials picks up as the economy improves. That's probably the one which is most sensitive to an improvement in the macro cycle.

Thanks. And then just lastly with respect to the expense initiative. Is there anything left to still work its way through expenses.

I know on the comp side it's going to be a little bit hard for us to gauge that, just given how our are accruing at that level that 2013 ended. But, I guess more specifically with respect to non coms, is there anything else as we move through the year that we would expect to see come out or is that just too nuanced.

I think you see some of it actually impacting the first quarter. It's a mix of some of the initiatives we took at the time of the restructuring, plus just a lot of discipline around expenses around here.

I think you find in the first quarter our con comp expenses were roughly flat with last year at this time with a pretty significant increase in revenue. I think our revenues were up if I recall, 31% and non comp was up about 3%. And that, I think, is reflective of the initiatives we undertook as part of our cost restructuring exercise, plus a lot of discipline allow around these costs.

Got it. And I guess I'm thinking, and I do appreciate the color, maybe just working forward from here is it pretty much there today or is there still some the expense items we look at the same.

There is a little bit more on the non-comp side, but I think it's a mix of a little bit more of the sentinel effect being focused on cost and plus just a lot of discipline.

Yes, understood. Lastly on that front. When you talked about the ability to take expenses out, there was still kind of a view of an offset of investing back into the business a bit and maybe adding some people? So, I'd love to get an update there where you are, how those conversations are going with respect to adding people and making some of those investments back into the business.

That's a good question. I think you can see from that we continue to be reasonably active. We hired a team in the Middle East for asset management business which is going to significantly improve our position, both with regard to getting assets as well thing able to invest locally in the Middle East. That's a nice addition.

And then we continue to, when we see it, add talent on the advisory side. I think over the course of this year we are going to moderate it against what we see as good opportunities in the market place for investment; that is hiring people or teams for either of our businesses, weighed against our needs, which are not that significant given the breadth of our platform in the concentration already of senior people here. As well as of the needs to meet our targets.

So we're balancing between it. Obviously, when we see something that really makes a difference we'll act on it. We have the resources to do it but we are going to weigh this carefully against what our targets are.

Got it. Thanks a lot guys.

Thank you.

Ashley [Cero], Credit Suisse

Good morning

Hello, Ashley.

Can you talk about what you are hearing from the financial sponsor community about putting record levels of dry powder to work? Is this still more of a middle-market scene or are we kind of graduating from that?

We continue to be quite active in the middle market and that the midsize LBO firms. There's a lot of activity there, both on the sell side and also putting money to work.

I think in the larger firms you are seeing a little bit more interest, a little bit more activity. I'm still not confident you're going to see the really big deals that we saw at the tail end of the last cycle, but I think incrementally you'll some more activity over time.

Got it. And then as you talked to CEOs globally today, are you sensing an increase appetite to do deals versus buying back stock and increasing dividends?

I think with the improvement in the macroeconomic cycle I think that, generally speaking, people are probably a little bit more optimistic about putting their cash to work because they are a little more certain about the returns will be with regard to an improving economy--in light of an improving economy.

So consequently yes, there is probably a little bit more openness to putting excess capital to work in acquisitions as opposed to only returning it to shareholders through dividends and share repurchase. I think there is a very significant shift in focus from the last cycle or even the cycle before about the importance of capital allocation. So those decisions are made probably with a lot more thought and a lot more rigor than they may have been in past cycles. So constantly I think companies have gotten quite sophisticated, and we think we add some value here.

In terms of thinking through the decision around capital allocation, do you put it to use towards acquisitions, do you reinvest it in your business through R&D, or do you give it back to shareholders? I think people think about those is really the four ways to deploy cash in addition to being paying down debt of which there isn't nearly as much as there used to be on corporate balance sheets.

A great. Thanks for all the color there. And then finally, can you just comment on how the landscape in Australia is evolving?

Well, last year was a pretty difficult year for everyone. A lot of it had to do with elections. The [economy] cycle still isn't as robust as it was pre crisis, or even in the beginning of the crisis. But it seems to be improving a little bit.

Great. Thanks for getting my questions.

Brennan Hawken, UBS.

Hello Brennan.

Good morning. So maybe starting out with asset management. And looking at the international strategic equity product growth and AUM there has been really, particularly strong; performance statistics really excellent.

So when we think about that product how should we think about to the past capacity constraints. Are there any or how do you guys think about that?

There are always capacity constraints and we are really sensitive to that because clearly we want to make sure that we are appropriately investing and have enough opportunity to get the returns that we think our clients demand. I don't think we have hit the limits yet on that particular business. But we're closer today than we were a year or two ago.

Yes. No doubt. Is there anyway that we could maybe think about it? Is it like a $20 billion strategy or higher than that? Is there a way to frame it or is it too early to know at this stage?

I think it's a little early to know at this stage but it is clearly something we're sensitive to.

Okay, that's fair. Then, how about on Global Thematic. Maybe an update on the flows there. I think you guys said on the last call that you expect it to remain in outflow in the coming year. Is that still the case? And how are you guys thinking about turning around that performance?

We continue to be experiencing a net outflows this quarter. This is a long-term fee-based strategy that is, generally speaking, benchmark agnostic and it tends to have a pretty lumpy performance over shorter time horizon. It looks a little bit different to different clients because of different currencies--different evaluations by different currencies.

We've had some relative performance soften on a three-year basis. For those that are oriented towards a much longer-term basis it is still pretty good. We remain highly confident about the team that is in place, and we believe that the medium, long-term performance of the product is intact. We just have to really weather the outflows right now and the short-term performance issues.

Okay. So not necessarily planning any further changes in order to try to turn that performance in the near term --

We have a lot of confidence in the team. We obviously lost one of the senior members of the team last year.

The remaining four members are still fully engaged in the business and we've added an additional member to the team over the course of the last year. And we're pretty confident about the team and the strategy. And these things don't turn on a dime.

Sure. And that I backed into outflows out of Global Thematic of about $10 billion for the last year. Is that the roughly right ballpark?

We don't comment on the individual flows for a particular business.

Okay. And then last one on margins. When you guys think about your firm wide margin and 25%, there's no question it's terrific turnaround from the levels it was [eight] years ago, you guys did a great job with that.

But I think the folks that are bulls on the stock today and buying into the continued improvement take a look at maybe where competitors in your two primary businesses are and then think about where margins can go. So can you help us think about how you benchmark your primary businesses and how you think about your firm wide margins with respect to benchmarking through comps?

Sure. We are pretty explicit about this our shareholder letter of 2012. What we said at the time is that we were shooting for a blended margin of about 25% after all allocations and such.

Pre allocations that suggests a margin in the low 40s for the asset management business, which we thought was bench marked pretty well against institutional managers. And then in the high teens, low 20s for the advisory -- I'm sorry, in the low 30s -- high 20s, low 30s pre allocations in the advisory business, which we also thought matched up pretty well against our advisory peers on a apples-to-apples basis. That is looking at it on an awarded basis, which is the only way to look at these businesses and apples-to-apples basis.

And when you put in all the corporate cost and allocations and everything else, that worked out to a blended margin of around 25%. And at the time the mix of businesses wasn't too different. And while the asset mix has probably -- asset has become a slightly larger portion of the business, there's a lot of operating leverage on the advisory side of the business as you start to see some revenue improvements in some of the markets which have been underperforming.

Overall that's how we got to where we got to on the margin targets. And we still feel it's a pretty good place to be. And at the moment, we started at 12 two years ago and we're really focused on getting to 25, that is our goal and that's what we're going to try to achieve this year.

Thanks for the color, Ken.

Douglas Sipkin, Susquehanna.

Yes. Thank you good morning. I've two questions. The first wanted to just sort of drill down a little bit on the earnings results and the bigger picture question around count.

First off I guess, just surprised, obviously very strong quarter all around, great M&A. Just wondering is there anything you need to the corporate finance and other in the quarter? It seemed like it was a pretty good environment for really all types of capital market activities. I was just wondering was there anything unique this quarter to some of that weakness there?

I think the under performance in the capital bracing area for us was really in our private-funded advisory group where we just had a lack of closings in this quarter, really compared to last year and prior periods. It's really as simple as that.

That make sense. And with respect to modeling the comp. I'm just trying to figure, now we go roll with this 58.8 rate through three quarters and then adjust in Q4, or is it really you guys aren't sure yet?

I'm sort of chuckling, as to your question. What we're going to do is for the first-quarter, as we did last year, pick up the rates in the previous year and we should probably be pretty flat with that until we have a much better sense of how the year is going to come out and what the compensation trends are for the year.

Comp is not really paid until the fourth quarter. Everything until then is an estimate. We don't really have visibility on what your full year is until the fourth quarter, and you don't really have visibility on what the comp environment is like until the fourth quarter. So this is probably a good predictor for the moment and then when we get to the fourth quarter we will really assess exactly where we are, both in terms of the year as well as in terms of the comp environment.

Okay. Great. And then that's a good segue into the bigger picture question. Obviously, the environment is getting better. There's a lot of strategic activity happening.

Are you guys sensing maybe that this talent migration that you have benefited from and sort of a large independent firms -- well you guys are the largest, but have also seemed to benefit from. Are you getting the sense maybe it's getting a little bit more competitive again as the bigger banks start to seek these fee streams, given these capital requirements they're under combined with sort of the improving environment?

If the M&A environment improves you tend to see some growth and comp cost relative to downturns in the cycle. So I think we could expect to see a little bit of that. We're laser focused all the time on retention and what we have to do to keep and attract the best people.

That said, this cycle is probably a little bit different than the last cycle because of the pressure on our larger competitors. The larger integrated banks around their ability to turn their cost to capital and it is a challenge to really become aggressive around spending money, compensation, expenses. Generally if you're still not quite earning your cost to capital, and I think one of the challenges in the larger banks is to achieve that objective.

And that it becomes once achieved that, perhaps the environment because a little more conducive to spending and investing. So that's a little bit of a governor probably on some of the inflation and comp costs that we've seen compared to last cycles.

But you're right, as the cycle improves you are probably going to see a little bit more focus on recruiting compensation by some of the larger banks than perhaps it was experienced previously, but we're pretty confident about our team, our position in the marketplace. And unlike some of the smaller independents, we're not on a rapid acquisition -- hiring binge, we're scaled today and we obviously always are on the lookout for a great senior talent, but our model is the improvement in our profitability and productivity is not really completely dependent on the ability just to hire people to grow the business.

And then final question. You have implemented a pretty nice transition in the business model bringing down costs and things like that. I'm just going off the MB count at the end of 2013. Is that sort of bottoming out now? Obviously that's gone pretty steadily over the last two years. Can we expect to see some flat lining or even an increase in that going forward?

There's not a specific MB number we target. It really as a function of the people we have and their ability to function really effectively as partners to the firm, and our ability to find outside talent. I think we have more than enough capacity in house to grow revenues off the base where we are today. And enough capacity in house do have some nice growth if the market continues to improve. And as I said earlier, the step that the we find great people that can really be additive on our platform, I think we have the investment resources necessary to do it we need to do to both hire them and achieve our targets.

A great. Thank you for answering all the questions.

Okay.

Chris Kotowski, Oppenheimer & Co.

Good morning. I was wondering, this quarter you highlighted $225 million of capital returns against $81 million of net income. And last year highlighted $416 million of capital returns against GAAP income of around $160 million. That's like $640 million of capital returns against $240 million of earnings.

How long can -- I guess my question is how long can capital returns exceed the earnings. Is there room to squeeze cash out of the balance sheet?

And you also highlighted that you accomplished what you set out to do which was to offset the dilution. Does that mean that capital returns are more or less done for the year?

So that's kind of a loaded question with a lot of parts to it. First, our cash flow of our business tends to be in excess of net income by about 110 to 115 [basis] -- 10% or 15% higher than our net income generally speaking. So net income tends to understate the cash that is created by the business. That's number one.

Number two is, you're right it can't go on infinitely. Infinitely we have nothing left on our balance sheet so obviously there are limits to it.

I think we told everyone that we're very focused on converting cash and then where we have excess cash giving it back to shareholders where we don't have the opportunity to pay down debt on an attractive basis. We did a refinancing last year, we paid down some debt, we're focused to bid on the next maturity, which is in 2017. So that in some respects may take some of our cash resources over the next couple of years or so to the extent that we can use it effectively and profitably.

And I think you hit it on the head. We have offset largely the dilution associated with the [grad] so far this year and to the extent that we see profitability going up and operating income going up and cash flow going up, we're going to use it to pay down debt. To pay down debt, we're going to be using it to return it to shareholders. And that's going to be to a mix of share repurchases and dividends which has been the way we've done in the past.

And where we see the opportunity to liberate cash that's on the balance sheet that we don't really need for the business, because either we become more efficient or we are able to restructure our business so that cash becomes available, we'll do that. That's something we've been pretty effective at over the last few years.

Okay.

Keep in mind also, Chris, that our net income we have a large amortization as we stated [with RSU] our observation is something that is to be looked at the same time as you look at our share buybacks.

Okay. All right. Thank you.

Joel Jeffrey, Keefe, Bruyette & Woods.

Good morning guys.

Good morning.

Just a bit of a follow up to the last question. In thinking about the share count going forward, and the fact that you think you've offset the potential dilution for the incentive comp, other than the share price increasing, is there any reason to think that the share count would continue to go up any further this year?

No, it's share price increases. It's the treasury method.

Okay And then just lastly, we've certainly seen a number of large deals sort of proposed and than actually announced. And I'd like to get your thoughts on how you might think the regulators are viewing these deals and the chances of some of these larger deals actually getting through.

Look, every deal is different. So it's pretty difficult to generalize across spectrums.

I'd say that in the early part of the cycle, and especially at the Company type of deals, big deals, people tend to do things that are sort of down what we consider the center of the fairway and consequently, generally speaking, they perhaps are a little bit tougher from our regulatory standpoint as a result of that. There are companies that they know or fit well.

With that said, the regulatory environment while tough, it has been pretty fair over the last few years. And some things get through easily that you expect to get through easily and some things get through easily that our people on the outside think are hard and some things are really hard. We've a mix of deals like that of the market today.

Alex Lovsin, Goldman Sachs

Thank you for taking one more here. Just wanted to follow up on a broader M&A environment. One of the things that we're starting to notice is various tax strategies by larger corporates globally. I'm just wondering, to what extent do you think that has contributed to the pick up in cross border, M&A, and when you think about what your corporate clients are telling you is there a change in focus on tax strategies, particularly here in the US, of folks looking to do things outside?

I think, generally, you have a couple of factors at work here. First, there's obviously a lot of cash which is trapped abroad on behalf of US companies as a result of punitive rates to bring it back to the United States. That, combined with probably an improving outlook macro economically across most industries, is probably going to result in a little bit more across border activity on the part of US companies to try to employ that cash.

We've seen deals over a period of time, both actually using the cash to acquire things abroad as well as some [inversion] deals. But the driver is probably a mix of that cash sitting abroad combined with the fact that people are a little bit more optimistic about the overall macro environment,. So therefore, they are a little more pro to actually deploy it.

In addition to that, particularly in the healthcare sector, you are seeing a bunch of these inversion deals. Part of that is unique to the healthcare sector because of patents, and where they sit, and the attractiveness of how they are held.

Part of it is the same factors I just described, and part of it is the fact that there is just a tremendous restructuring of the healthcare environment in the US, which is driving deal activity in the healthcare sector globally. So, it's a mix of those factors. Cash being parked abroad, the punitive rates to bring it back to the United States, a better macro environment, and some things unique to the healthcare environment that underlies a lot of this activity in healthcare.

Thanks very much, very helpful.

Patrick O'Shaunessy, Raymond James.

So, my first question is as we look at the M&A landscape, it seems like we are starting to see the emergence of more and more from the smaller boutiques, and you touched on that earlier in the call. To what extent are you coming across these guys more as you are searching for mandates on potential deals. And is it more of a US phenomenon that you are really coming against these guys than in Europe?

Look, our core competition are the leading M&A firms globally for the kinds of assignments we work on. I think what you've seen is a shift of talent from some of the bullish brackets into some of the smaller independents, and certainly a lot of these smaller shops that have been started over the course of the last couple of years or so.

What I can speak to is only our own experience and our own platform. And the thing that Lazard has that has differentiated it is that we're a global business, a scale business, we compete across all industry sectors, and we have presence in all the major geographies. And we're local in virtually all those geographies.

And as a result of that we have this unique global network that is able to deliver a global point of view with strong local content. And the thing that distinguishes Lazard today is the sheer concentration of senior-level talent and it compares really only to a couple of our largest competitors.

And the real power of that for us is the ability to have this network of relationships with decision makers around the world; CEOs, investing institutions, governments, and the ability to really make that available to our client base is what distinguishes us. And I think when you look at the kinds of things we are working on they are the kinds of things that require that concentration of senior-level expertise and the ability to do it across borders, across languages, across cultures, and across sectors. And that's something that is pretty much unique to Lazard.

That's helpful, thanks. And then a quick question for Matthieu, here. As we think about tax rates for the rest of 2014, what's the right number that we should be using in our models?

I think you should continue to sink a few points below 25%.

This now concludes the Lazard conference call.