Once upon a time, in the distant pre-2021 past, Lazard paid the first year analysts in its investment bank $85k a year. In August 2021, it increased first year analyst salaries to $100k. And in March 2022 it increased them again to $120k.
As a result, in the first six years of an investment banking career at Lazard, it’s now possible to earn $1.6m in salary alone. Bonuses could easily double that, in good years.
But these are not good years.
Lazard’s first quarter results, released today, show revenues falling 23% year-to-year in the first quarter, with the result that the bank made an unexpected $37m loss. “Candidly, things have really deteriorated in the external environment relative to where they were in December and February,” said Lazard CEO Ken Jacobs in today’s investor call.
Nor are things expected to improve soon. Jacobs noted that deals typically take 15-18 months to complete and that there won’t be an improvement in revenues this year, and maybe not even in the first quarter of next year. At the same time, he said restructuring activity hasn’t come back to the extent that’s normal in a down cycle.
In the circumstances, Jacobs and his colleagues have done what any good executive team should do. Working back from revenue projections, they’ve established the cost base that’s viable in the future. And they’ve decided that it means having around 340 fewer people than before. Jobs are being cut.
The cuts are likely to impact lavishly paid juniors more than the rest. Jacobs said the plan is to remove people who won’t impact productive capacity, implying support staff, bankers in feeble sectors, and trainees.
As the chart below shows, the cuts come after years of hiring. Between 2019 and 2022, Lazard increased headcount by 384 people, or 12%. In the past eight years, MDs have risen 29%.
In theory, bonus payments mean banks have a flexible cost base that can be trimmed when revenues don’t come through. In fact, Jacobs said this isn’t the case: it’s not just salaries that have added to fixed costs in the past few years, but benefits, entertainment costs and technology. Headcount is the only flex.
Lazard has a reputation for working its juniors extremely hard, and Jacobs today praised the “dedication and commitment” of the employees impacted by the job cuts.
The risk now is that other banks reach similar conclusions where their investment banking divisions are concerned. “Our industry isn’t bouncing back,” said Jacobs, adding that “experience tells us you probably want to do this early.”
It’s not all doom, though. Jacobs added that bankers in some sectors are still busy, including those working pharma, biotech, and financial institutions clients. He also noted that cutting staff early can allow for upgrading and for hiring “senior talent, productive talent” at a cheap price.
Junior bankers on big salaries may not fall into that category, though.
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