"Lazard's crazy growth plan means a heap of senior banker hires"
There's a reason senior bankers are paid so much. Despite complaints from the outside that Wall Street firms charge too much for their services, it takes skill, experience and market knowledge to raise capital and sell or buy companies. Capital-raising and M&A advisory work (unlike executing trades in listed securities) can't be totally automated. The revenues come from experienced bankers who have established connections with professional investors and corporate executives
This is why Peter Orszag, the new CEO at Lazard, is going to need to hit the senior banking hiring circuit in a serious way.
Last week, Orszag announced a goal of doubling Lazard's revenue by 2030. That's an 11% CAGR over a seven-year period, which may well include a recession.
This is pretty bold stuff for a CEO who's never worked as a true investment banker or asset manager, the only two businesses that Lazard is in.
How will Orszag achieve this? He could do it the way Bruce Wasserstein did it. Wasserstein was CEO from Lazard's IPO in 2005 through his untimely death in 2009 at age 61. Wasserstein hired established senior bankers from other firms with multi-year, multi-million-dollar guaranteed pay packages.
This is the proven way to produce growth in investment banking fees! But it's also a risky path to take. It also brings growth in expenses, which will remain fixed or increase and will do so even if revenues decline in a slower environment for M&A.
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Lazard has been here before. It took Ken Jacobs, who followed Wasserstein as Lazard CEO, years to bring expenses more into line with revenues. Ken is smart (University of Chicago BA, Stanford MBA), nice, and multicultural, with a French wife whose film producer father was deep in the finance side of the French government and the French banking establishment. But taming the compensation tiger at Lazard seemed to wear him down.
If Orszag wants to be less bold, he could alternatively hire some second rate bankers with lower expectations and lower packages. But that may not generates 11% CAGR in a tough market. Orszag has set himself a very difficult task. I wish him luck.
William Lawson is the pseudonym of a veteran banker on Wall Street
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