World’s best bank for public-sector clients: Lazard

Awards for Excellence

You will not find them in the debt capital markets league tables, but Lazard is the 2017 world’s best bank for public-sector clients because of its deftness at finding solutions to highly complex public-sector issues, often of central importance to the global economy.

Led by Matthieu Pigasse, vice-chairman and global head of M&A and sovereign advisory, Lazard’s public-sector franchise is a pure advisory business. 

He says: “We’re independent of any conflict of interest other banks may have – we don’t trade, we don’t provide research, we don’t lend.”

Drawing from its team of economists (including French economist and senior Lazard adviser Daniel Cohen), capital markets specialists and former civil servant policy specialists, Lazard can tackle the most seemingly insurmountable crises.

“We assemble bespoke teams for each situation, and they focus on only one deal at a time, from start to finish,” says Pigasse. Using that approach, Lazard’s public-sector group has closed deals with about 20 different public entities in the last 12 months.

Few investment banks can guide a client all the way from fiscal reform, debt restructuring and policymaking through to requests for proposals that set the stage for headline-grabbing capital markets deals.

That was the case with the Sultanate of Oman. As oil prices slumped to historical lows, the nation found itself in desperate need of funding. Lazard helped develop policy measures to create a sustainable debt strategy, including reforms to facilitate liquidity in its domestic market, taking the country on to a successful $5 billion return to the international bond markets, from which it had been absent for 20 years. Both the design of Oman’s financing strategy and the advisory contract leading to the bond issues closed in June last year.

“What the big banks sell are products,” says managing director Eric Lalo. “What we have is advice.” 

The details involved in a case like this are often complex and always politically sensitive. This was true of the fiscal sustainability framework that Lazard helped to design for the Kingdom of Bahrain. 

“You can imagine that there are some red lines, when it comes to reforms, for countries where a lot of public services come for free,” says managing director Michèle Lamarche. “You have to work with them on that. In Bahrain, we had to calibrate the fiscal adjustment needed by the country to avoid debt troubles. Then, how do you achieve it? What could be the set of fiscal measures in Bahrain that you can achieve while taking into context the political situation? 

“The measures we put in place are about to be adopted by the parliament and could be the cornerstone of future discussions with ratings agencies and the capital markets,” Lamarche adds. Lazard closed the operation in October.

In Europe, Lazard helped the Austrian Province of Carinthia navigate one of the most notoriously complex debt buybacks in recent history. After the failure of Hypo Alpe Adria, the small province found itself with €10.9 billion-worth of guarantees to the bank’s creditors – about five times its annual budget. 

“The Carinthia deal was the perfect combination, in my view, of government advisory work and financial institutions expertise that Lazard brings,” Pigasse tells Euromoney.

“The difficulty was to demonstrate that the debt payment capacity of the province was limited compared to the wealth of its residents,” says Lalo. Those difficulties became regular headlines in the financial press. 

Carinthia first decided to offer a deal to creditors without consulting them. Unsurprisingly, the deal was rejected. But when Lazard was given permission to hold meetings with the investors, the result was an elegant solution: the successful cancellation of the billions in contingent liabilities, via either a partial payout or a switch into zero coupon bonds backed by the Austrian government. The restructuring operation was closed in October.

Then there is Greece. After helping the troubled Piraeus Bank through six acquisitions of smaller Greek banks in an attempt to consolidate the overbanked sector, Lazard won a mandate from the Hellenic Financial Stability Fund (HFSF) to advise on the financial situations of the four remaining nationally systemic banks, all of which were under immense capital pressures. 

The team then went on to guide the HFSF through the recapitalization of each bank, and, after the European Central Bank stress tests found them still wanting €14.4 billion in capital in 2015, another round of recaps. That was followed by the $2.98 billion disposal of Turkish Finansbank by the National Bank of Greece to Qatar National Bank – a deal that Lazard closed in June last year.

Lazard’s vast advisory capabilities and distinct, deal-by-deal commitment successfully brought these and many other public entities back from the brink in the last 12 months. That is something that deserves recognition.