The turmoil of transition at Lazard


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The secretive partnership of Lazard is not accustomed to public scrutiny, let alone attack from outside. But in early 2000, French entrepreneur Vincent Bolloré announced that he had acquired 31% of one company in the complex Lazard ownership chain. When Swiss bank UBS revealed that it too had acquired shares in other companies in the chain, Lazard chairman Michel David-Weill rushed to fortify the defences against the threat to his family bank's independence,which he cherishes above all else. In November 2000, David-Weill announced that Bolloré had gone away, having achieved what looked like a successful greenmail operation. But he is not the only threat to David-Weill's command. While battling his outside assailants in public, David-Weill has faced a less visible but more serious challenge from rebels inside the Lazard ranks. They have wrung significant concessions out of this last of the banking aristocrats. Now, if an independent Lazard is to thrive, it must stem the tide of departures and rebuild morale within.

When French entrepreneur Vincent Bolloré began buying shares in Rue Impériale de Lyon - one of the companies in the complex Lazard chain of ownership - in the early summer of 1999, the aristocratic chairman of Lazard, Michel David-Weill, invited the upstart investor to his grand villa at Cap d'Antibes on the Côte d'Azur. The meeting was frosty. The incensed grandee warned Bolloré that he had made a bad investment and should sell out immediately. Bolloré defiantly bought more, not less. In a further provocation, Bolloré was even quoted as saying he was pushing to "break up the Lazard empire and sell the parts to the highest bidder".

The war machines were at the gate of the Lazard edifice, and David-Weill pulled up the drawbridge. He added a 10-year voting agreement between the chief partners and himself in the articles of association of Société Civile Haussmann Percier, a private company that represents the interests of the four controlling families in the Lazard empire. Société Civile Haussmann Percier is Lazard's final guarantor of independence.

But Bolloré had not made such a bad investment as David-Weill claimed. He had been advised by distinguished Lazard partner Antoine Bernheim (owner of 11.2% of Haussmann Percier) that the shares were undervalued by more than 50% against the bank's net asset value. Bernheim had once been David-Weill's closest associate, but the two had fallen out. Now the 67-year-old Bernheim was ready to tweak the tiger's tail. Bolloré stayed in the shares and watched their value double.

The pressure on David-Weill grew yet more intense when the strategic risk management desk at UBS Warburg joined the party, increasing some long-standing stakes in companies making up the Lazard pyramid to the point where they became a threat. UBS Warburg disclosed a 5% block of shares in Immobilière Marseillaise, which held not only real estate but also a stake in Eurafrance. Eurafrance is another Lazard-related company, and UBS Warburg revealed a 10% block. Eurafrance in turn also held a stake in Azeo, the direct holder of a 17.4% stake in Lazard itself. UBS Warburg went for Azeo as well, buying up to 7.1%.

In June 2000, UBS requested Azeo to open its books to enable it to explore the possibility of a bid. To thwart a takeover attempt on Eurafrance, David-Weill had already taken the precaution of inserting a poison pill disincentive to takeover.

The Bolloré and UBS tanks were now lined up outside David-Weill's castle, and he had to act. In November 2000 he announced that Eurafrance (of which he is the chairman) had sold its stakes in Italian insurance company Assicurazioni Generali and Italian bank Mediobanca to finance the e1.3 billion acquisition cost of the 41% minority interest in Azeo it did not already own. The result was both the removal of one layer in the Lazard pyramid and the likely ending - depending on Mediobanca's exercising a number of options arising from the deal - of a complex and long-standing cross-shareholding between Lazard and Mediobanca. The reshuffle of companies has meant David-Weill has lost some prestige, giving up the chairmanship of the newly created Eurazeo holding company in favour of Bruno Roger, his consigliere. One insider says: "David-Weill has been hugely pushed aside."

The embattled bank's immediate white knight was Crédit Agricole, with which Lazard already had an arrangement to trade derivatives. It now agreed to take on the loose UBS Warburg and Bolloré shareholdings. That deal was sweet for Bolloré: he is reported to have made a capital gain of Ffr1.9 billion ($258 million) on his Ffr2 billion investment.

Although sources inside the bank say this deal was a precursor of a closer relationship between Crédit Agricole and Lazard, to outside observers it looks like a hurriedly agreed defensive move. Some insiders even speculate that Crédit Agricole has a long-term plan to increase its shareholding and in due course take control of Lazard.

Meanwhile, the threat from UBS Warburg remains. The bank retains a substantial stake in the Eurazeo holding company and plans to keep up pressure on the Lazard management.

The enemy within

These outsiders' assaults marked only the latest attack on David-Weill. His most serious challengers are encamped not outside the Lazard fortress but within.

It was the moment that the barbarians really entered Lazard's aristocratic gates. When Michel David-Weill was forced to face a group of his American bankers three years ago and admit that things were not right with the firm, a tradition of absolutist rule was ended. The line of family managers would finally come to an end.

The process of the bank's separation from family was recently advanced when Lazard appointed its first chief executive of the global firm. Bill Loomis remains firmly beholden to Michel David-Weill, as the chairman made clear at a recent news conference. He said that "the chairman, which I am, has relatively extended powers".

Loomis's position gives him greater power than any previous Lazard manager, but he must now manage a period of hazardous transition in markets, in internal relations, and in product mix. At stake is the firm's private and partnership structure, as well as its ownership base. Lazard must now steer a path between boutique and full-service bank and between private ownership and public control. Lazard is the test case for those who argue the value of an independent banking sector but the pressures on profits and costs will also be unprecedented.

There was a strained atmosphere at the partners' meeting in the spring of 1997. The members of the New York partnership were insecure and wanted reassurance about their future and about the state of the bank. So they summoned their chairman to a meeting at the boardroom on the thirtieth floor of the Rockefeller Center for a showdown. David-Weill came under sufferance as he preferred to deal with partners one by one. But he had little choice. "We demanded that he attend," says one partner, "and in effect dragged him into the room, and said we wanted him to know what we thought. We said: 'This is no way to run a railroad - it cannot go on like this!'"

As the partners bluntly stated their fears, the chairman winced. They had three points. First, they wanted to know what he intended for the future of the show. They told him they had heard he was looking around for a star investment banker to run the firm. They had heard whispers that he had approached Bruce Wasserstein and Goldman's John Thornton. Some had put these rumours to him earlier and had them denied.

Their opposition to Wasserstein was particularly vehement. One Lazard banker recalls saying: "You don't understand who Bruce is. He's not at all consistent with our firm's culture." David-Weill admitted that he had approached Wasserstein Perella but said that nothing had come of it. Wasserstein, by this stage, was a fully fledged and successful firm and did not need Lazard.

Second, the partners wanted to protest about David-Weill's secretive style. Many were still bruised by his earlier failed appointment of his son-in-law, Edouard Stern, to the New York partnership as a possible successor. The Americans had united against someone they found egotistical and aggressive, and privately argued that David-Weill had allowed family sentiment to distort his judgement. Lazard was forced to pay a multi-million settlement to Stern when he returned to France.

Third, the partners expressed doubts about David-Weill's ability to run the show virtually single handed. The bank's recent administrative record had been far from glorious and some wondered about its long-term prospects. Lax supervision was blamed for a scandal in Lazard's municipal bond department that had resulted in the conviction of a Lazard managing director. This had cost the firm $100 million in fees and fines. David-Weill had made a failed $20 million investment in a real estate business without telling his partnership. Finally, the partnership had invested in another real estate enterprise that had also failed.

"It took a two by four piece of wood to gain his attention," says one participant, "but at some point he woke up. Like all of us, he tried to push things under the rug. But sooner or later he became a realist. He realised he could not avoid the fact that he had a problem."

David-Weill also held all the cards for any solution. He is the senior partner in New York, and chief shareholder and representative of the founding families of this private bank. Yet the partners were ready to challenge to his face his capacity to manage the future of his own institution. It was unprecedented subordination and chutzpah from a group of men who had been used to working as feudal farmers to their all-powerful landowner.

But it worked. After a series of private meetings with partners, David-Weill made a concession to the coup by appointing Steve Rattner, the coup's leader, as deputy chief executive for the US. One colleague notes that David-Weill regarded Rattner as "a terrific rainmaker, very well organized, disciplined and ambitious. He'll do some good things; he'll be a good leader. He's the most able of this whole group. And maybe I can control him, and if not I can always get rid of him. Michel viewed Steve as a convenient person at the moment but certainly not with the potential of thinking that Steve could be somehow a successor in the long term."

The coup had its costs. Rattner's elevation prompted the rapid departure to Goldman Sachs of his rival for the job, Ken Wilson. "It happened like a cataclysm," says a former partner. "It appeared in some sense that Wilson had lost so he had to leave. There is nothing keeping people together at Lazard, except the money." In any event, the populist partner had been admitted to the exclusive club of Lazard managers, the barbarians were within the gates.

The chairman's preference for secrecy was Rattner's first target. His opaque style in allocating salaries and shares of the profits caused great resentment among men who were annually manipulated by the chairman. Rattner insisted that the partners' percentages should be disclosed. Rattner told David-Weill that the partners were fed up with the secretive, divide-and-rule style that had started feuds that prised friends apart.

The worst in recent years was reputed to be that between Bob Lovejoy and Bill Loomis. This eventually resulted in Lovejoy's departure to private equity firm Ripplewood. The upshot of that departure was the establishment of Loomis as a staunch and unquestioning acolyte of the chairman, a role for which he would be rewarded in due course.

Challenges on profit shares

Rattner used his new-found power to challenge the chairman's own share of the profits and he persuaded David-Weill to reduce his percentage of the profits of the American firm from 15% to 10%.

Rattner made some changes in the interests of transparency and set up a weekly partners' meeting. He went along with the proposal to create a management committee although he argued that it endangered quick decision-making. This was very necessary, said a colleague: "When he saw what a mess it was, that money was pouring out of every corner, in particular in Asia, and nobody knew where it was going, and there were no controls, his confidence in Michel disappeared. He became thoroughly depressed." Rattner was reputedly miffed when David-Weill refused to give him the title of president of the US firm, saying that his friends would think he, David-Weill, had retired.

As Rattner's pressure on David-Weill grew, the president started seeing the signs of an attempt at a putsch that could have resulted in the firm's loss of independence. It was the red light that he feared more than any other. A close British friend of David-Weill says: "Michel was right in knowing that was what Steve wanted. Once he saw that was what Steve was after, he decided Steve was his enemy and he had to kill him, and he did. Steve picked a fight, and he lost. Steve sensed an opportunity by getting the boys behind him to wrestle power from Michel. A number egged him on, seeing the possibility of making big money. I guess in the back of their minds was the thought: 'If we ever really want to make a bundle here, we need to be selling this thing.' It was in a way a kind of confusion because Michel was not motivated to do the most economically appropriate thing because he definitely wasn't and really isn't a purely economic man at all."

David-Weill is reputed to have a personal worth of some $2.2 billion, and it is understood his (and his family's) share of the firm's annual profits rarely dips below $100 million. The firm's private status precludes publication of specific values for the assets or profits, but some estimates put assets at $12 billion, and an overall value at some $5 billion.

American resentment

Plans proposed by David-Weill to merge the three firms, in New York, Paris and London, gave Rattner his excuse to leave in February 2000. This had important implications for the American partners' pay, as it entailed removing a system of separate pots for each bank, and creating a global profits pot. The American partners suspected the scheme on two fronts. First, their bank's business contributed half the fees and they suspected this was a way of paying the Americans less.

Second, they saw it as yet another attempt by David-Weill to consolidate his control over the bank. One partner says: "It created no clear lines of reporting with no idea who was reporting to whom." Another says: "Steve stood up for his own view that New York should be independent. It became clear that the merger was just another way for Michel to keep control. The firm was global already without the merger. There were many, many cross-border transactions done, there was quite good co-operation. Sure there were tiffs - just as there are at the fully integrated firms. If we had then merged eight or 10 years ago when we were flying very high we would have been a very potent force and established a sort of franchise. We would have been even stronger every year after that."

Another angry meeting ensued, where the partners tried to deter David-Weill from his plan. One of Rattner's friends says: "We had a meeting with all our partners, everybody said: 'Michel, don't do this. This is going to be complicated - our tax returns will be three times as long, we'll pay more taxes almost for sure, it isn't going to do anything for our motivation, and it will provoke argument. If you want to put the firm together, put it together, if you want to keep it separate, keep it separate, but don't do this half-baked thing.' Pretty much everybody said this in one form or another. He said, 'I won't do it if you guys don't want me to do it'. But he did it anyway. We saw it as a breach of trust."

The three Lazard banks were formally merged at the beginning of 2000 to much fanfare. Steven Schechter, a Lazard partner says: "Now, all the children are going to play in the same sandpit, historically the only time the offices talked was over fee splits, now they are all eating from the same food dish. This eliminates the conference calls about the splits on a deal. It encourages the partners to communicate on the same wavelength."

But though the intended result was a structure that pulled down barriers, Bruno Roger, the head of the French bank, was in no doubt which country's bank had triumphed. Roger told the Paris press conference: "Lazards is French again."

Losing out in global M&A

Roger may have seen the merger as a victory for the French bank over its American partnership. It was also, however, an acknowledgement that Lazards as a whole was having to look to its home market in France rather than its American market where it has suffered many reverses at the hands of the largest American bulge-bracket firms.

Lazard's decline in the global M&A league tables tells a depressing story. In 1997, it ranked sixth in the league tables of announced deals, and all but made into the top ranks beside the American firms, with 183 deals whose total worth was $219 billion. It was a golden year whose glory was not to be repeated. The following year the bank dropped to twelfth place and in 2000 it was only eleventh.

The story is much the same for deals completed, with the bank ranking seventh in 1997 with $150 billion worth of deals under its belt, but only twelfth in 2000 with $292 billion worth of deals recorded. (All figures from Thomson Financial Securities Data.)

In France, on the other hand, the bank has enjoyed a long history of market domination, although even here there have been years when it has been knocked off its perch.

Infighting at the New York bank and a change in the US market are blamed by one insider for the American decline. He says: "The New York business is in a cycle of decline because they can't do the big-ticket business, and that's demoralizing people. It's hard to attract the really bright young people in the way that they could 20 years ago when it was really cool to be at Lazard, and the bank had terrific cachet. Now I think it doesn't have the appeal because you're not seen as being involved in big deals. You don't generate the revenues and then you have the problem of paying people competitively."

Brains versus firepower

The scope for fleet-footed advisers to win mandates in the largest deals is diminishing as large corporations, often employing high-powered bankers themselves, seek firepower rather than intuition or brains. One former senior insider says: "The firm's lack of a serious securities business is a severe handicap. But Lazard occupies a distinct niche for advisory services and there is still an awful lot of stuff they can do in fields where most of their competitors have disappeared. In the course of this year alone Schroders and Flemings have gone."

Intense fear of anything that might put the bank at risk has determined Lazard's narrow focus on top-level advice. The conservative instinct for a small balance sheet, rather than an expanding one that exposes the bank to trading risks, underpins its overall management style. One banker says: "David-Weill was quite prepared for the business to make a little less money as long as it remained independent and didn't go into some of the businesses he thought ran a risk of loss of independence. Had we been able to increase the capital, we could have increased the earnings, but he always used to say it's much easier to make a return on $200 million of capital but you can't make 100% return on $2 billion of capital, which is absolutely true. Over a long period, Lazard made around 100% returns annually."

Another former insider confirmed this: "You could have a made a higher gross return by increasing capital and a lower percentage return, but he didn't want to do that because trading involved building the balance sheet, involved making a lot of money, it involved taking risks." In fact, the "small-is-beautiful" financial approach may be under strain currently as Lazard's return on capital is now said to be falling to around the 80% mark.

Friends say David-Weill subscribes to the classic European view of private finance, that creative and free-thinking bankers are not suited to managing money and risk. Less creative fund managers, who work with arithmetic and tables, are safer hands than bankers who understand people and motivations. "He always feels that if traders run the firm, inevitably they'll make a bad bet," says a former close colleague. "This Street is covered with examples, and the City as well, of people who've backed the trading and went broke - a huge number of firms. So he felt about trading, that you've either got to be too big to fail, or one day you would fail."

But such caution has its downside, say former colleagues who argue that mistrust of trading has excluded Lazard bankers from attractive opportunities to enhance their salaries. One banker, for example, strongly pushed for the bank to set up a private equity business in which the partners could participate, but this was firmly slapped down. David-Weill was very conservative, and never wanted to rush into anything. One former partner says: "We needed to get into the principal, private equity business to keep staff - as people expect that now as part of their compensation. We had been talking about that for years and years, and done absolutely nothing. Every time there was a discussion, he'd say: 'Let's study it some more'." So although the ability to pay top salaries has enabled Lazard to attract and keep many of the most successful investment bankers during the good times, the approach no longer works.

Until recently Lazard employees and partners never complained about their remuneration. They were paid a percentage of the annual profits based partly on an assessment of individual contributions to fees earned and business attained and this put them among the highest-paid investment bankers. But declining profits and share-outs now make the bank's pay schemes look less attractive and fewer top bankers are joining the firm.

Insiders report that five years ago Lazard paid its top M&A bankers twice or even three times the amount earned by peers at Morgan Stanley, and even Goldman Sachs struggled to match the Lazard package. Lazard was very old-fashioned, says one star operator, who was reported to earn between $12 million and £15 million a year, in that the spread between the top and bottom was much wider than it was at Morgan Stanley where the structure was much flatter, "and more American". He continues: "Lazard ran with a European notion of the serfs at the bottom. So Michel could keep the people [at the top], as there was nowhere else to go where they could make so much money."

Caught in a squeeze

The roll call of departing bankers in every part of Lazard's empire has weakened its claim to be a superior "special force" that can run rings around the bulge bracket. The concern in the bank now is that it looks less like a top-class player and more like any other banking boutique caught in a competitive squeeze. On one side it is being pressured by the top six or eight predominantly American banks, which would happily eat it up, and on the other by the new crop of boutiques with low overheads, which will steadily nibble away at its business.

Where Lazard differs from most boutiques is in its well-established cross-border network. This provides an insurance policy against decline in any single market. Indeed, Lazard's historical predominance over Rothschild is widely attributed to the size of its US operation. But the US business is now receding and the bank is putting resources into the booming French and European markets. Lazard is particularly well placed to benefit from the boom, as most large French companies are clients. Foremost among them is Vivendi: Lazard conducted its acquisition of Seagram and Vivendi chairman Jean Marie Messier is a former Lazard partner. Indeed, Messier was talked about as a prospective head for the French bank in the late 1990s but David-Weill is understood to have told him he would have to share the job with Edouard Stern. Messier refused the offer and left the firm.

Advisory potential

Lazard, says a former partner, "is one of the very few credible and real continental European players left. Rothschilds has made a considerable comeback by taking Lazard people but there is room for both to succeed because they are following very similar strategies. A focused, high-quality advisory firm in continental Europe can do extremely well as long as the quality of the people is extremely high." In fact the French office has also suffered several departures, including its foremost dealmaker, Pierre Tattevin, who went to Rothschilds. There he teamed up with Gerry Rosenfeld, another former Lazard partner, to build an M&A franchise in the US.

Lazard's French operations is dominated by Bruno Roger, a long-time David-Weill loyalist, who some say he regards as his consiglieri. A former French colleague of Roger says of David-Weill: "He trusts Bruno. Bruno is a very talented banker, very well organized and clear."

Roger rules the Paris office with a rod of iron. Colleagues speak of a "very unusual man, very complex and subtle". One says: "He's never straightforward and never where you expect him. He has great insights, and an extraordinary sense of minutiae which is very helpful as an adviser. He's got a very black view of things but he also does infinitely detailed research. He thinks whatever can go wrong will go wrong. In an advisory way he's a great believer in Murphy's law. If you plan for bad news and the worst happens, the client is extremely thankful that you actually did plan for it. If it doesn't happen then the client is happy anyway. Some people find him a little bit peculiar - it is in human nature that you want to grab onto some good news and you can't always live planning for the worst. He can."

Not only does Bruno manage the leading French clients, he also organizes the David-Weill family's portfolio of interests in private and quoted companies that indirectly control the ownership of Lazard. It is understood that he played a major role in fighting off the recent attack mounted by Bolloré.

The style of the French partnership differs from that in London and the US. Former insiders refer to a class structure at the Paris office, where the junior executive is "in awe of the local Lazard partners". The French partnership derives its status partly from history, as the Lazard family originates from France, and the Paris bank, founded in 1854, was the first of the family's banks to be established outside the US.

The third leg of the Lazard stool is also the weakest. Lazard's London franchise was hurt when UK banking regulations required its sale in 1919. It was bought by Pearson, now a multinational media group, which used it as a corporate lending facility. David-Weill bought the bank back from Pearson in 1999 and restored its emphasis on private mergers and acquisitions advice, but it has always been seen as the poor relation. According to Sir John Nott, who was the London operation's chairman and chief executive until 1990: "London is making the same profits as when I left it of around £70 million a year pre-tax. It is a poor relation of the three houses."

Like New York, London has also been hit by a rash of departures of key staff. These include top M&A directors Nigel Turner, who went to ABN Amro, and John Nelson, who left to head CSFB's European operations. Nelson's loss has been particularly damaging to client relations and one insider says it "threatened Armageddon" for Lazard's London-based mergers and acquisitions business.

Some key long-standing clients have deserted the firm in the wake of these departures. National Westminster Bank bypassed Lazard when it had to find an adviser to defend itself against a takeover bid in March 2000 by Royal Bank of Scotland. NatWest used Dresdner Kleinwort Benson and JP Morgan for its unsuccessful defence. One key former Lazard insider merely says: "Times change, you know."

Unforeseen problems have also put the UK client base under pressure. For example, when pharmaceuticals company Glaxo Wellcome switched to Goldman Sachs for its merger with SmithKline Beecham this year, Lazard in London was shocked. Glaxo had been a long-time client of two of Lazard London's leading lights, Nicholas Jones and David Verey, and Lazard had been its advisers for an earlier attempt at a merger with SKB in 1998. The deal had been undermined by a much-publicized dispute over board seats in the merged company and Glaxo's chairman, Sir Richard Sykes, appeared to hold Lazard responsible. Next time around, they gave Lazard a miss.

One insider remarks that the bank's loss of the Glaxo business was "unfortunate". He says: "It's like you're on a train and people are going to get off all the time. You are sitting on a wasting franchise so you have got to refresh and replenish and rebuild it. I think that is something they haven't been doing recently. That is particularly true in the UK and in France."

Another UK client that some observers believe may move out of Lazard is leisure and media company Granada Compass. Nelson had had a long relationship with Granada chairman Gerry Robinson, and some observers suggest his departure from the board of Granada Compass may herald a switch to CSFB, Nelson's new firm, and the company's corporate broker.

It is understood that Nelson intervened to halt a quick move by this major British client. "He helped them hang on to the Granada business," says an insider. "It's not a very attractive thing for someone to move and pinch all your clients from the firm where he'd worked for 15 years and where he had good friends. He's helped them by not steaming in. That helped them keep certain other banks at bay. He always had a good relationship with Lazard; he believes you should always help each other out."

The need to refresh the client base of Lazard in London has been made all the more pressing by the number of clients lost through sales or amalgamations. Client list stalwarts such as aerospace engineer Lucas Varity, utility Thames Water and building contractor Tarmac have all paid their last fees to the bank as they have been swallowed up into other concerns. Lazard's roles for other major UK corporations, such as GEC (now Marconi), retail group Kingfisher and Associated British Foods, have also been very limited as the bulge-bracket banks encroached on their patch.

Some sizeable transactions have halted decline in the morale of Lazard in London. Insiders pay tribute to the bank's clever defence of cement maker Blue Circle against a hostile bid from French company Lafarge. Lazard followed up its defence by placing a $265 million bond, and restructuring the Blue Circle balance sheet.

Lazard also represented Swedish stock market operator OM in its unsuccessful bid for the London Stock Exchange. "When a bunch of funny Swedes need credibility with London financial establishment, there is no better house than Lazard," says one Lazard banker. "This sort of operation does not require capital or execution, it requires a senior guy to lend his and his firm's credibility and it needs him to bring the client into the right places, and give your approach authority. David Verey is exactly right for that, he shows up personally to do that."

The bank showed its capacity to negotiate the British corridors of power by winning the government mandate to sell the Millennium Dome. "Merrill wouldn't know how to go about that," says a former Lazard partner. "They are people who can find their way around Whitehall and know the important constituencies." The bank has the same sort of access to powerful figures in the establishment in France and Germany.

The pressure on profits and management at the newly merged Lazard inevitably raises questions about the bank's ability to remain independent - something its owners have fought to the last ditch to retain. Neutrality is seen as a key element in the Lazard pitch, as it frees the bank from the risk of conflicts of interest inherent in bulge-bracket banks.

One former Lazard managing director says: "If you want brainpower. If you want a company that really knows what the hell it's doing, that is advising you as your adviser, not as someone wearing two hats that says, 'I'm an adviser one minute but I'll underwrite your bond on the other side', then Lazards might be right."

The bank also makes much of its client care. It not only deals with senior client executives, it provides its own most senior people to advise them. The firm's style minimizes management and emphasizes the importance of intellectual resources. The London partners still gather at lunch in their Moorgate dining room at one o'clock to chew the cud, and discuss deals and contacts, says Steve Schechter of Lazard in London.

"Today fewer and fewer people will go to the huge firms for advice because they don't trust them and because the people who actually administer to the clients are relatively junior people," Schechter says. "Senior people in those firms are involved managing the people. The guys in the big firms dealing with the clients are vice-presidents and junior directors who don't have much experience. Lazards can field senior people, and all the senior people in the firm work with clients. You simply can't get that from the big firms, and if you could they wouldn't be interested in providing all of that time-intensive advisory work. They're interested in operating highly leveraged machines and lots of junior people while the top guys are generating the business - it's a different thing."

Lazard's style and service is different and it has been shown to work over many decades. But there is no question that its primacy is now being threatened as the bank confronts pressures on markets, product and people. If Lazard were to respond by slimming down to the size of a boutique, it would lose much of its ability to service the largest clients and retain the best people. If it were to seek to expand to become a full-service bank, it would have to change its culture and business dramatically. Managing a mid-way course will tax its current management and structure.

A partnership philosophy

In a confidential memo to staff following the merger of the three Lazard firms last year, Bill Loomis claimed: "The global merger, the role of the executive committee [a seven-man committee representing the key parts of the business chaired by David-Weill] and my appointment represent the final stage in the transition from a family firm to a professional partnership.... The merger terms start from the premise that the future is controlled by those who work here. We define our fate...."

Maybe. But while the old guard have succeeded in driving off Bolloré and friends, it would be surprising if the changes Rattner and his partners engineered three years ago in that dramatic confrontation are the last they have to accept.

Lazard has not participated in this article in any form. However, its chairman, Michel David-Weill, gave Euromoney the following statement: "We have merged our operations, established new management, and successfully resolved the diversions related to the French holding companies.

"Our business is doing well, and we believe the next few years will offer even greater opportunities for a united, international private firm. We look forward to continuing to serve our clients and compete for business by providing sophisticated, independent advice and counsel."