Good morning and welcome to Lazard's First Quarter 2023 Earnings Conference Call. This call is being recorded. At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Corporate Sustainability. Please go ahead.

Thank you, Britney. Good morning, and welcome to Lazard's earnings call for the first quarter of 2023. I'm Alexandra Deignan, Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we have posted our earnings release and an investor presentation on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and investor presentation. Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Mary Ann Betsch, Lazard's Chief Financial Officer. Mary Ann will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business. After that, Ken and Mary Ann will be joined by Peter Orszag, Chief Executive Officer of Financial Advisory; and Evan Russo, Chief Executive Officer of Asset Management as they will open the call to questions. I'll now turn the call over to Mary Ann.

Thanks, Ale, and good morning, everyone. Today, we reported first quarter 2023 operating revenue of $527 million, a 25% decrease from the first quarter of 2022 and a net loss of $23 million on an adjusted basis. In Financial Advisory, we reported first quarter operating revenue of $274 million, down 29% from last year's first quarter. The ongoing slowdown in M&A activity globally continues to present a significant headwind for financial advisory. However, we remain actively engaged with clients in both Europe and the U.S. In restructuring, activity picked up throughout the quarter, and we are working on a number of complex assignments. In Asset Management, first quarter operating revenue was $265 million, an increase of 2% compared to the fourth quarter of 2022 and 15% lower than in the first quarter of 2022. Management fees and other revenue was $259 million for the first quarter, a 6% increase from the fourth quarter of 2022 and 10% lower than the prior year period. For the first quarter, incentive fees were $5 million as compared to $25 million in the prior year quarter, reflecting weaker fixed-income markets. As of March 31, 2023, we reported AUM of $232 billion, up 7% from December 31, 2022. This increase was driven by market appreciation of $11.6 billion, foreign currency appreciation of $1.4 billion and net inflows of $3 billion. Average AUM for the first quarter was $227 billion, 7% higher than in the fourth quarter of 2022, and a decrease of 12% from the prior year period. As of April 21, our AUM was approximately $236 billion, driven by market appreciation of $2.6 billion foreign currency appreciation of $500 million and net inflows of $400 million. In corporate, operating losses of $11 million included corporate revenues of $10 million, which were more than offset by a charge of $18 million associated with the liquidation of the firm's special purpose acquisition company in February. Now turning to expenses. For the first quarter, adjusted compensation expense was $399 million, 2% lower than the prior year quarter. This equates to a 75.7% adjusted ratio during the first quarter compared to 58.5% in the first quarter of 2022. The higher compensation ratio is due to a combination of lower operating revenue, the liquidation of our SPAC, and higher fixed costs from amortization of prior year grants as well as an increase in our workforce and inflationary impacts. Our non-compensation expense was $142 million in the first quarter, 21% higher than the prior year quarter primarily reflecting higher travel and professional services expenses as well as continued investments in technology and the ongoing impact of inflation. In light of the current environment, Lazard is conducting cost-saving initiatives. These initiatives are expected to result in the reduction of approximately 10% of our workforce globally over the course of 2023, which, combined with non-compensation initiatives, we believe will result in a reduction of approximately 10% in our run rate cost base compared to 2022. This should better position us in a normalized revenue environment to achieve our historical profitability ranges in 2024 and to continue to strategically invest in the business and return capital to shareholders. As a result of these cost-saving initiatives, and assuming the challenging environment continues, we expect to achieve an awarded compensation ratio for the full year in the mid-60% range. Taking these actions resulted in a charge of $21 million in the first quarter, and we expect an additional charge of approximately $95 million over the course of the year, which will be excluded from our adjusted results. Our operating loss for the first quarter of 2023 generated a tax benefit of $11 million on an adjusted basis. We expect our annual effective tax rate for the full year 2023 to be in the mid-20% range reflecting discrete items, which typically occur in the fourth quarter. Turning to capital allocation. In the first quarter of 2023, we will return $187 million to shareholders including $43 million in dividends, $99 million in share repurchases and $45 million in satisfaction of employee tax obligations upon vesting of equity grants. Our diluted average share count is 87.6 million shares, which equates to the basic share count due to the anti-dilutive impact of losses. During the first quarter, we bought back 2.7 million shares at an average price of $36.75 per share. These repurchases largely offset dilution from our 2022 year-end equity compensation grants. Our total outstanding share repurchase authorization as of March 31 was $203 million. Lazard's financial position remains strong. And on Wednesday, we declared a quarterly dividend of $0.50 per share. Ken will now provide his perspective on our performance and outlook.

Thank you, Mary Ann. Obviously, it was a tough quarter. During Q1, M&A activity fell back to levels last seen in 2012. Announcements and completions for the industry were down approximately 50% year-on-year and down approximately 30% compared to the fourth quarter of 2022. Our financial advisory results reflect these market conditions. That said, we are seeing some improvement in client dialogues and deal activity indicators such as complex clearances, new projects, and engagements. Our European Advisory business continued its strong performance in the first quarter and restructuring activity is increasing, especially in the U.S. We recently added 2 new managing directors in restructuring, further bolstering a business that is already ranked number one globally in industry league tables. We also appointed Ray McGuire as President during the quarter with almost 40 years of experience in investment banking and M&A. Ray will play a key role in strengthening Lazard's senior relationships and originating new business for financial advisory and across the wider firm. We are also seeing momentum in Lazard's Asset Management business with rising AUM driven by higher asset levels and continued strong performance by many of our strategies. In fact, more than 80% of our strategies based on AUM are outperforming relative benchmarks on a 1-year basis, reflecting a market that is moving more towards fundamentals. While growth stocks outperformed in the first quarter, quality was the second best factor benefiting from resilience in uncertain periods. As an active manager, we see significant opportunity to deliver outperformance as volatility and uncertainty continue to create a unique set of economic and market conditions. The recent stress in the banking sector, in particular, reinforces our conviction in our fundamental approach, which we believe will continue to translate into long-term alpha generation. In the first quarter, asset management also expanded its capabilities in providing strategic advice and wealth management to families with the establishment of Lazard family office partners. While Lazard's business continued to perform solidly, we cannot ignore the environment in which we are operating. The recent news flow is unlikely to improve confidence among decision-makers near term or make them any less reticent about committing capital. As such, the slowdown in M&A is likely to extend beyond the first quarter. Similarly, for asset management, the market outlook is likely to remain volatile, so long as there is a lack of conviction about the evolution of the macroeconomic environment. Given this backdrop and the significant inflation in costs across our industry over the past several years, we made the decision to enact cost-saving initiatives. As Mary Ann outlined, we are targeting a 10% reduction in our cost base as compared to 2022. We expect to achieve that on a run rate basis by the end of 2023. We believe we can accomplish this without impacting the productive capacity of the firm. We are reducing headcount in areas where there are fewer opportunities for revenue generation and resizing support functions. These initiatives will result in significant additional cash flow that will enable us to continue to invest in our business at a time when those investments are more attractively priced while continuing to return capital to our shareholders. In closing, I would like to acknowledge the dedication and commitment of our impacted employees, many of whom have contributed to the firm's success for many years. Now let's open the call to questions. Thank you.

We will take our first question from Brennan Hawken with UBS. Your line is now open.

Hi Brennan.

Hey, Ken. Good morning. Thank you for taking my questions. I'd like to start with the plans for the workforce reduction. You provided an expectation for the awarded comp ratio for the year. How should we expect that to translate into an actual reported adjusted comp ratio? Also, when you mentioned the expected expense reduction, could you provide a bit more detail on how you plan to implement these cuts without affecting revenue and where the focus will be?

Sure. Let me provide some context regarding the timing of our headcount adjustments and cost restructuring initiatives, then I'll address your question about awarded versus GAAP compensation and the productive capacity issue. Back in December at the Goldman Conference and in our earnings report on February 2, I mentioned that the business environment seemed to be improving slightly compared to our expectations six months prior. However, I must say that since then, the external environment has worsened, prompting us to take necessary actions. We wanted to be proactive rather than ignore the situation. Looking at our business, it's clear that we have a broader global footprint on the advisory side than many competitors. This setup was established for a different geopolitical climate, which has shifted significantly. Regarding productive capacity, we are adjusting our workforce from regions where opportunities are now less favorable. Additionally, coming out of the pandemic, demand for talent surged, and we did not make any cuts during that time. As I mentioned in December, we hesitated to make significant changes at the end of 2022. Therefore, there may be excess capacity within the business that we can reduce without negatively impacting productivity. Furthermore, the advisory segment has faced several consecutive quarters of declining announcements. This decline indicates that mergers and acquisitions are unlikely to rebound this year, which will lead to challenging revenue conditions, perhaps stretching into early next year. Given this landscape, it's apparent we're not returning to 2021 revenue levels swiftly and may only reach 2022 or 2020 levels in 2024. The rising costs across our industry, including salaries and benefits, necessitated immediate action to adjust our cost structure for targeted profitability. Regarding the compensation ratio, we control awarded compensation, which reflects what we distribute in a given year, allowing us better management within various revenue scenarios. The GAAP compensation, influenced by previous years’ costs, leaves us with less flexibility, especially during downturns. I believe this year, our GAAP compensation may hover in the high 60s if we opt for conservative deferral strategies, or mid-60s if we adhere to our existing policies. The final numbers will depend on the revenue situation and our approach to annual compensation.

Sure. Great. Sorry, go ahead. No, no, please. I didn't mean to interrupt you.

I think you had one more question.

It was around how you execute year and avoid impacting the revenue?

Yes. I think I touched on that. I think it's a combination of two things. One is where we think we have less opportunity and people and then where the investments are going to go in the future. I think that really is it.

Got it. Okay. That was very thorough, Ken. I appreciate it. For my follow-up, it seems that based on some analysis of your fixed compensation expenses, there might have been some incentive accrual in light of the workforce reductions. This will obviously impact the adjusted reported compensation, as you mentioned. How should we consider the possibility of adjustments to these incentives as the year progresses? Do you think there will be room for these adjustments as the revenue outlook becomes clearer?

So I think I'm following the question, so let me kind of answer what I think is the question. Look, in the first quarter, generally speaking, there's some accrual for incentive comp, but it's usually pretty small. Each of the first quarters. That's just historically the case. And then I think the second is there room as a result of some of these restructurings to have more flexibility at year-end, the short answer is yes, but all of this doesn't really kick in until we get to 2024.

Okay. All right. Appreciate it.

We'll take our next question from James Yaro with Goldman Sachs. Your line is open.

Good morning, and thanks for taking my question. I just wanted to first touch on your outlook for M&A in Europe versus the U.S. given clearly as a somewhat healthier banking system today, and appears to have a somewhat stronger near term economic trajectory as well.

It's a good question. So kind of surprising, our first quarter performance in Europe, which, of course, is dependent a bit on what was announced 6, 12 months before. It was actually quite strong. And when we look at the business in Europe right now, look, there has clearly been a slowdown in announcements over the last 4 or 5 quarters in Europe as well. But when we look at the individual businesses in Europe at the moment, they're pretty robust. And I'm not sure that plays into revenue in a quarter by quarter, but I feel pretty good about where our franchise is in Europe right now and the activity levels, while clearly less than they were in 2021 or not, at least for the businesses where the business we're doing and the countries we're in, it's not terrible at the moment.

Okay. That's very helpful. And then if we just turn to restructuring, maybe you could just talk about the type of assignments and geographies in which you're seeing the biggest pickup in that business? When should we expect the pace of the restructuring to actually hit your revenue? And then what's your view on the length of this restructuring cycle at this point?

That’s a great question. This M&A and restructuring cycle appears to differ significantly from those in previous years, including '01, '02, '06, '09, '13, and '14, as well as the brief restructuring phase before the pandemic. Historically, we've noticed that when M&A activity declines, restructuring assignments tend to increase beforehand, which helps to counterbalance the drop in M&A. However, this restructuring cycle has been both muted and delayed. On a positive note, we are now starting to see a real increase in activity, which should translate into revenue towards the end of this year and into the beginning of next year. In fact, we have recently brought on two new restructuring partners, one concentrating on creditor assignments, an area we aim to develop further. I believe this will help us gain market share. Overall, activity has been subdued so far. Whether this trend continues will depend, in part, on developments in the banking sector. If there’s a significant credit crunch, the cycle may extend for a considerable time. If it’s a mild credit crunch, we’re likely to have a beneficial cycle, as there will be activity due to many maturities coming due in a higher interest rate environment, which will create some stress. However, the extent of activity in the market will partly hinge on the credit crunch situation.

Okay, thank you so much. Appreciate that.

We will take our next question from Devin Ryan with JMP Securities. Your line is now open.

Hi Devin.

Good morning. I want to revisit the discussion on expense reduction. Is the 10% reduction uniform across all segments, or is it primarily focused on advisory? It seems like some of this may stem from a hesitation to take action in areas where the fee pools aren't as attractive now as they were previously. Is now the right time to make these changes, along with some additional adjustments considering the current challenging environment? I’d like to clarify that point. Additionally, what does this mean for investments in parts of the business where the advisory fee pool appears to be becoming more appealing, especially since you have been quite active in external recruitment over the last couple of years?

Let's begin with the final question, which I believe was asked last. Our objective in taking this action now is to proactively address the current environment for two main reasons. Firstly, the M&A business is cyclical; it goes through phases of growth and decline. Currently, we are in a downturn. Based on our experience, it is advisable to take action early during such cycles. This approach allows us to clear the way for our team to focus on recovery, and how we engage with our clients now will influence our success as the recovery unfolds. Secondly, this is an environment where we can adjust our cost structure to facilitate future investments. We aim to seize the opportunity to attract top-tier talent, particularly skilled professionals in key areas for us, which we identify as the U.S. and Europe. Therefore, our goal is to position ourselves in advance of the recovery to avoid distractions from restructuring at that time and to ensure we have the capacity to invest in our business when such investments are more affordable. Regarding productivity, I don't believe we are behind the curve; rather, we are navigating through a changing cycle. It is unfortunate to make tough decisions during these times, but we must place strategic bets on where activity will be in the next cycle, which we are doing now. In terms of headcount reductions, the advisory business has a larger workforce compared to the asset management side, so it will naturally bear a greater impact. The office closures will primarily affect the advisory sector, and there is also a significant reengineering effort underway in the corporate sector, which will be impacted as well.

Okay. thanks for the thorough answer Ken. I believe Evan is on the call.

Yes.

I want to ask Evan about his experience in the asset management role now that he has been in it for nearly a year. Could you share your thoughts on your strategic priorities and which areas may receive more or less investment? Additionally, how do you view the overall growth profile and strategy of the business after being in this position for a year?

Sure, Devin. I'm glad to share my thoughts on that. It's been several quarters since I've been directly involved in the asset management business, but I've focused on it for the past five years as CFO as well. We're continuing the strategy we set at the beginning, which revolves around three key areas. First, our priority is performance and ensuring that all our funds perform well. As Ken noted earlier, 80% of our funds have outperformed their benchmarks over the past year. This shows we've had some notable success. The market has shifted more towards fundamental investing in the last six to nine months, aligning with our strengths in relative value, quality, and factor quant, which are core to our business in both fixed income and equities. Performance will continue to be a main focus for us. We are dedicating significant time to developing tools, resources, research, and insights to generate the best insights across our platform. We possess a wealth of intellectual capital globally, with outstanding teams in emerging markets and local areas worldwide. By harnessing these insights, we can gain a competitive edge in performance across many of our funds, particularly in fundamental sectors as the markets become more driven by fundamentals. The second area we've concentrated on and will continue to prioritize is distribution. Over the past few years, we've enhanced our global distribution capabilities, particularly in Europe, as we've discussed in previous quarters. Now, our attention is shifting more towards the North American market, where we've made a few strategic hires recently. We intend to keep focusing on this area. Enhancing distribution is crucial, ensuring our teams collaborate effectively in a volatile market where clients look to us for forward-thinking strategies regarding their allocations. This is when Lazard tends to excel. Many of our client relationships span over a decade, and they often turn to us during market transitions and shifts in sentiment, seeking our guidance. Our distribution, sales, and marketing efforts are essential in partnering with clients to help them achieve further success. The third area of focus is on infrastructure—building it not just for current needs but for long-term growth opportunities. This includes operations, technology, and other aspects. These are the three main areas we've been concentrating on within our existing business. As you know, we have a strong presence in relative value, quality, and factor quant. Additionally, we're exploring various strategic opportunities in the alternatives business, wealth management, and other areas in this environment, looking for opportunities to pursue.

Terrific. Thanks for the thorough answer. Appreciate it guys. I will hop back in the queue.

Great.

We'll take our next question from Steven Chubak with Wolfe Research. Your line is open.

Hi Steven.

Hi, good morning Ken. So I did want to ask about some of the comp ratio comments. You noted you're still committed to getting back to the 55% to 59% target comp ratio. It sounds like you're hoping to get back to that range possibly as early as 2024 assuming a more normalized revenue environment. And just wanted to confirm first, whether that's the right interpretation? And second, what level of normalized revenue will be required to deliver such an outcome on this pro forma lower expense base.

Great question. The thought process behind our actions is important to understand. One of the main reasons we decided to take action now is due to the increasing expenses in our business, which includes headcount increases and the expected revenue trajectory, especially for our advisory business over the next few years. This was necessary because if we had returned to the revenue levels of 2020 or 2022 while maintaining the 2022 cost structure into 2023 with this level of inflation, we would not meet our targets. The idea is that if we consider revenue somewhere in the range of 2020 or 2022 for the advisory side, we can align our compensation and non-compensation to achieve our targeted margins. It's also about the balance between the advisory and asset businesses. This situation might resemble the period from 2009 to 2013, where asset management could lead the recovery, as market performance reflects in profits more quickly than advisory deals get finalized. We need to keep this perspective in mind. Regarding what constitutes a normalized revenue environment, I don’t believe we will see a repeat of 2021 for the industry in the near future. While some individual firms might achieve that, it’s not likely for the industry as a whole. Instead, the revenue levels may more closely resemble those of 2018, 2019, 2020, or possibly 2022. However, the advisory business is challenging to predict annually. Over the long term, the advisory market tends to grow at about 4% above GDP, but in any given year, growth can vary significantly, as we’ve seen with swings of 30% or 40%. Therefore, there are considerable fluctuations in this cycle.

Thanks for all that color Ken. And just for my follow-up, the tone on the environment, admittedly that you just conveyed, it's much less sanguine than what we've heard from some of your bulge bracket tiers, which are arguably better comps for Lazard, have a similarly global footprint. Want to understand whether there are any idiosyncratic factors that would result in weaker performance at Lazard relative to some of the bulges? And what are some of the macro factors or indicators that could potentially support inflection sooner than what you can be?

I want to make a few points regarding this topic. First, when I examine the advisory revenues of our major peers like Goldman, Morgan Stanley, JPMorgan, Citigroup, and Bank of America, as well as the independent firms, I notice that most have performed within a few points of the market, either a bit worse or a bit better, reflecting market performance overall. As such, I’m not certain if we can draw clear distinctions at this moment. Second, I believe that restructuring might improve for us before the overall market does. Typically, during downturns in mergers and acquisitions, there is a corresponding increase in restructuring, often happening simultaneously or even earlier. However, that has been delayed this time around. Therefore, it’s possible that by the end of this year, we could see restructuring revenues increasing before the market begins to recover, which would benefit those firms with restructuring practices. Additionally, the main issue currently is the uncertainty in forecasting the future; many lack confidence in their ability to make predictions. Interestingly, this contrasts with the optimism seen in 2021 when expectations were misguidedly high. In this uncertain environment, it's hard for companies or fund managers to commit substantial capital. Therefore, until there’s more clarity and agreement on the economic outlook, we won’t see a genuine recovery in volumes. However, it’s conceivable that conditions could improve quickly; if we navigate the debt limit without a crisis and start to see recognizable trends in the economic environment—such as a consensus around decreasing inflation, the possibility of a mild recession, or the Federal Reserve pausing interest rate increases—it could lead to a stabilizing financing market and a slight narrowing of spreads, assuming we don’t face a severe recession. That said, we still have a very unclear environment lacking conviction and consensus. Even if there is an uptick, from an advisory perspective, it will likely take several quarters before we see actual announcements as complete transactions; this could lead to revenue pressure during that time. On the other hand, asset management might perform exceptionally well in such circumstances, particularly if the equity markets remain stable and considering our current positioning, especially in certain international markets.

Helpful perspective Ken. Thanks so much for taking my questions.

Sure.

We will take our next question from Matt Moon with KBW. Your line is open.

Good morning. Just wanted to drill down on the environment and maybe what you're seeing between the strategic and sponsor community in more detail. On the one hand, it seems that sponsors are seeing a slightly higher level of degradation versus strategics. But as you note, they should be quicker to return to market. So just curious on your updated thoughts here.

Let's begin with the strategic landscape. One complicating factor in the market is that large deals often face significant overlap and are currently in a challenging environment. Recently, we encountered issues with an activation deal in the U.K., which highlights the ongoing difficulties we've seen for several years. This isn't a new issue; there's understandable hesitation in pursuing substantial deals that involve significant antitrust concerns. However, within certain sectors, there is still some strategic activity occurring with larger transactions. For example, we're involved in the Newmont Mining situation, where we executed a significant water deal recently. There is activity in this area, and historically, strategics with strong balance sheets tend to remain engaged during downturns. Although they may not be as active as in times of great optimism, they continue to pursue opportunities. The segment where we see ongoing strategic activity ranges from $1 billion to $5 billion deals, which don't risk jeopardizing the entire company, particularly in industries where M&A serves as a means for research and development and growth. In the pharmaceutical sector, especially with biotech, and in renewable energy, we observe this trend, along with some activity in technology, despite the ongoing complexity due to antitrust concerns. Our Financial Institutions Group has been particularly robust, contributing to significant activity in some sectors. Interestingly, the consumer sector occasionally sees countercyclical deals due to its defensive nature; these firms typically have strong balance sheets and muted valuations, allowing for successful negotiations. Overall, while the strategic landscape isn't terrible, it's certainly not as vibrant as it would be in a bullish market. Regarding sponsors, you are right. This could be the area to recover the fastest, allowing quicker visibility into profit and loss. However, the environment for sponsors today differs significantly from the conditions up to 2021. Interest rates are expected to remain elevated for a while, and I don't anticipate a return to extremely low rates. Wider spreads mean financing will be costlier, which could challenge valuations, leverage, and returns. Consequently, achieving higher returns may be more difficult. Nonetheless, there is still considerable capital available, and the private capital industry remains inventively proactive, likely spurring some activity even in a subdued environment. Deal sizes for sponsors are probably smaller now, partly because some investors choose to contribute 100% equity to transactions with the intent of refinancing later. This trend has emerged in certain cases as financing smaller deals proves less complex than securing funding for larger ones. Overall, while activity levels are diminished, they continue.

Great. And then just shifting gears for my follow-up to the asset management side. You guys obviously executed a smaller kind of modest-sized acquisition in March of Truvvo while also simultaneously combining the existing private client offering you guys had to create the Lazard family office partners. I know it's a smaller part of AUM base, but just curious if you're seeing any recurring and ongoing opportunities for the private client side of the business specifically? I'm just kind of thinking in the wake of the banking crisis that affiliated bank model for private clients, if there's anything there or if that's more outside the area of focus for you guys?

Evan, do you want to kind of size that and...

Yes. As you noted, we established Lazard Family Office Partners by acquiring Truvvo in the first quarter, integrating it with our existing private client business. We have always maintained a robust private client segment in the high-net-worth area. The combined business in the U.S. now manages about $8 billion in assets. We are excited about adding the new team and forming this entity to expand our wealth management practice. This move enhances our traditional operations. Considering the current dynamics in the financial sector, we believe this channel presents an opportunity for growth. We have had a significant wealth management practice in Europe for some time, and this acquisition allows us to better position ourselves for the upcoming changes in the industry. We anticipate considerable developments in the wealth management sector over the next few years, which will provide us with an additional growth opportunity.

Great, thanks, guys.

Yes.

We will take our next question from Ryan Kenny with Morgan Stanley. Your line is now open.

Hi, good morning. I wanted to follow up on the comment about wider spreads affecting deal financing. Can you provide more insight into how much these wider spreads and credit conditions are influencing deal completion? Is this a larger obstacle than higher rates? I'm trying to understand which scenario may yield a better macro outcome: higher rates without a recession or a rate cut that comes with a recession but also improved credit conditions?

The problem here is that there are many conflicting factors at play, and navigating these challenges is the difficulty for anyone seeking financing in this environment. If we find ourselves in a tougher macroeconomic situation, like a recession, I suspect that spreads will start to widen slightly. On the other hand, a recession might lead to the expectation that the Federal Reserve will halt rate increases, which could improve the rate environment a bit. Another aspect to consider is the situation in the regional and community banking sector, especially regarding deposit outflows and its impact on lending capabilities, particularly in the commercial real estate and SME sectors, where these banks play a crucial role. This could create a credit crunch. Conversely, there is a significant amount of capital in private credit funds that may become more active. Overall, the main point is that risk capital is much more costly today than it was in 2021, leading to lower valuations and reduced purchasing power for businesses.

Thank you.

Thank you. This now concludes the Lazard conference call.