UPDATE 3-Lazard reports smaller drop in profit as dealmaking climbs

(Adds CEO quotes in paragraphs 2, 8 and 10)

By Lananh Nguyen and Jaiveer Shekhawat

Feb 1 (Reuters) - Investment bank Lazard on Thursday reported a smaller-than-expected drop in its fourth-quarter profit as it brought in more revenue from advising on mergers and acquisitions (M&A).

"The external environment is constructive for M&A," CEO Peter Orszag said in an interview. "We still see ongoing momentum in our European business, and in the U.S., we see a pickup in activity in a wide array of sectors -- technology, industrials, healthcare, energy, financial services."

Lazard's adjusted profit was $65 million, or 66 cents per share, in the fourth quarter, down from $67 million, or 69 cents per share, a year earlier.

Analysts on average had expected a profit of 41 cents per share, according to LSEG data.

U.S. equity markets rallied in late 2023 on hopes the Federal Reserve would soon cut interest rates. The optimism helped the benchmark S&P 500 trade near record highs and fueled expectations for a revival in mergers and initial public offering after months of sluggish activity.

Revenue at Lazard's financial advisory segment, which advises on stock sales and mergers and acquisitions (M&A), jumped 18% to $477 million in the fourth quarter.

While more stable borrowing costs could spur companies to do deals, other businesses in sectors including retail, energy and telecommunications may need to restructure debts they took on when interest rates were higher, Orszag said.

"2024 could be an unusual year in which we have a pickup in M&A but we also have an elevated level of restructuring," he said.

Asset management revenue increased 6% to $274 million. Lazard's assets under management rose to $247 billion at the end of 2023 from $216 billion a year earlier.

"As the markets continue to broaden the rally that we saw last year which was quite narrow to U.S. stocks, I think it plays well to our strengths across international, EM (emerging markets) and global investing," Evan Russo, CEO of the bank's asset management unit, said in an interview.

Meanwhile, fixed-income investment portfolios have also delivered steady returns while interest rates stayed elevated.

Lazard took a hit from a rise in adjusted compensation and benefits expense to $516 million from $419 million a year earlier.

(Reporting by Jaiveer Singh Shekhawat in Bengaluru and Lananh Nguyen in ; Editing by Shounak Dasgupta, Shinjini Ganguli and David Evans)