Adds comments from media call, details and context throughout

By Manya Saini and Tatiana Bautzer

July 23 (Reuters) - Lazard LAZ.N reported a 91% drop in second-quarter profit on Thursday, as a higher tax rate and a move to overhaul its financial advisory business weighed on results.

The bank said it was cutting more than 80 managing director positions while hiring bankers in high-growth sectors with lucrative fee opportunities, including healthcare, industrials and defense technology.

Lazard's financial advisory business was a drag in the latest quarter as it reported a 9% drop in quarterly revenue, despite strong activity in the M&A market.

Shares of the bank fell nearly 3.5% in morning trading after the company also missed Wall Street's profit expectations.

"There is some revenue associated with the separated MDs that is a headwind," CEO Peter Orszag told reporters on a post-earnings call, but added that revenue from newly hired and promoted bankers was expected to ramp up through 2027.

Lazard is planning to build out an IPO advisory business in the U.S., focusing on advising companies without acting as an underwriter.

The U.S. IPO market has roared back to life in 2026, with SpaceX's blockbuster debut opening the door for a broad range of companies to tap public markets.

A resilient stock market and strong investor appetite for new listings have also prompted companies to pursue offerings after years of delays, with bankers expecting IPO activity to remain robust in the months ahead.

"We have a very active IPO advisory business in Europe, and we recently made a hire in the United States that gives us the capabilities to do similar work," Orszag said.

PROFIT MISSES EXPECTATIONS

Lazard posted a profit of 12 cents per share in the second quarter on an adjusted basis, well below Wall Street expectations of 35 cents per share, according to estimates compiled by LSEG.

"This quarter's earnings were impacted by an elevated tax rate, which is not indicative of the full-year rate," CFO Tracy Farr said in a statement.

Lazard said the provision for income taxes was $24 million in the second quarter.

Net income fell to $5 million, ⁠or 3 ​cents per share, in the three months ended June 30. That compares with $55 million, or 52 cents per share, a year earlier.

ASSET MANAGEMENT SHINES

Asset management was the bright spot in an otherwise soft quarter.

Geopolitical tensions, uncertainty over interest rates and rapid advances in artificial intelligence have driven market swings, spurring portfolio rebalancing and supporting fee-based revenue across the asset management industry.

Lazard said it posted its best first-half net inflows in nearly 20 years and reached record reported assets under management.

On an adjusted basis, asset management revenue climbed 23% to $331 million in the second quarter, driving total adjusted revenue up 2% to $786 million, ahead of analysts' estimates of about $757.5 million.

Lazard ended the quarter with $285 billion in assets under management, compared with $248 ​billion a year earlier.