On Tuesday, Lehman Brothers (NYSE:LEH) announced that it is hiring Felix Rohatyn as senior adviser to CEO Richard Fuld and chairman of the firm's International Advisory Committees. This development shows that, in an industry marked by global institutions and the increasing celerity of capital flows, "old school" relationship banking still has its place.

Felix Rohatyn is one of the deans of the mergers and acquisitions business and one of the most influential figures in American business. Rohatyn joined Lazard Freres (now a part of Lazard Ltd. (NYSE:LAZ)) in New York in 1948, where he was mentored by the legendary Andre Meyer and became a partner in 1961. He spent over 45 years at Lazard, leaving the firm in 1997 to become U.S. ambassador to France. Outside of his business achievements, Rohatyn is perhaps best known for rescuing New York City from the brink of bankruptcy in the late 1970s.

On completing his post as ambassador at the end of 2000, Rohatyn founded Rohatyn Associates, an M&A advisory boutique. The firm achieved the 12th spot in the Investment Dealers' Digest financial advisor ranking for U.S. M&A transactions during the first half of this year, up from the 18th spot in the year-earlier period. In both cases, however, this was achieved thanks to a single transaction; this year, Rohatyn Associates advised AT&T (NYSE:T) on its acquisition of BellSouth in a deal valued at $89 billion (of the top 10 advisers in the first half of this year, all but one were active in more than 50 transactions). According to the Financial Times, Rohatyn was not interested in expanding the firm, which would have made it increasingly difficult to retain staff.

Meanwhile, Lehman Brothers, which was traditionally thought of as a bond house, has been climbing the M&A league tables. Lehman took second place in U.S. M&A in the first half of 2006, advising on 91 transactions for a total value of $253 billion (in 2005, Lehman was the fifth-ranked adviser). For the six months ended May 31, the firm's revenues from Advisory Services increased 77% to $470 million, or 30% of the Investment Banking segment's total net revenues. Although capital markets activities (including principal transactions) have gained enormous weight at investment banks over the last few years -- Lehman's net revenues from the Capital Markets segment in the first half was $6.1 billion -- M&A advisory is an activity that provides a less volatile income stream and requires no capital.

Given his ties to Lazard and Rothschild, where he served as a non-executive director from 2004 until earlier this month, Rohatyn's move to Lehman Brothers is a coup for the firm. This adds to the momentum of a company that has demonstrated brilliant execution over the last several years, turning itself into a truly diversified investment bank that is giving larger competitors such as Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) a run for their money.

Earnings Growth (Est. 5 years)

P/ BV

Forward P/ E

Lehman Brothers

12.7%

2.1 x

9.8 x

Peer Group1

12.3%

1.8 x

10.3 x
1. Based on closing prices on 08/21 for a peer group containing Bear Stearns, Goldman Sachs, Merrill Lynch (NYSE:MER), Morgan Stanley, and JPMorgan Chase (NYSE:JPM). Average P/BV and P/E multiples are weighted by market capitalization. Average earnings growth rate is unweighted.

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AT&T is a former Stock Advisor pick. JPMorgan Chase is a Motley Fool Income Investorpick.

Fool contributor Alex Dumortier has no beneficial interest in any of the companies mentioned in this article. He welcomes your (constructive) feedback. The Motley Fool has a strict disclosure policy.