Morgan Stanley (NYSE:MWD) is not the only investment bank with defections of key employees. Yesterday, Lazard Ltd. (NYSE:LAZ) confirmed that one of its rainmakers, Gerardo Braggiotti, decided to bolt. He was against the company's recent IPO and did not like his power structure in Europe (apparently, he wanted to command all of Europe).

Of course, Lazard claims this is not a problem (Morgan has said the same about its own defections). Yet roughly half of advisory revenues for Lazard come from Europe, and Braggiotti was particularly strong in Italy, which accounts for about 9% of Lazard's earnings.

Actually, this news dampened the other announcement: strong first-quarter results. In the quarter, Lazard announced a 27% increase in net operating revenues to $265.5 million. During this time, net income surged 387% to $73.4 million. Lazard also took significant steps in cutting compensation costs. In the quarter, they fell by 25% to $153 million compared to the same quarter in 2004.

Clearly, Lazard has continued to demonstrate its core strength in M&A advisory. Its megadeals include Mitsubishi Tokyo Financial's $41 billion acquisition of UFJ Holdings, SunGard Data's (NYSE:SDS) $11.3 billion going-private transaction, and MCI's (NASDAQ:MCIP) merger with Verizon Communications (NYSE:VZ). But will the deals keep coming? M&A is volatile and seasonal, with activity generally slowing in the summer months.

That slowdown may have arrived early. This week Morgan warned that its earnings will be down 20% to 25%. There are also rumors that Goldman Sachs (NYSE:GS) will have difficulties, as well.

There are certainly other risk factors at Lazard. While the firm wants compensation at 57.5% of revenues, this is still well above the industry norm of 50%. But isn't compensation the way to attract rainmakers? Perhaps this explains the defection of Braggiotti. Getting big-dollar deals -- especially for a smaller firm like Lazard -- requires paying producers big dollars.

The company also had to take on $1 billion in debt to pay off the founding family in its IPO, reducing its credit status to junk. True, this is not necessarily a problem for M&A advisory, which does not require capital commitments. However, it may restrain the company from entering other areas, such as the financing of M&A transactions or public offerings, if the company is not able to attain financing and/or terms favorable enough to make such activities profitable.

To keep growing, Lazard needs to feed on big deals, which is difficult to do on a consistent basis. And with the stock at $22.90 -- lagging its recent IPO price of $25 -- investors are certainly skittish.

Fool contributor Tom Taulli does not own shares mentioned in this article.