Not even the Germans have a word for "schadenfreude about another's thwarted schadenfreude," but Bruce Wasserstein, 60, revels in how wrong almost everyone has been in gloating over his irrelevance for the past 20 years. This morning, as he checks the Lazard stock price on his computer terminal and is bemused that it is down a dollar—"On nothing! For no reason!"—there is much to inspire wonder at his cunning and resilience. Wasserstein, the man you didn't want anywhere near your deal by the time the go-go '80s were (mercifully) winding down, is now the C.E.O. and largest shareholder of 160-year-old Lazard, perhaps the most surprising survivor amid this season's Wall Street swoon. (View slideshow.)

From his 62nd-floor office in Rockefeller Center, in Manhattan, Wasserstein commands a view to the north, over Central Park, its foliage orange and shimmering. The floor above him as well as the nine floors beneath his feet are occupied by the bank he now runs, and much farther down are the streets of the city in which he built, lost, and is now restoring his reputation as a financial shaman.

In just six years, he has maneuvered Lazard into the sweet spot on troubled Wall Street, and his private equity fund, Wasserstein & Co., has made some savvy high-profile media investments. In fact, it seems nobody has made more money from investment banking since 1993 than Bruce Wasserstein. His success could keep a generation of bankers behind their desks instead of jumping to the nearest quant fund, where, until recently, they could have become stupidly rich. You can do it in banking, Wasserstein might tell them, as long as you ignore the fads, focus on your biggest clients, and ensure that the best deals you make are always your own.

Of course, this is not the same chubby, ursine Bruce Wasserstein who became the gauche embodiment of a decade of rapacious dealmaking. He is now slim, and the famously rumpled suit and untucked shirt have been replaced by tailored wool and crisp linen. The jowly face has aged into a more somber cast, the thin lips are always threatening to break into the familiar pout, and the large eyes are squinted and framed by a filigree of wrinkles. Brown hair is combed over his high, arched, liver-spotted forehead. It's a description that probably makes Wasserstein sound unattractive, but in person, his physiognomy is pleasing. After all, you don't get to be worth north of $2 billion without having some personal charm.

Wasserstein began the day confronted by the recent passing, at age 50, of Lazard's popular co-chairman of investment banking, Michael Biondi, who worked with him at Credit Suisse First Boston, then at Wasserstein Perella (Wasserstein's boutique investment bank), and finally at Lazard. (Biondi was Wasserstein's "good cop," says a colleague.) And Wasserstein is still grieving—but refuses to discuss this publicly—over his sister Wendy, the Pulitzer Prize-winning playwright, who passed away in 2006. (Wasserstein is now raising her only child, a daughter, in his Fifth Avenue duplex.) Two years ago, stricken with pneumonia, he was out of the office for several weeks and out of contact with his lieutenants. Rumors of his ill health still swirl around the investment-banking community, conveyed with the kind of relish that used to accompany news of his downfall. With Wasserstein now indisputably entrenched as a financial power, it is as if his enemies sense that disease is the only thing that can bring him down.

Wasserstein dismisses the notion that he is a relic, that his skill set was more appropriate for '80s boardroom wars. "That's wishful thinking by my competitors. All that signifies is that people don't understand what is going on," he says. "That's more sour-grapy." As he talks, he rubs his face, which bends and gives like a sack of sand.

The proof of his relevance, he delights in saying, is his success at Lazard. Through good luck, shrewd management, and clever marketing, the firm is now thriving, while nearly every day, the write-down woes of yet another Wall Street firm overburdened by level-three assets and securitized subprime mortgages is a Page One story. Lazard's bigger competitors, those who also proffer sage advice to corporate America, make most of their money by trading with their own accounts. The five major independent investment banks—Goldman Sachs, Lehman Brothers, Merrill Lynch, Bear Stearns, and Morgan Stanley—made 45 percent of their revenue in 2006 by trading with their own accounts. This year, that strategy has backfired spectacularly, forcing Citigroup, UBS, and Merrill Lynch to sell substantial stakes to foreign investors. J.P. Morgan Chase, Bear Stearns, and Bank of America took multibillion-dollar write-downs as their house accounts, overloaded with collateralized debt obligations, have turned into drags on their business. Lazard has been notable among the major Wall Street players in that it has emerged unsullied from the mortgage meltdown.

Wasserstein takes much pleasure in pointing out that a banker with one eye on his trading screen—watching for how much he's making for his own pool—might give conflicted advice to his bank's big clients. How can a large firm be trusted with an entire deal when it may be buying or selling a company's debt or securities to boost its own kitty? Goldman Sachs weathered the recent slump by making money for its house account, but almost every other Wall Street bank stumbled, and a string of shareholder lawsuits can't be far behind.

That the big banks have no more checks to write, that their mortgage-backed, debt-burdened balance sheets prevent them from using their house accounts to buy deals, is a source of unending glee for Wasserstein. Who could have imagined a decade ago that Bruce Wasserstein would be the face of prudent investment banking? Perhaps, when it comes to investment banks, small is the new big. Lazard may actually be the new "old" prototype, as some of Wall Street's megafirms unravel in part because they have been acting more like hedge funds than investment banks.

By now, we should be done with him. Bruce Wasserstein and his fellow corporate raiders—his padded-shouldered brothers in their masters-of-the-universe pinstripes, yellow ties, and red suspenders—should have been shuttled to some secluded private island where they could endlessly swap war stories about hostile takeovers and tender offers, about Federated Department Stores and Texaco and RJR Nabisco, about bidding 'em up and then taking them apart, about selling off pieces of great American corporations to pay back massive chunks of junk debt. Wasserstein was arguably the smartest of that gang: the banker most often described as brilliant, the Harvard-educated attorney who, along with his partner, Joseph Perella, practically invented modern tender offers, who boasted that keeping in his head the various components of a deal—tax implications, legal issues, regulatory hurdles, debt covenants, all the intricate moving parts—was like playing "three-dimensional chess." For many years, it seemed Wasserstein could talk his clients into any deal by droning on and on in his steady, gravelly, soothing voice as he delivered his famous "Dare to be great" speech. He could keep talking, colleagues say, until finally—in part to get him to shut up—all parties would agree to the terms of the deal.

Wasserstein so defined that era—the quaint time when a few million was a respectable fee and a few billion was considered a massive transaction—that it is surprising to now have to take his measure again. He has been written off so many times. Wasserstein was viewed almost as an embarrassment after Henry Kravis, famously, hired him just to keep him away from a deal Kravis was working on in 1989. Wasserstein was disemboweled by the media after leaving First Boston, where he had built its mergers-and-acquisitions practice into the best in the business, to found Wasserstein Perella and then riding that company down with the M&A cycle to the point where the firm was barely making payroll. He was dismissed by much of Wall Street when he came to Lazard and again when he overrode the objections of his largest block of stakeholders by taking the troubled firm public. He was mocked after joining with financier Carl Icahn (a fellow Flock of Seagulls-era vestige) to propose a takeover of Time Warner in 2005 that became a fiasco.

There was glee in the banking community after each of Wasserstein's stumbles, a sense that he had finally gotten his comeuppance. "That was hard on him," Biondi told me a few months before he died. "He was used to being the brightest boy in class. He had to come to grips with this new world."

Wasserstein had been an M&A Icarus in the '80s, stoking and feeding a generation's hunger for mergers and takeovers. He insisted he was unleashing shareholder value, but mostly he was just enriching his fellow bankers as he soared. When the media turned against him, when his deals produced companies soggy with debt and operationally doomed, he was consigned to history's dustbin along with "Bludhorn, Charles" and "DeLorean, John," businessmen who embodied an era and could not transcend it. Wasserstein was, according to GQ, "desperate to be connected again to a big, sexy deal; desperate to recapture some of the old reputation; desperate to be seen as a player still." The writer concluded, however, that "it's over for Bruce Wasserstein." That was in 1991.

Lazard today is thriving, a darling of Wall Street analysts. It ranked 11th in completed worldwide M&A transactions through the first three quarters of 2007, putting it solidly in the second tier of the banking hierarchy. It bought the middle-market investment bank Goldsmith Agio Helms so that it could do more deals involving firms with $100 million to $500 million market caps. It has strengthened its restructuring practice, which tends to produce countercyclically to the M&A market, and purchased or announced joint ventures with banks in Latin America, Australia, and Central Europe. This was all part of a master plan Wasserstein happily takes credit for. "You know," he laughs, "rebooting this place was probably a pretty good idea."

Part of that rebooting can be traced to the success of Lazard Asset Management, which was transformed when the firm went public two years ago. Lazard's hedge fund business had been crippled by the departure of the star money runner William von Mueffling, who took 75 percent of L.A.M.'s investments with him to his new hedge fund, Cantillon Capital Management. Additionally, L.A.M. was burdened by a compensation structure that guaranteed its co-chiefs, Norman Eig and Herb Gullquist, 30 percent of L.A.M.'s annual revenue.

Wasserstein took control of L.A.M. and replaced Gullquist and Eig with Ashish Bhutani, a former Salomon bond trader who had never run an asset-management shop. Bhutani introduced a more diverse product mix and made sure that L.A.M. was in regular contact with the consultants who advise the larger pension funds around the world. Bhutani also brought in more Friends of Bruce, including key hires in the Far East and New York, building L.A.M. into a $142 billion giant that is contributing nearly 40 percent of Lazard's annual revenue. In the first three quarters of 2007, Lazard earned $1.3 billion.

Still, Lazard's name—and Wasserstein's reputation—was made by pulling off high-profile deals, not meticulously managing the assets of pensioners, no matter how profitable that can be. Lazard had always been the haute banque d'affaires vis-à-vis the world, a firm whose image, realistically or not, was that it had the ear of C.E.O.'s and world leaders and could, when necessary, bring such great figures together in the same room. Wasserstein is quick to admit that what Lazard does best is give advice.

"Once you say you are offering the highest level of advice and are a custom tailor of that advice, well, you have to deliver that," he says. He also stresses that his firm wants to be involved in a client's strategy going forward, thus ensuring steady revenue for Lazard. His role, he says, is to form and maintain C.E.O.-level relationships and forge strategic alliances. His ability to shrewdly evaluate deal terms remains one of his greatest assets. "I spend an hour with him daily going through how deals are structured," says Alex Stern, global head of strategy for Lazard.

Other associates say Wasserstein's role is far less hands-on and that more of the operational details are left to Lazard veteran Steven Golub and North America head Ken Jacobs. "Steven Golub is really running the firm," says another longtime Lazard banker. "Bruce is a brilliant thinker, but he has gotten a little older and much richer, and he is focusing his efforts on the strategic side."

In an industry in which a banker's bonus is usually tied to how much he generates in fees, Wasserstein's description of his role sometimes sounds a bit woolly, with vague talk that's hard to quantify. No one questions Wasserstein's control of the firm, yet no one challenged Michel David-Weill, until Wasserstein deposed him.

In a twist that even Wasserstein couldn't have predicted 10 years ago, a few colleagues say he has mellowed a bit. Most of his Lazard associates, when asked for Wasserstein's greatest single accomplishment, cite his decision to take the firm public in 2005. He was, according to Golub, "the only guy who could have pulled that off." Still, that was more than two years ago. What has Bruce done for Lazard lately?

Rival bankers like to point out that Wasserstein may not be a welcome presence in many C.E.O. suites these days. "He's a relic," says one competitor. "He's not an industry expert, so why would a C.E.O. listen to him?" (Investment banking, increasingly, is dominated by experts who have an extensive web of connections and expertise in one particular area, say utilities or technology. Wasserstein's strength is as a generalist, with contacts across a vast network of industries.) A former senior Lazard banker still close to the firm says a few members of the executive committee that reports to Wasserstein are already grumbling that he is not exactly a dealmaker anymore, nor is he an especially active manager.

He defends himself by saying that he has mastered delegating responsibility—up to a point. "You can't delegate so much that you remove yourself," he says. "Because then you lose your feel. And you have to have a feel, not to answer questions but to know the questions before they are asked."

As he stalks around his office on a recent weekday morning, in front of the vast multicolored painting by Sol Lewitt that dominates the immense, high-ceilinged, wood-paneled space, Wasserstein refers repeatedly to Lazard's success as proof that the world consistently underestimates him at its peril. "Don't ever bet against Bruce" is a mantra now repeated by friends and enemies alike. With M&A revenue soaring, reaching $850 million through October 2007, and Lazard's third-quarter earnings beating analysts' estimates, the stock price has stayed above $40 in a brutal market. Wasserstein, who is Lazard's largest shareholder, controlling more than 11 percent of the company, rarely laughs. Instead, he makes a sort of low-throated grunt that indicates he is pleased—or at least not displeased. He emits one of those now as he reviews Lazard's record of late; he is having the last grunt.

There was always a smugness about Bruce Wasserstein. His younger sister, Wendy, proclaimed him a messiah. She once wrote, "Whatever I said couldn't ever be as brilliant and penetrating as his comments on the same subject." He was the second youngest of five siblings, raised in the Midwood section of Brooklyn and later on Manhattan's Upper East Side. He attended yeshiva in Brooklyn until he was 12 but says, "It wasn't for me." He ranged, according to an essay Wendy wrote in 1990, "from being this magical person who got to play basketball in the driveway right up until dinnertime to this irritant in a leather cap with earflaps who would knock on the window of my first-grade classroom for the sole purpose of sticking his tongue out." He was precocious when it came to financial matters, making up his own rules for Monopoly—dealing out all the property deeds, allowing three hotels on each property, and encouraging players to leverage their financial positions by borrowing cash from the bank.

Wasserstein graduated from high school at 16, got his B.A. from the University of Michigan at 19, and completed graduate degrees in business and law at Harvard when he was 23. He was introduced to the M&A business upon joining the Manhattan corporate-law firm Cravath Swaine & Moore in the mid '70s. A few years later, he started working with Perella at the investment bank First Boston, where he literally wrote the book on corporate mergers, Corporate Finance Law: A Guide for the Executive, in 1978. He very quickly became one of Wall Street's preeminent dealmakers, perhaps reaching his peak in 1984 when he was hired by Texaco to break up Pennzoil's pending deal to acquire Getty Oil so that Texaco could acquire the firm instead. (It did so later that year, in what was then the largest takeover in American corporate history.) Texaco would soon declare bankruptcy, however, and many of Wasserstein's other deals, including Robert Campeau's various acquisitions (such as Allied Stores in 1986 and Federated Department Stores in 1987), would turn out to be disastrous for the acquiring party, leading many to criticize Wasserstein's advice as being tailored for the kind of shortsighted dealmaking that produced nothing of value for the merged corporations.

Still, at First Boston and later at Wasserstein Perella, Wasserstein would continue to dominate the M&A business, albeit with decreasing returns as the economy cycled downward in the '90s and the M&A boom went bust.

It is a tribute to his persistence and intelligence that he made his greatest fortunes well after his reputation was in tatters. With investment banking, getting rich isn't just glorious, it's really the only reason to do what most bankers actually do: sit in an office, day after day, trying to persuade C.E.O.'s to buy or sell—or not to buy or sell. It can be a mentally numbing exercise, made tolerable by the millions earned. What sets Wasserstein apart is not only his willingness to sit in that office or boardroom for as long as it takes but also his genuine intellectual curiosity about the deals at hand. "He is the most brilliant strategist I know," says Martin Lipton, founding partner of Wachtel Lipton Rosen & Katz.

Wasserstein showed plenty of that brilliant strategizing when he sold Wasserstein Perella to Dresdner Bank, in Germany, for an astonishing $1.37 billion, pocketing a personal stake of $600 million for a firm that would soon be effectively out of business. Through his private equity fund, Wasserstein & Co., he has amassed a mini-empire of media properties, including New York magazine, which he acquired in 2003 for $55 million, and American Lawyer Media, publisher of American Lawyer magazine, among other titles, which he bought for $200 million in 1997 and sold in 2007 for $630 million. (See "The Making of a Media Junkie.")

If the Lazard deal stands as Wasserstein's crowning achievement in the financial world, then his reputation as one of the industry's premier dealmakers is secure. It was the second billion-plus transaction he brokered in just a few years in which he was the single greatest beneficiary. "They rank as two of the great sales jobs," says a senior Lazard banker, of Wasserstein's selling of Wasserstein Perella and his takeover of Lazard. "They have a common theme: his own stake. He's done it twice. Not many guys have done that."

The Lazard deal exemplifies Wasserstein's ability to seize opportunities and exploit weaknesses. He outfoxed Lazard heir Michel David-Weill by redistributing its working capital in order to better compensate new hires—many of them F.O.B.'s—while essentially withholding dividends from the so-called capitalists, or nonworking partners. When David-Weill approached him in 2001 about becoming Lazard's C.E.O., Wasserstein knew David-Weill was desperate. Previous Lazard C.E.O.'s Steven Rattner and William Loomis had failed to make significant changes, primarily because David-Weill, who was no longer an active banker, refused to give up his control over the crucial issue of compensation. In the wake of the dotcom boom and the huge piles of stock options that were a regular part of financiers' compensation packages, Lazard was finding it increasingly difficult to compete for young talent. David-Weill, while acknowledging that a public firm had greater freedom in structuring lucrative packages, notes that his colleagues "all made a great deal of money."

When he negotiated the deal with Wasserstein, David-Weill allowed his new C.E.O. a free hand in setting compensation and allocating the firm's capital—calculating, mistakenly, that Wasserstein's partnership stake would keep him from cutting the traditional big dividend payout to partners. Yet in taking an equity stake and warrants for other shares, which would eventually total more than 11 percent of Lazard, Wasserstein had to invest only $30 million of his own capital.

Why did David-Weill agree to such a generous deal, one that undermined his position at the firm? "I was weakened by the fact that I had tried solutions that had not worked," he says. "Very simply, how many bullets did I still have?" He points out that he still controlled the board of directors, but Wasserstein—who had relatively little of his own capital at risk—didn't hesitate to redistribute the Lazard wealth so that it benefited current company members at the expense of former partners and hereditary shareholders.

Wasserstein says the firm's partnership structure was inherently antigrowth. "If you were a partner," he explains, "you wanted to maximize current cash income and minimize future investment, because in three, four years, you might not be here." The company's structure was, he points out, a major impediment to strategic planning. He concluded that taking the firm public and essentially buying out the capitalists was the only way to move Lazard forward.

Getting that deal done—selling the story to Wall Street, taking a firm that was debt-free and leveraging it up—was risky, but the wisdom of it was borne out by the market: The stock has risen from its initial public offering of $25 per share to more than $40.

"He took power very well," says David-Weill. "He was afraid of sharing power and tried his very best—and succeeded—in expelling me. That is his nature. He is a man of solitary power."

On a rainy autumn morning, I take a taxi uptown to David-Weill's Fifth Avenue apartment. Wasserstein's buyout of the former Lazard chief's stake added $1 billion to David-Weill's personal fortune, and he now divides his time between Paris, Cap d'Antibes, Southern California, and this Manhattan abode. He is still the chairman of Eurazio, a private equity fund that includes Lazard among its advisers from time to time.

I join him in his study, where he sits in a suede armchair, his back to a view of Central Park that offers a slightly different perspective from the one enjoyed a few blocks south by the man who pushed him out of Lazard. Over the fireplace is a 1925 Miró painting, and behind the suede sofa is a 1932 painting by Picasso of a reclining nude. David-Weill flips through a Sotheby's auction catalog of pre-Renaissance work, admiring an ivory statue of the Madonna and child that he says that he might bid on.

David-Weill tells me he bears no ill will toward Wasserstein. "I have two contradictory feelings," he says. "Satisfaction and regret. Satisfaction because the firm is alive and doing pretty well, and regret because it is always hard to see a place you devoted your life to ignore you."

He pauses a moment. "The last time he came to see me was about a year ago. He used to give me a kind of report card, just before the public announcement, of earnings. He doesn't come anymore."

David-Weill picks up another auction catalog and flips through it until he finds a Rubens he admires. This, he suspects, will be too dear. "If I have a regret, I suppose it is a regret I might have about his feelings or intentions."

Then he smiles, shrugs, and plucks a cigar from the maple case on his coffee table. "I think someday Bruce will find himself in my position at Lazard. How will he get out of it? Will he sell? Will he merge? I have no idea. But someday—not today, but someday very soon—he will be there."

It is an intriguing thought. With Wasserstein's days as a rainmaker perhaps over and his managerial style described by colleagues as "distant," he may find himself in a similar situation to the one in which he put David-Weill. Those ambitious, impatient young star bankers beneath Wasserstein might eventually force him out. But don't count on him to blunder his exit strategy like David-Weill did. The only way Bruce Wasserstein could get snookered in such a transaction would be if he found himself matched against his equal as a dealmaker.

And that hasn't happened yet.