Déjà vu: Securities industry suffers second straight quarterly setback

(December 18, 2002) Canada’s brokerages saw reduced profits in the July-September period in a repeat performance from the previous quarter, according to the latest securities industry report from the Investment Dealers Association. Third-quarter profits suffered a double-digit decline compared to last year as revenues from nearly all lines of business fell.

Quarterly profits tumbled 10% to $401 million compared to 2001. In the second quarter, profits were down 18% to $595 million. Year to date, profits are off 9%.

Retail firms, which make up about 135 of the 200 IDA firms, were hard hit in the latest quarter, losing $7 million. “Barring a turnaround in the final quarter, retail firms may register their first annual loss in at least a decade,” the report said.

Stock markets fell substantially in the third quarter and mutual fund redemptions escalated. Retail investors who shunned the equity market in the second quarter remained on the sidelines in July to September, the IDA said.

Things were even more grim for integrated firms, as profits plunged 45% to $216 million due to a decline in fixed income trading.

Commission revenues, the lifeblood of the securities industry, declined 3% to $851 million.

“Sagging revenues have been the major factor in the deterioration in the industry’s profit position this year,” the IDA said.

The lone bright spot in the quarter was investment banking, which saw revenues rise 16% to $470 million thanks to sharp increases in equity and income trust issues. Income trusts generated $2.4 billion in the third quarter, a staggering 180% gain from the previous year.

Institutional firms benefited from the upturn in investment banking, tripling profits to $192 million.

The IDA said although the overall profit picture in 2002 has been disappointing, the downturn should be kept in perspective, noting that the industry saw “extraordinary” performance in both 2000 and 2001.

“Excluding those results, industry profits for 2002 should compare favourably to earlier years,” the report said. “The industry has managed reasonably well during the difficult business environment this year.”

“It wasn’t a stellar year,” IDA president Joe Oliver said in a recent interview with Advisor.ca “It wasn’t calamitous, but it’s a year I think we’ll be happy to have behind us… We’re looking forward to a better year in 2003.”

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca