IDA calls first quarter

The Canadian securities industry posted an “absolutely awesome” first quarter of 2006, with operating profits soaring 30% from the previous quarter, to a record $1.6 billion, according to the IDA’s quarterly Securities Industry Performance report.

On a year over year basis, profit growth was even better, up 42% from the first quarter of 2005. Operating revenue climbed to an all-time quarterly high of $4.3 billion, up 20% quarter-over-quarter and 24% year-over-year.

“Fresh on the heels of posting three consecutive years of record industry profits, the phenomenal quarter was both impressive and unprecedented,” the report says. “Indeed, the industry kicked off 2006 on a record bang.”

The growth was credited to a wide variety of factors, ranging from strength in the energy market and the soaring value of the dollar, to strong corporate earnings growth and increased activity in mergers and acquisitions.

The rallying TSX helped boost investor confidence, allowing the brokerage industry to cash in with a whopping $1.7 billion in trading commissions. On the fixed income side, trading garnered an additional $216 million.

Integrated and institutional firms saw especially strong growth in this field, with profit increases of 9% and 20%, respectively. Retail firms, though, were unable to duplicate that success and actually saw a 33% decline in trading profits, to $16 million.

Equity trading revenue soared by 193% over the first quarter of 2005, to $302 million, with integrated firms alone reaping $148 million up 135% year-over-year. Institutional trading posted an even stronger gain, up 275% year-over-year, to $54 million, while retail firms earned $100 million, up 296% from 2005.

Investment banking earned $1.1 billion across the industry as M&A activity gathered steam in the resource sectors. The IDA notes that Canadian firms have become much better at defending this turf against much larger U.S. investment bankers.

While revenues soared, cost increases were kept in check on a relative basis, rising just 11% from the previous quarter, to $1.5 billion. Strong profits allowed the industry to continue its hiring trend, with total industry employment rising 2% quarter-over-quarter, or 7% year-over-year.

All of it added up to good news for shareholders. “The industry delivered big time to investors,” the IDA said. “Industry return on equity was at a whopping 31% in the first quarter — not far from the record ROE of 35% in the fourth quarter in 2001.”

Integrated companies led the pack, with a “striking” ROE rate of 45%.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com