Industry profits take a hit in Q2

The violent mood swings of the equities market, coupled with fears of further crumbling in the global financial industry, cut into the profits of the securities industry in the second quarter, according to the Investment Industry Association of Canada (IIAC).

Industry operating profits declined 10% from Q1, to $1.1 billion, but the year-over-year fall-off was even more marked, with a decline of 34% from Q2 2007. The first six months of 2008 saw profits fall by 36% year over year.

Operating revenues totalled $3.8 billion, down 15% from the same period last year, while first-half revenues fell 14%, compared to the first half of 2007.

“Investment banking and market-making activities at the dealers were most impacted by recent market weakness,” said Jack Rando, director, capital markets, IIAC. “Market volatility and concerns over the global economic outlook continue to deflate investor optimism. Future industry performance will rest heavily on improving market conditions.”

Investment banking revenues surged 20% over the first quarter, but at $1.7 billion for the first half of the year, they are 33% lower than the first half of 2007. Corporate advisory fees totalled $228 million in the quarter, down 35.8% from the same quarter in 2007.

The biggest hit to the industry was a 199% year-over-year decline in revenues from equity trading, which saw losses of $173 million.

It wasn’t all bad news, however, as volatile commodities prices drove investors and advisors to rebalance their portfolios, bringing in additional commissions to the industry, compared to Q1. Retail firms posted commission growth of 2.9% over Q1, to $317 million, while mutual fund commission revenues were close to flat, falling just 1.6% from Q1.

“Overall, the wealth management business continues to provide stability to industry performance and once again demonstrates the importance of this business to overall firm and industry performance,” the IIAC report says.

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

(09/08/08)