Securities revenues pullback in second quarter

(September 23, 2004) Lacklustre equity markets took a chunk out of securities industry revenues in the second quarter, the IDA reports. Particularly hard hit were underwriting fees, although commission revenues from mutual funds and stock trading also suffered a decline.

While operating profits slumped 30% on the back of a 9% decline in revenue after the first quarter, both are ahead of where they were last year and have not given back their year-to-date gains.

The IDA attributed the decline to choppy markets, which included concerns about interest rates and commodity prices. Still, a relatively stable interest outlook and favourable economy and monetary policy cushioned the slide.

At the 12 integrated dealers, including the bank-owned brokerages, a 110% increase in corporate advisory fees for mergers and acquisitions staunched some of the 80% decline in equity trading. Fixed income trading, of which the integrated dealers do the lion’s share, was also up 80%. Another bright spot, according to the IDA report, was a growth in fee-based revenues. “Wealth management firms are becoming more receptive towards increased fee-based products as a means of cushioning the cyclicality component of earnings,” the report says.

Retail firms experienced declines similar to those posted by the integrated dealers, with a 100% downshift in equity trading revenue and 17% fall in mutual fund commissions. Mutual funds account for about a third of the commission stream at retail houses. Still, those firms have seen a quarterly increase in revenues, unlike the integrated firms, whose revenues contracted in the second quarter. Firms that service the institutional marketplace boosted profits by 86%, after a 42% increase in revenues, based largely on an upsurge in corporate advisory fees plus an upturn in investment banking fees.

Filed by Scot Blythe, Advisor.ca, scot.blythe@advisor.rogers.com.

(09/23/04)