Weak quarter, strong half for securities industry

Securities industry operating profits hit a new high of $2.9 billion during the first half of 2006, up 43% over the same period last year. The Investment Industry Association of Canada is predicting that profits for the second half of the year could be even stronger.

This robust forecast comes despite a 20% drop in operating profits for the sector in Q2, compared to the first three months of the year. Industry operating profit stood at $1.3 billion for Q2, versus $1.6 billion for Q1. Volatility on the global equity markets was blamed for the drop.

The IIAC says the trust sector will be the driving force in Q3. Through the first half of the year, the stock market pick-up, the resurgence of income trust financings, and the unrelenting M&A market all contributed to the strong performance.

“The volatility in the quarter did not discriminate among firms,” notes financial analyst Sherry Hum in the IIAC’s Q2 report. However, the quarter was particularly harsh for retail outfits, which suffered the steepest decline, off 26% in operating profit to $105 million compared to Q1. Commission revenue was down 10%, while revenue equity trading was off 74% over the same period.

The operating profit picture for the banks wasn’t much better. The IIAC reports that bank operating profits were down 23% for the period to $848 million, quarter-over-quarter. Investment banking revenues dropped 17% to $911 over the same period.

Even with these pullbacks, though, the industry made some strong gains during the first half of the year. In comparison with the same period in 2005, bank profits rose 38% to $1.9 million, retail operating profit jumped 76% to $284, institutional operating profit climbed 50% to $670 million, and equity trading soared 161% to $431 million.

Employment in the industry also reached a record of 40,598 in Q2, up 2% from Q1 and up 6% year-over-year, while the number of securities firms held steady at 198.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(09/14/06)