Weaker profits plague securities industry for second straight year

(March 25, 2003) Proceeds from the Toronto Stock Exchange’s initial public offering helped the Canadian securities industry post a profitable final quarter of 2002. But excluding that one-time gain, profits sank for the second straight year, the Investment Dealers Association said today in its latest securities industry performance report.

“The securities industry remained in the doldrums in 2002,” the IDA said. “Retail firms reported a jump in profits last year but this mainly reflected a one-off earnings gain from newly public TSX shares. When this factor is removed, retail firms turned in a tepid performance in 2002 as retail investors shied away from the market.”

Overall, yearly profits fell 14% to $2.4 billion. Profits at integrated firms plunged 30% while small firms suffered a $17 million loss. Commission revenues were off 6% in 2002, sliding under $4 billion for the first time in four years.

Industry revenues fell 6% compared to 2001 with double-digit declines in both equity and fixed income trading.

The TSX shed 11% last year and the value of stocks traded fell 9%. “This environment led to steep declines in mergers and acquisitions activity and subdued debt and equity financing,” the IDA said. “Substantially increased issuance of income trust units was a bright spot in an otherwise disappointing year for the industry.”

Institutional firms bucked the downward trend, posting a record $733 million profit last year, thanks mostly to the popularity of income trusts.

Cost-cutting measures led to slightly higher profits for discount firms. Discounters’ share of industry revenues has remained steady at 8% for three straight years, the IDA added.

Despite the weak numbers, employment in the securities industry was up 2% in the fourth quarter, reflecting an increase in the number of securities firms to 206 last year from 198 in 2001. Current employment of nearly 38,000 is the second highest on record, the IDA noted.

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