SECURITIES INDUSTRY Performance

Transcription

1 FIRST QUARTER 2 INVESTMENT DEALERS ASSOCIATION OF CANADA SECURITIES INDUSTRY Performance SECURITIES INDUSTRY PERFORMANCE

2 INDUSTRY Q / HIGHLIGHTS Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms 2 2-2% 28-3% % 26 % Number of Employees 37,52 37,739 -% 37,388 % 37,739 37,262 % 37,949-2% Operating Revenue 3,433 3,39** 3% 3,387 % 2,383**,68 7% 9,87 8% Commission,4,22 6%,434-2% 4,785 4,4 8% 3,9 4% of which: Mutual Funds % 38 6%,43,79 3%,2 -% Investment Banking % 82 2% 3,2 2,672 7% 2,85 22% of which: New Issues Equity % 584 2% 2,72,79 26% n/a n/a of which: New Issues Debt % 49-5% % n/a n/a of which: Corporate Advisory Fees 26 22% 79 59% % n/a n/a Fixed Income Trading % 3 57% % 869-9% Equity Trading 23-55% 255-6% % 34 96% Net Interest % 257 9%,2,6 3% 938 8% Fees % 32 2%,4,4 23%,2 % Other 8 29** -6% 95-45% 793** 28 82% % Operating Expenses***,292,32-2%,99 8% 5,87 4,477 6% 4,666-4% Operating Profit,5,23** -%,23-9% 3,857** 3,32 6% 2,297* 45% Net Profit (Loss) ** -% 58-24%,687**,484 4% 82* 8% Shareholders Equity 8,685 8,372 4% 7,47 7% 8,372 7,76 8% 6,995 % Regulatory Capital 5,986 5,8 6% 4,55 % 5,8 3,962 8% 2,968 8% Client Cash Holdings 22,8 22,9 -% 2,56 2% 22,9 2,65 7% 8,75 % Client Margin Debt Outstanding 9,86 9,478 3% 8,5 5% 9,478 7,65 24% 7,9 8% Productivity ( s) ** 4% 362 % 328** 285 5% 258 % Annual Return 2% 24%** -4% 3% -% 2%** 2% -% 8% 3% percentage change shown in absolute values n/a: not available * excludes TSX proceeds of $34 million ** adjusted for transfer pricing and one-time extraordinary revenue OPERATING REVENUE VS S&P/TSX COMPOSITE S&P/TSX COMPOSITE 2 INDUSTRY OPERATING REVENUE ($ MILLIONS) 4 OPERATING PROFIT MILLIONS DE DOLLARS S&P/TSX COMPOSITE INDUSTRY OPERATING REVENUE *BÉNÉFICE DU QUATRIÈME TRIMESTRE DE 2 RAJUST POUR LA VENTE DU TSX RETAIL AND INVESTMENT BANKING REVENUE $ MILLIONS 25 EMPLOYMENT INTEGRATED ('s) INSTITUTIONAL, RETAIL INVESTMENT BANKING REVENUE TOTAL RETAIL REVENUE *Retail revenue from stock and mutual fund commissions and fees related to products and services INTEGRATED RETAIL INSTITUTIONAL 2 SECURITIES 2 INDUSTRY INDUSTRY PERFORMANCE

3 Q 2 Slowdown: Sign of the Times? The Canadian securities industry staged a surprise performance on the downside in the first quarter. Despite a quarterly gain of 3% in operating revenue, operating profit totaled $. billion in the first quarter, down % from the record fourth quarter and off 9% from the same period a year ago. While profit remained at relatively lofty levels, the quarter s slowdown was a bit of a shock. After all, the seasonal RRSP phenomenon should have helped bolster the industry s momentum and, ultimately, profits. Instead, the bottom line fell short of expectations. What happened? THE BIG PICTURE Before we get to the trouble spots, there were some notable upsides in the period. One of the big lifts to revenue in the quarter came from the welcome boost in commissions. The industry pulled in an impressive $.4 billion in commissions in the first quarter, up 6% quarter-overquarter. While commissions were down 2% from the record first quarter last year, it was the second highest quarter on record and above the $. quarterly average during 2-. Undoubtedly, retail commissions were buoyed by the mass market appeal of seasonal RRSPs and mutual funds. In addition, industry revenue in the quarter was also supplemented by solid investment banking activity, specifically new equity financing. New equity financings climbed 4% in the quarter to an impressive $77 million, a 2% jump over the same quarter in 2. However, in the end, these gains were dampened by some negatives in the period. A wobbly equity market, lackluster trading and rising expenses played a major role in crimping operating profits in the quarter. While the S&P/TSX Composite Index followed last year s stellar fourth quarter with a 4.3% advance in the first quarter, investors were not in an exuberant state. Despite the respectable increase in the broad index, the market lacked decisive direction in the quarter. Mounting investor worries over rising oil prices, interest rates and a questionable corporate profit picture not only fueled market volatility, but limited the upside returns in the quarter. KA-CHING! COMMISSIONS DRIVE UP REVENUE Q/Q % CH COMMISSION REVENUE Against this more cautious market backdrop, proprietary trading revenue slowed sharply from the banner fourth quarter. In particular, equity trading was adversely impacted in the quarter with revenue at just $ million a plunge of 55% quarter-over-quarter and 6% yearover-year. While the level of equity trading was respectable by historical standards, the period s activity was a far cry from the record levels posted in the bookend quarters of last year. Meanwhile, most of the quarter s trading action was in the fixed income market. Bond trading topped $77 million, a gain of 26% quarterover-quarter and 57% year-over-year. The boost in fixed income trading revenue helped offset the pullback from the equity front. Bond dealers were better positioned this quarter compared to last year where many were caught off guard by the steep flattening in the yield curve. Finally, rising expenses was also a large contributor to the quarter s downturn. Total expenses reached $2.3 billion in the first quarter, a rise of 6% quarter-over-quarter and 7% year- MUTUAL FUND COMMISSION REVENUE SECURITIES INDUSTRY PERFORMANCE 3

4 over-year. Interestingly, the growth in expenses was underpinned by an 8% quarterly increase in contractual payouts such as commissions and bonuses to professional staff. These specific payments accounted for 28% of total revenue in the quarter, slightly higher than the 27% quarterly average during 2-. Adding it all up, these forces put a squeeze on industry operating profits in the quarter. Following on the heels of last year s recordbreaking activity, is a tough act to follow, let alone beat. Despite the more modest pace, most revenue streams for the industry remained at or above historical trend. The step back to pre-record levels may be bland and disappointing, but the industry is still standing tall. NOT INDEPENDENT S DAY OR QUARTER! The independents the small, boutique retail firms kicked off 2 with operating profit down sharply from last year. In the first quarter, operating profit for the introducers tumbled 42% quarter-over-quarter and was flat for the full-service retail firms. While industry profits pared back in the period, the downturn was particularly acute for the small retail firms compared with other players. For the institutional group, operating profit was down 2% quarterover-quarter while the integrated firms actually posted an increase of 6% in profit. DROPPING OUT OF THE SPOTLIGHT? Q/Q % CH RETAIL RETAIL FULL SERVICE INTRODUCER OPERATING PROFIT OPERATING PROFIT The big story this quarter came from the same group that dominated the spotlight last year the small independents. In 2, these players turned in a fantastic show and were the enviable it group last year in the industry. And no wonder. The largest percentage increase in revenue last year came from the full-service retail and introducer firms, not integrated. In fact, integrated operating profit was down 3% in 2 compared with the double-digit gains from the small firms! This time around, however, the group has received attention for less favorable reasons. The little engine that could last year seemed to have lost a bit of steam in the first quarter. For the independents, the sharp pick up in expenses was a notable drag on profits in the quarter. The run-up in expenses, both commission payout and other operating costs, was partly reflective of the brisk pace of expansion over the last few years. Small independent firms have become the fastest growing segment of the Canadian securities industry but not without cost. The strong growth has resulted in a jump in expenses, particularly in payroll. Employment in the introducer group expanded 67% from 2 and 9% for the full-service retail firms. A key factor behind the group s success has been their ability to build a team of top professionals. The retail firms have been aggressive at luring industry experts over to the retail side with lucrative incentive packages. The plump bonus and paychecks to attract and retain industry experts were not cheap and reflected in the group s higher expense account. WHAT NEXT? With one quarter down, what s in the pipeline for the industry? One thing for certain is that the base comparison for the second and third quarters will not be as high as this past first quarter. Activity was sluggish during the mid-year in 2, which will definitely lower the benchmark for the mid-2 yearly comparisons. What s less certain is the industry outlook. If this first quarter is any indication of future performance, the industry may be on a slower expansion path in the coming months. An increasingly tougher market will only add to the industry s current challenges. Earnings will likely remain under pressure while costs continue to drift up not an attractive scenario. Undoubtedly, a tighter squeeze on profits will impact firm performance and expansion. At this juncture, there are a few headwinds that suggest that the Canadian securities industry may continue to moderate in the coming quarters. 4 SECURITIES INDUSTRY PERFORMANCE

5 As we head into the summer season, we can expect a market lull as investors and activity typically take a bit of a break. However, despite the more casual backdrop, there is still a lot of uncertainty hanging over the markets. While investors may be on holiday, all eyes will continue to be focused on the fate of oil prices. With oil prices now back up to over $54 a barrel, oil remains a large wildcard for the markets. Meanwhile, interest rates and corporate profits will also be lurking in the back of everyone s minds. All this could keep the markets range-bound in the coming months until some uncertainties begin to lift. Finally, the small retail firm may experience increasing difficulty in recruiting staff. The number of professionals willing to jump ship from a large institution to a small retail firm could taper off under more difficult market conditions. The appeal of an entrepreneurial environment and golden incentive package may give way to the comforts of working for a wellestablished, large institution when times are less bullish. IAN RUSSELL, Senior Vice President Industry Relations and Representation irussell@ida.ca SHERRY HUM, Research Analyst Capital Markets shum@ida.ca SECURITIES INDUSTRY PERFORMANCE 5

6 MUTUAL FUND GROSS SALES AND REDEMPTIONS $ BILLIONS 5 REVENUE DISCOUNT FIRMS $ MILLIONS GROSS SALES REDEMPTIONS INTEGRATED FIRM HIGHLIGHTS Q / Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms 2-8% 2-8% 2 2 % 3-8% Number of Employees 24,2 24,494-2% 24,443 -% 24,494 24,547 -% 26,7-6% Operating Revenue 2,4 2,297 5% 2,372 2% 8,557 7,72 % 7,6 8% Commission % 962-2% 3,24 2,7 9% 2,74 -% of which: Mutual Funds % 272 6%, % 897-3% Investment Banking % 6 6% 2,25,996 %,68 9% of which: New Issues Equity % 424 7%,52,266 9% n/a n/a of which: New Issues Debt 7 2-3% 34-3% % n/a n/a of which: Corporate Advisory Fees % 42 95% % n/a n/a Fixed Income Trading % 7 4% % 678-4% Equity Trading % 2-69% % % Net Interest % 2 8% % 79 % Fees % 236 2%,9 85 2% 8 6% Other % 6-2% % 6 246% Operating Expenses*** % 797 8% 3,629 3,6 9% 3,27-6% Operating Profit % 895-9% 2,5 2,576-3%,629* 58% Net Profit (Loss) % 434-7%,82,25 -% 684* 78% Shareholders Equity 4,746 4,443 7% 3,736 27% 4,443 3,469 28% 3,93 9% Regulatory Capital,88 9,228 9% 8,545 8% 9,228 8,347 % 7,657 9% Client Cash Holdings 8,66 8,98 -% 8,365 2% 8,98 7,487 8% 6,52 6% Productivity ('s) % 388 3% % 274 6% Annual Return 3% 34% -4% 46% -6% 24% 35% -% 24% % percentage change shown in absolute values n/a: not available *excludes TSX proceeds of $69 million 6 SECURITIES INDUSTRY PERFORMANCE

7 INSTITUTIONAL FIRM Q / HIGHLIGHTS Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms % 63 2% % 52 2% Number of Employees 2,287 2,2 4% 2,86 % 2,2 2, % 2,7-2% Operating Revenue ** -7% 444-6%,568**,24 6%,34-6% Commission 34 2 % 34 % % 445-3% Investment Banking % 44 26% % 49 7% of which: New Issues Equity % 23% % n/a n/a of which: New Issues Debt 7 5 3% 7% % n/a n/a of which: Corporate Advisory Fees % 35 2% 6 46 % n/a n/a Fixed Income Trading 5 5 2% (6) -35% % 24 4% Equity Trading % 25-44% % 28 2% Net Interest % 23 4% % 67-37% Fees % 5 7% % 23 6% Other 33 34** -3% -7% 39** % 27-89% Operating Expenses*** % 38 3% % 553-8% Operating Profit ** -2% 246-9% 848** % 6* -7% Net Profit (Loss) 6 77** -2% 4-46% 39** 236 3% 94* 2% Shareholders Equity 3,6 3,6 % 2,84 8% 3,6 2,785 8% 2,979-7% Regulatory Capital 4,566 4,496 2% 4,737-4% 4,497 4,454 % 4,74 7% Client Cash Holdings % 483 % % % productivity ( s) ** -% 85-4% 73** 62-3% 642-3% Annual Return 8% % -2% 6% -8% % 8% % 4% -6% percentage change shown in absolute values *excludes TSX proceeds of $ million ** adjusted for transfer pricing and one-time extraordinary revenue n/a: not available RETAIL FIRM HIGHLIGHTS Q / Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms % 33-5% % 4-6% Number of Employees,,5 %,859 2%,5,96 -% 9,785 3% Operating Revenue % 572 5% 2,4,658 22%,332 24% Commission % 338-3%, 92 2% 79 28% of which: Mutual Funds % 9 6% % 3 -% Investment Banking % 68 4% % 96 % of which: New Issues Equity % 6 43% % n/a n/a of which: New Issues Debt 7 8-3% 5 4% % n/a n/a of which: Corporate Advisory Fees % 3-33% 4 5-7% n/a n/a Fixed Income Trading 2 9% 2 % % 67-9% Equity Trading % 26-4% % 54 33% Net Interest % 32 6% 25 9% 8 3% Fees % 7 23% % 25 8% Other % 24-8% % 99-5% Operating Expenses*** % 263 %,7 9 3% 842 8% Operating Profit % 9-4% % 34* 42% Net Profit (Loss) % 33-36% % (84)* 44% Shareholders Equity % 857 7% % 823 -% Regulatory Capital,33,384-4%,233 8%,384,6 9%,37 2% Client Cash Holdings 2,85 2,6 % 2,73 5% 2,6 2,544 2%,478 72% Productivity ( s) % 27 % % 36 4% Annual Return 9% 8% -9% 5% -6% 7% 4% 3% 9% -4% percentage change shown in absolute values n/a: not available *excludes TSX proceeds of $8 million SECURITIES INDUSTRY PERFORMANCE 7

8 DOMESTIC INSTITUTIONAL FIRM HIGHLIGHTS Q / Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms % 47 2% % 37 27% Number of Employees,534,445 6%,36 3%,445,29 2%,33-3% Operating Revenue % 276-9% 866** 64 35% 552 6% Commission % 72 4% % 23-6% Investment Banking % 96 29% % 62 6% of which: New Issues Equity 97-3% 76 28% % n/a n/a of which: New Issues Debt % 3-3% 9 8 3% n/a n/a of which: Corporate Advisory Fees % 7 5% % n/a n/a Fixed Income Trading 5 5 % 4 25% % 2 4% Equity Trading 27-59% 6-3% % 4 3% Other % 88-67% 54** 83 86% 25-34% Operating Expenses*** % 66 9% % 27 % Operating Profit % 52-6% 432** 28 54% 2* 3% Net Profit (Loss) % 83-68% 56** 5 3% 8* 25% Regulatory Capital,479,432 3%,464 %,432,4 2%,226 5% n/a: not available *excludes TSX proceeds of $6 million FOREIGN INSTITUTIONAL FIRM HIGHLIGHTS Q / Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms 6 6 % 6 % 6 6 % 5 7% Number of Employees % 725 4% % 76 -% Operating Revenue 67 99** -6% 68 -% 7** 6 7% 762-2% Commission 5 5 % 62-8% % 25 % Investment Banking % 48 23% % 248 -% of which: New Issues Equity % 23 7% % n/a n/a of which: New Issues Debt % 7 4% % n/a n/a of which: Corporate Advisory Fees % 8 % 92 % n/a n/a Fixed Income Trading na () 2% (7) 7-6% 4% Equity Trading % 9-67% % 4 7% Other 43 47** -9% 59-27% 28** 9 3% 83-9% Operating Expenses*** % 72-3% % 336-5% Operating Profit 96 22** -2% 94 2% 46** 37 36% 47* -25% Net Profit (Loss) 34 34** % 3 3% 53** 85 8% 76* 2% Regulatory Capital 3,88 3,65 % 3,273-6% 3,65 3,4 % 2,948 3% percentage change shown in absolute values * excludes TSX proceeds of $49 million **adjusted for transfer pricing and one-time extraordinary revenue n/a: not available 8 SECURITIES INDUSTRY PERFORMANCE

9 FULL SERVICE RETAIL FIRM HIGHLIGHTS Q / Q/Q Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms % 39-3% % 48-7% Number of Employees 6,24 6,42 -% 6,247-2% 6,42 6,93 -% 6,27 % Operating Revenue % 355 %,29,9 7% 9 4% Commission % 222-8% % 49 23% of which: Mutual Funds % 73 % % 28-5% Investment Banking % 43 2% % 5 49% of which: New Issues Equity % 37 24% 34 3% n/a n/a of which: New Issues Debt 5 6-7% 5 % 2 5 4% n/a n/a of which: Corporate Advisory Fees 2-5% 2-5% 9-8% n/a n/a Fixed Income Trading 7 6 7% 7 % % 34-6% Equity Trading 4 4 % 4% 3 3 % 42-29% Net Interest % 2 % % 53 28% Fees % 4 3% % 68-3% Other 9 -% -8% % 62-6% Operating Expenses*** % 57 4% % 554 2% Operating Profit % 6-4% % 5* 42% Net Profit (Loss) 9-47% 3-67% % (9)* 332% Shareholders Equity % 586 % % 587-4% Regulatory Capital % 793 2% % 746 -% Client Cash Holdings 2,227 2,3 9% 2, 5% 2,3 2, 2%,32 52% Productivity ( s) % 227 2% % 47 3% Annual Return 7% 2% -5% 2% -3% 7% 6% % 42% -8% percentage change shown in absolute values * excludes TSX proceeds of $8 million n/a: not available RETAIL INTRODUCER FIRM HIGHLIGHTS Q / Q / / ($ millions unless otherwise stated) Q 2 Q4 2 % ch. Q 2 % ch. 2 2 % ch. 2 % ch. Number of Firms % 94-2% % 93 -% Number of Employees 4,98 4,9 2% 4,62 8% 4,9 4,58 9% 3,658 24% Operating Revenue % 27 4% % 43 46% Commission 22 2% 6 5% % % of which: Mutual Funds % 36 28% % 82 9% Investment Banking % 25 72% 7 5% 45 56% of which: New Issues Equity % 23 74% % n/a n/a of which: New Issues Debt 3 2 5% nm 5 5 % n/a n/a of which: Corporate Advisory Fees % % % n/a n/a Fixed Income Trading 5 5 % 6-7% % 33-2% Equity Trading 2-8% 6-3% % 3 223% Net Interest 4 3 8% 27% % 28 32% Fees % 3 37% % 47 28% Other % 3 % % 37-32% Operating Expenses*** 9 % 6 4% % 288 2% Operating Profit % 3 32% % (7)* 42% Net Profit (Loss) 24-58% 3 233% 7 (3) 667% (65)* 88% Shareholders Equity % 27 8% % 236 % Regulatory Capital % 44 9% % 39 7% Client Cash Holdings % 6 3% % % Productivity ( s) % 88 6% % 8 8% Annual Return 3% 32% -9% 4% 9% 6% % 5% 25% -36% percentage change shown in absolute values * excludes TSX proceeds of $8 million n/a: not available SECURITIES INDUSTRY PERFORMANCE 9