Number of Canadian Securities Firms Lowest in 7 Years

The number of securities firms and employees in Canada shrunk to the lowest level in at least seven years as a capital markets slump sapped smaller brokerages of revenue, according to statistics from the Investment Industry Association of Canada.

Canada had 192 securities firms employing 39,380 people in the first quarter, down from 198 firms with 40,215 employees in the year-earlier period, the association said today in a report. That’s the lowest level since at least 2006, when the country had 198 firms employing 39,419 people.

“The industry has gone through a period of sustained weakness, which means firms are retrenching operations or actually restructuring,” Ian Russell, the association’s chief executive officer, said today in a telephone interview. “We’re going to see a continuation of that trend, probably through much of the remainder of the year.”

Canadian brokerages have been hit by reduced trading, stock sales and takeovers among resource companies, sapping revenue for those securities firms that rely on doing deals for mining and energy companies.

Casimir Capital Ltd.’s Adam Thomas said yesterday employees are buying 75 percent of the investment bank in Canada and will focus on the oil-and-natural gas industry while cutting jobs in its mining group. Casimir fired about 18 people across offices in Toronto, Calgary, New York and London, including a “significant chunk” of its mining group, said Thomas, who will be president and CEO of the Canadian entity.

Retail Brokerages

Smaller retail brokers have been hardest hit, as their investment banking revenue plunged by about a third from a year ago, according to IIAC statistics. A total 100 firms -- eight fewer than a year ago -- collectively had C$595 million ($566 million) in operating revenue and posted C$61 million in operating profit for the quarter, the association said.

Firms that serve institutional investors saw lower commissions and investment banking revenue, which tempered surging revenue from fixed-income and equity trading. A total 81 firms, which collectively shared C$578 million of revenue, had C$252 million in operating profit, down 16 percent from a year ago, the data show.

In comparison, Canada’s 11 larger integrated firms, which include those owned by the country’s six-largest lenders, generated C$3.19 billion in revenue between them and saw operating profit rise 14 percent to C$1.08 billion, according to IIAC.

“There are indications that we are beginning to see at least some modest improvements here through the rest of the year,” Russell said. “The retail business will pick up and sooner or later commodity markets are going to turn, and that will benefit Canadian markets.”

Trading Volume

Trading volume on the Toronto Stock Exchange for the first half fell 10 percent, while trading on the TSX Venture Exchange, the bourse dominated by junior resource companies, plunged 23 percent from a year ago, according to TMX Group Ltd. (X) monthly data released yesterday.

Equity financings in Canada for the first six months of the year declined 17 percent to $12.8 billion compared with the first half of 2012, according to Bloomberg data. Announced takeovers involving a Canadian company plunged 26 percent to $73.6 billion for the period.

More than a third of Canada’s so-called boutique firms had been losing money in the past two years, the IIAC estimated in April. Canada’s smaller firms saw revenue shrink by about a third to C$4 billion in 2012, down C$1.7 billion from 2006-2007 highs, mainly from falling brokerage commissions.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net

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