By Tim Kiladze
Worried about your bonus? Don’t be. At least not if you work for the country’s biggest investment banks.
The dominant attitude today is that things are looking rough, but dig through the first few sets of quarterly financials for the country’s big investment banks and you’ll get quite the different picture. Royal Bank of Canada (RY), Toronto-Dominion Bank (TD) and Bank of Montreal (BMO) have all reported, and all three of their capital markets arms had great quarters.
At RBC Dominion Securities, net income hit $449-million, up $43-million, or 11 per cent, from a year ago. At TD Securities, profit jumped to $197-million, up from $188-million last year. And at BMO Nesbitt Burns, net income of $226-million was on par with the second quarter of 2011.
To really understand how impressive those numbers are, keep in mind that the second quarter of 2011 was smoking hot from the commodity super cycle revving up.
The recent numbers have been propped up by strong mergers and acquisitions activity, particularly at TD and RBC, solid underwriting fees, and believe it or not, better trading activity, which has been a dog for most capital markets arms over the past little while.
TD is even doing so well that its expenses in the first two quarters of 2012 have jumped by $47-million, or six per cent, compared to the same period last year because its paying out more in compensation on the back of stronger investment banking revenue. The bank’s underwriting and advisory fees hit $123-million last quarter, the highest total in six quarters.
While these results are surprising enough, they’re even more shocking relative to the weak performances put up by the independent brokerages that are getting hammered by rough resource prices. As we pointed out in our weekend piece, the dearth of mining deals in particular has hammered the likes of GMP Securities and Canaccord Financial (CCORF.PK). A key stat: mining revenue at GMP, the dealer’s biggest sector by far, has slumped to just $71-million over the past four quarters, less than half of the $144-million earned in the previous four.
The boutique shops are reeling too, contributing to this shocking stat: about 40 per cent of institutional investment banks were in the red in 2011, according to the Investment Industry Association of Canada.
As for the remaining three Big Six banks, they report later this week, so the trend could change. But even three of them doing well is enough to lift some spirits.