Securities industry performance in the first quarter was driven by fixed-income trading and underwriting activities, according a report from the Investment Industry Association of Canada.

Both areas posted over a 40% increase in revenues from the previous quarter, the report notes.

“While the industry delivered positive results overall in the first quarter, much of the performance was concentrated in a few select business lines. The sudden turn in equity markets that transpired at the quarter’s end should bode well for the industry in Q2 and provide more balanced performance across the industry” said Jack Rando, director Capital Markets, Investment Industry Association of Canada.

The first quarter was characterized by economic weakness and an easing of monetary policy globally. Corporate spreads narrowed slightly from the levels of late 2008 on the back of stronger demand providing additional trading activity on dealer bond desks. Overall, industry operating revenue increased 10% on the quarter to total $3.6 billion, while operating profits doubled to $1.1 billion as a result of better cost containment and the absence of the large-scale writedowns taken in the fourth quarter of 2008. Moderate improvements in equity markets in the final weeks of the quarter also set the stage for a positive start to Q2.

The reports notes that investment banking and principal trading activities at member firms fared well in the first quarter, collectively contributing 40% of total industry revenues. Fixed-income trading desks experienced exceptional results in during the quarter, setting a new record high with $556 million earned in the period, up 44% from the fourth quarter of 2008 and more than double the level witnessed a year ago.

While equity trading only contributed $96 million to total industry revenue during the quarter, it still represented an 88% and 71% increase quarter-over-quarter and year-over-year respectively and achieved its highest level in nearly two years.

Underwriting activity was also noticeably higher. Debt issuance was particularly robust with over $46 billion in debt financing issued in the quarter, more than a 50% increase over the fourth quarter of 2008. Revenues from debt underwriting equalled $127 million, up 48% on a quarter-over-quarter basis. Equity underwriting revenues totalled $515 million, up 19% from the fourth quarter. Integrated firms continued to account for the lion’s share of the underwriting business, accounting for 67% of total industry underwriting revenues.

Retail revenues were the major setback for the industry during the quarter. Client commissions from integrated and retail firms were down 13% and 7% respectively on the quarter and 20% and 25% from the same period in 2008. Commissions and trailers from mutual funds were only down 7% on the quarter, but down a whopping 33% from the same period in 2008. Fee-based revenues, predominantly derived from professionally managed retail wrap programs, plummeted 17% on the quarter as 2008 portfolio valuations, on which most of these fees are based, were sharply lower. Client cash holdings topped $34 billion in the quarter, the highest level on record, signalling that many clients remain on the sidelines.

IE