Earnings for firms in the Canadian securities industry fell sharply in the first quarter due to difficult market conditions, according to a report released today by the Investment Industry Association of Canada (IIAC).

The report, called “Securities Industry Performance” showed operating revenues fell 9% and operating profits fell 15% in the first quarter and 14% and 37% respectively year over year.

“Industry performance was adversely impacted in the first quarter by steep declines in equity markets in response to widespread and significant write-downs by global banks early in the quarter and uncertainties in the economic and financial outlook,” reads the report.

Investment banking revenues, which fell 34% on the quarter, lead a broad-based decline in most of the industry’s main business lines, according to the report.

The IIAC report notes that wealth management revenues were also negatively impacted as investors “pulled to the sidelines in the wake of sliding stock prices and stepped-up volatility.” Most significant, it notes, was the decline in revenues earned from fee-based accounts, where revenues fell nearly $100 million, or 12%, from the previous quarter.

While equity trading increased 51% from the previous quarter, it was still down 80% and 81% from the same periods in 2007 and 2006 respectively, as volatile equity markets resulted in one of the worst three-month performances for global indices in recent years.

According to the new report, principal trading in fixed income products generated
$247 million in revenues in the first quarter compared to just $95 million the previous period. “Gains from fixed income trading cushioned the fall as dealers positioned themselves to benefit from declining rates,” it reads.

The underwriting business weakened as well, as a result of reduced financings. According to the report, total equity issuance in Canada fell to $10.8 billion, down 23% from the final quarter of 2007 and 35% from last year, as volatile market conditions and lingering liquidity concerns dampened investor and issuer confidence in the new issues market.

“The downturn comes as little surprise given the sharp collapse in share prices, perceived vulnerabilities in the global financial system and uncertainties in the economic and financial outlook,” said Ian Russell, president and CEO of the IIAC. “Industry fundamentals are sound. Business conditions for the securities industry will strengthen as credit and economic conditions recover and confidence in the markets is restored.”