Canadian firms are winning back market share in domestic investment banking from their U.S. rivals according to a new study from financial services consulting firm Greenwich Associates.

The study notes that U.S. investment banks still lead such areas as cross-border mergers & acquisitions, but Canadian firms are dominating their domestic market, in part due to a retrenchment by their U.S. competitors.

Greenwich research also reveals that the strong showing of the Canadian firms is due to their willingness to lend money to domestic companies, and to client perceptions that the Canadian investment banks have sharply increased their own investment-banking prowess. “Qualitatively as well as quantitatively, they are as a group separating themselves from most if not all of the U.S. firms,” says Greenwich Associates consultant Jay Bennett.

With U.S. investment banks increasingly focusing on their most profitable and promising relationships, they have retrenched north of the border. “Since generally speaking Canadian companies have smaller market capitalizations than their U.S. counterparts, they tend to generate smaller fees,” explains Bennett. “And since covering them involves more time, coverage of proportionately more of them is being cut.”

Greenwich says U.S. investment banks have also been hurt by their inability or unwillingness to provide credit to Canadian companies. “Some of these companies are saying, ‘If you want to earn our underwriting or advisory business, you have to provide a significant share of our credit,’ ” notes Toronto-based Greenwich consultant Lea Hansen.

The survey reveals that domestic companies report seeing a marked improvement in the quality of service provided by Canadian firms in both M&A advisory services and in the capital markets.

Greenwich says that a far greater share of Canadian companies expect to tap the equity markets for additional capital in the next 12 months than their U.S. counterparts. A full 36% of large Canadian companies expect to issue common stocks, preferred stocks or income trusts in the next year, as opposed to just 12% in the U.S.

This continuing high level of issuance goes some way in explaining another important difference between the two equity markets: In the United States, 29% of companies have experienced a reduction in analyst coverage, while only 15% of Canadian companies reported a reduction.

In contrast to the strong expectations for equity issuance, only 34% of Canadian companies expect to make public bonds offerings in the next 12 months, versus 54% at this time last year. “Companies took advantage of the level of interest rates to fill much of their borrowing requirements for some time ahead,” says Hansen.

Greenwich Associates interviewed 204 chief financial officers, treasurers, and assistant treasurers at large Canadian companies for the report on Canadian investment banking.

It reports that Canadian corporate finance officials earned an average of $320,000 in total cash compensation in the last year. Salary levels for Canadian corporate finance executives rose nearly 8% over the past 12 months, to $220,000 from $210,000. Bonus levels last year averaged 50% of salary, but are expected to decline to 45% for 2003.