For the first time since 2000, the Canadian investment industry has recorded back-to-back gains in quarterly profits in the July-September period.

The Investment Dealers Association of Canada, in its quarterly publication, Securities Industry Performance, says third quarter operating profits rose 5% from the previous quarter to $877 million: profits for the first nine months are up 37% year to year..

The return of the retail investor allowed retail firms to improve third-quarter performance, Q3 profits more than doubled to $57 million, boosting profits for the nine months to September to $76 million and a turnaround from a loss in the same period a year earlier. A surge in commission revenues propelled their performance in the July-September period. Year to date, profits were recorded for this group, a turnaround from losses in the same period last year.

Integrated firms, those providing a full range of products and services to individual and corporate clients, managed a second straight increase in quarterly profits. Profits at integrated firms rose10% to $662 million in Q3. Profits in the first three quarters of nearly $1.8 billion were slightly higher than the $1.7 billion for all of 2002.

Higher revenues from commissions and new issue business more than offset weaker income from equity and fixed income trading in the third quarter this year. Profits for integrated firms in the first nine months of this year were up 60% from a year earlier and have already surpassed profits in all of 2002.

The IDA says new issue activity and equity sales helped keep revenues for firms dealing mainly with institutional clients at high levels in the third quarter. Canadian-based institutional firms recorded an over 50% increase in third-quarter revenues that led to a more than doubling in Q3 operating profits. Institutional firms recorded Q3 operating profits of $158 million, down from $209 million in the second quarter. However, profits for the first three quarters reached $464 million and, except for 2002, exceeded all previous full-year results.

There were some disappointments in the third quarter, however. Industry revenues from both equity and fixed income trading tumbled from the previous three-month period. With Canadian bond yields moving in sympathy with rising U.S. rates, revenues from fixed income trading were only half of the second quarter total.

Other highlights of the report:

  • Q3 commission revenues rose 11% from the previous quarter to over $1 billion. Mutual fund commissions were up 7%.
  • Investment banking revenues rose 11% to $694 million, reflecting buoyant new issues activity.
  • Q3 fixed income trading revenues dropped 46% quarter-to-quarter to $145 million; equity trading revenues fell 35% to $128 million.
  • Industry employment was stable in the third quarter from three months earlier but was down 4% in the year to September.
  • Client margin debt rose 6% to $7 billion at end-September from $6.7 billion at end-June.