A recovery in global equity markets and a rebound in demand for mutual funds contributed to a strong jump in profits for the securities industry in the third quarter of 2009, the Investment Industry Association of Canada has reported.

For the three months ended Sept. 30th, the industry pulled in operating revenue of $4.03 billion, up 5.3% from the previous quarter and up 13.1% from the same quarter last year. Net profit for the quarter was $798 million, up 9.8% from the previous quarter and up 37.6% from the third quarter of 2008.

Industry revenues from mutual funds increased 10% during the quarter as investor appetite for long-term mutual funds increased. However, investors demonstrated a conservative approach by flocking to bond and balanced funds as opposed to pure equity funds, according to the IIAC.

Rising portfolio valuations also impacted fees on discretionary managed accounts and wrap programs and contributed to an 8% increase in industry fee-based revenue during the quarter.

Retail firms brought in operating revenue of $576 million in the third quarter, up 0.2% from the second quarter and up 4% from the same period last year. Profits rebounded to $9 million from a loss of $41 million in the third quarter of 2008.

The IIAC noted that integrated firms continue to outperform both the institutional and retail boutiques, reflecting their dominant positioning in the strong performing underwriting and trading businesses. On a year to date basis, operating profits at integrated firms are up 33%, compared to declines of 7% at the institutional dealers and 48% at the retail dealers.

Investment banking revenue increased by $129 million or 15% during the third quarter, including a 10% increase from equity underwriting revenues and a doubling of revenues earned from corporate advisory services.

A revitalized market for initial public offerings helped bolster equity underwriting activity, with $1.5 billion in IPOs recorded for the quarter, marking its largest quarterly issuance since the fourth quarter of 2007.

The private placement market for common equity offerings was also strong, up 26% from the previous quarter. Demand for corporate advisory services benefited from an increase in corporate merger and acquisitions.

Equity trading desks seized opportunities presented by the market rally and earned $267 million for the quarter, their highest level since the first quarter of 2007.

While the industry’s equity business lines flourished during the third quarter, the fixed income businesses could not keep up the momentum that they built in the first two prior quarters. Debt underwriting revenues were down 24% on the quarter while fixed income trading revenues fell 14%.

Through the first nine months of 2009, industry revenues are up only marginally from 2008’s level but profits are up an impressive 19% as a result of strong second and third quarter performance and continued cost containment efforts within the industry.

IE