Financial services companies, on the whole, saw earnings improve in the fourth quarter of 2009, with most posting net profits and showing significant improvements by other measures. These results mark a trend of steady recovery over the past year.

Only eight of 47 publicly traded firms surveyed were in a loss position in Q4 2009. That compares favourably with 14 of 49 in Q3; 10 of 51 in Q2; 18 of 48 in Q1; and 25 of 49 in Q4 2008. Sixteen companies had earnings gains vs the same period the year before, and 18 reported a profit vs a loss. Just six had an earnings decline. (Earnings in the table exclude unusual or non-recurring items that aren’t part of normal business, such as restructuring.)

The fourth quarter of 2008 was indeed rough on the financial services industry. The 49 companies as a group were in a loss position to the tune of $703.8 million. This included particularly large losses in the quarter for three companies: Manulife Financial Corp., in the red by $1.9 billion; Sun Life Financial Inc., with a loss of $679 million; and Power Financial Corp., whose results include those of Great-West Lifeco Inc., had a loss of $986 million. If these three are excluded from the Q4 2009 survey, there was a 90.5% increase in net income for the remaining companies vs Q4 2008.

Nevertheless, earnings aren’t back up to previous highs. The financial services sector’s Q4 2009 total earnings of $8.1 billion are significantly below the $9 billion reported in Q3 2009, the $9 billion from Q2 2007 and the $9.1 billion in Q4 2006.

The 47 companies surveyed for Q4 2009 exclude three firms in the table whose results are consolidated with others surveyed: GWL and IGM Financial Inc., which are majority owned by Power Financial; and DundeeWealth Management Inc., which is majority owned by Dundee Corp.

Companies whose results deteriorated in Q4 2009 include Xceed Mortgage Corp. and TMX Group Inc. — both of which had losses vs net income in Q4 2008 — and Fairfax Financial Holdings Ltd., which saw earnings fall to US$79.4 million from US$346.8 million.

Xceed is making a transition to writing only insurable mortgages but is still weighed down by the uninsurable mortgages on its books.

TMX had a non-cash impairment charge of $77.3 million for subsidiary Boston Options Exchange Group LLC due to a “decline in the level of activity in the highly competitive U.S. equity-option market.” Without this decline, earnings would have been up by 3.1%.

Fairfax’s loss of US$30.3 million on its investment portfolio this quarter contrasts with gains of US$681 million in Q4 2008. But this loss isn’t alarming; the firm’s focus is on investment management and its active trading results in volatility. Fairfax did extremely well during the credit crisis and the bear market as a result of buying credit-default swaps before the crisis began.

Most companies maintained their dividends, but there were two exceptions: AGF Management Ltd. increased its dividend to 26¢ from 25¢; and Dundee Wealth doubled its dividend to 70¢ from 35¢.

Here’s a closer look at the sectors:

> Banks. The group as a whole had the highest earnings ever, at a combined $5.6 billion. That was up by 69.4% from a year earlier but could have been higher — Q4 2009 was a quarter in which many of the companies had to take writeoffs and other charges related to the credit crisis.

Among the Big Five, Toronto-Dominion Bank posted record profits. But Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada were all near previous highs.

Among the mid-sized banks, HSBC Bank Canada was also near record highs, while National Bank of Canada was appreciably below quite a few previous quarters, although not drastically. Laurentian Bank of Canada’s earnings were below those in the previous quarter but higher than all other previous quarters.

Besides Xceed, Firm Capital Mortgage Investment Trust saw an 11.8% drop in net income, and Pacific & Western Credit Corp. reported a slight loss of $1 million, but that was an improvement over Q4 2008. The other 13 firms in the category had increased earnings.

Among the smaller deposit-taking institutions, Canadian Western Bank, Equitable Group Inc., First National Financial Income Fund and Home Capital Group Inc. all had record earnings. Cash Stores Financial Services Inc.’s net income is more uneven but only because its rapid expansion can be a drag on earnings.