Financial services companies had healthy earnings in the first quarter. In fact, the total earnings for the 47 publicly traded companies in Investment Executive’s quarterly profit survey totalled $8.9 billion — just shy of the two best quarterly earnings figures seen in the second quarter of 2009 ($9 billion) and Q2 2007 ($9.2 billion).

The 47 companies exclude three firms whose results are consolidated with others in the survey: Great-West Lifeco Inc. and IGM Financial Inc.,both majority-owned by Power Financial Corp.; and DundeeWealth Inc. , which is majority-owned by Dundee Corp.

Twenty-four of the 47 companies had higher net income vs Q1 2009, and 12 reported a profit vs a loss. However, this doesn’t indicate very strong earnings growth; rather, it represents a return to previous profitability levels. In fact, Q1 2009 was a very weak quarter for financial services companies, as they took charges related to the credit crisis that resulted in total net income for the group of just $1.1 billion.

Of the remaining firms, three had declines in earnings in Q1 while eight were in a loss position. Those with losses included GMP Capital Inc. , which had big impairment charges of $76.1 million related to wholly-owned subsidiary EdgeStone Capital Partners LP, a private-equity firm it bought in 2006, resulting in an overall loss of $62.4 million.

Matrix Asset Management Inc., a new company resulting from the Jan. 15 merger between Seamark Asset Management Ltd. and GrowthWorks Ltd., also had a loss. The company also owns Mavrix Fund Management Ltd., acquired by GrowthWorks in June 2009.

Also with losses were Pacific & Western Credit Corp. and Stone Investment Group Ltd., which are still building their businesses; EGI Financial Holdings Inc. , a property and casualty insurer that had a large underwriting loss due to escalating auto claims costs in Ontario and poor claims experience in some niche lines; Integrated Asset Management Corp., a provider of alternative investments that currently aren’t in great favour; Thomas Weisel Partners Group Inc. , a U.S.-based investment bank that has struggled since it acquired Westwind Capital Corp. and started trading on the Toronto Stock Exchange in September 2008; and Coventree Inc. , which has been forced out of business by the credit crisis.

The three companies with declines in net income were Cash Store Financial Services Inc., Firm Capital Mortgage Investment Trust and Sprott Inc. Cash Store’s results were dragged down by the costs of a class-action lawsuit, which has been settled; without these costs, the company, which is in expansion mode, would have had earnings of $4 million, up by 29% from $3.1 million in Q1 2009.Firm Capital, for its part, has decreased its mortgage portfolio as it focuses on core markets that could be monitored closely during this period of evolving economic conditions. And although Sprott’s assets under management were up by 9.1%, there weren’t any performance fees in Q1 2010 vs the $1.8 million in Q1 2009.

Regarding the other companies, not all are back to previous earnings levels — notably Great-West, Sun Life Financial Inc. , the big mutual fund/investment companies and the brokerages, all of which are in sectors that were particularly affected by the credit crisis and the turmoil in equities markets.

Most firms that pay quarterly dividends have maintained them at their current levels, but there were a few increases — including those of Intact Financial Corp. (rising to 34¢ a share from 32¢) and AGF Management Ltd. (to 26¢ vs 25¢).

A closer look at the sectors:

> Banks. Eleven deposit-taking institutions had earnings gains, and Royal Bank of Canada reported a profit vs a loss a year earlier. The group had a $1.2-billion reduction in loan-loss provisions, to $1.9 billion from $3.1 billion a year earlier.

The Big Six banks all reported strong Canadian personal and commercial results and gains in capital markets. Among the three with big U.S. operations, Toronto-Dominion Bank’s U.S. net income was up, Bank of Montreal’s U.S. net income was down and RBC reported a smaller loss in its U.S. operations. (BMO has picked up certain assets and liabilities of an Illinois bank.) Bank of Nova Scotia’s international operations were also down, but only by a little.
@page_break@For banks that break out wealth management, BMO’s and TD’s earnings were up while National Bank of Canada’s and RBC’s were down. RBC’s insurance operations also had lower net income.

BMO and Scotiabank had record earnings in the quarter. TD’s net income was below that of the previous quarter’s, but higher than that of any other. RBC’s earnings were not only below that of the previous quarter but also lower than those of six of the eight quarters in the August 2006 to July 2008 period. Canadian Imperial Bank of Commerce’s net income was lower than in the May 2006-July 2007 quarters. National Bank’s net income was higher than that of all previous quarters except for May-July 2009. And Laurentian Bank of Canada’s net income was higher than in all but its previous three quarters.

> Life Insurers. Manulife Finan-cial Corp. and Sun Life bounced back to profitability, but Sun Life’s net income was below the levels it saw between Q2 2004 and Q2 2008. Sun Life’s quarterly report mentions new business strain in the U.S. and Asia. Manulife’s earnings, however, were higher than in any quarter except Q2 2009.

Great-West and Industrial Alliance Insurance and Financial Services Inc. saw good earnings gains, but only IA is back to around previous highs. Great-West’s net income is below that of not only Q3 2009 but also those of 11 of the 13 quarters between Q2 2005 and Q2 2008. Great-West’s U.S. mutual funds, which continued to struggle after it bought Putnam Investments LLC in 2007, are still in net redemptions, while Sun Life’s and Manulife’s U.S. funds are posting net sales.

> Property And Casualty Insurers. The P&C market has been a challenging one for several years, but the mild weather this past winter resulted in decreased claims, helping to offset fast-rising medical-related costs for auto accidents for those insurers operating in Ontario. However, only Intact had an underwriting profit in this quarter, as witnessed by its combined ratio. New Ontario regulations, which come into effect in September, will help this sector.

For all P&C insurers but EGI, much improved investment income offset the underwriting losses. A firm with major question marks is Kingsway Financial Services Inc.,which has had to exit some major U.S. business and had sold off its Canadian operations this past January. It has new management.

> Mutual Fund And Investment-Management Companies. Six of the 12 companies had higher earnings, while Brookfield As-set Management Inc.and Dundee-Wealth reported profits vs losses in the same period a year prior. (It must be noted that Brookfield has moved to the new international financial reporting standards a year earlier than required. This substantially affects balance sheets and income statements, making it hard to compare Brookfield’s results with those of its peers.)

Integrated Asset Management Corp. was the only firm in this sector to have a drop in AUM — but only by 2.4%.

Among the four big independent mutual fund companies, only DundeeWealth and CI Financial Corp. are experiencing consistent net sales. AGF remains in net redemptions, as does IGM’s Mackenzie Financial Corp. Meanwhile, IGM subsidiary Investors Group Inc.’s funds went back into net redemptions after positive net sales in the previous quarter.

> Distributors And Suppliers. Four companies had increased earnings, and Oppenheimer Holdings Inc. reported a profit vs a loss a year earlier.

Canaccord Financial Inc. ’s integration of Genuity Capital Markets, acquired April 23, was completed on May 10. Canaccord’s capital-markets division has been rebranded as Canaccord Genuity Corp.

Thomas Weisel has announced a merger with U.S.-based Stifel Financial Corp. to create “a premier mid-market investment bank with exposure to all sectors.”

The brokerages are cautious about the future. Canaccord says uncertainty about government legislation and additional taxation could mean that “turbulence in fiscal 2011 (ending March 31) may be the norm” in financial markets. GMP expects the U.S. economic recovery to be more modest and will take more time than has been expected.

> Exchanges. TMX Group Inc. has successfully completed the first phase of its new infrastructure.

> Holding Companies. Dundee and Power Financial’s results reflect those of their subsidiaries.

Desjardins Group’s performance was enhanced by strong growth in trading revenue, an increase in the fair value of restructured asset-backed term notes, outstanding P&C results, and good life and health insurance and annuity contracts.

IE