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Canada’s bank-owned investment dealers will cut bonus cheques to employees in the next few weeks.

It’s going to be a disappointing experience at most brokerage houses and a wake-up call for Bank of Nova Scotia, where strong credit relationships failed to translate into more lucrative assignments in stock sales and merger advice in the recently concluded fiscal year.

Performance-based pay will take a hit at bank-owned dealers, which ended their fiscal year on Oct. 31, because of falling revenues from equity underwriting and corporate bond sales, two of any investment bank’s most lucrative lines of business.

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“Even if relative performance remains unchanged or even improves at some banks, slower earnings overall give the dealers the opportunity to cut performance pay,” said Ian Russell, chief executive of the Investment Industry Association of Canada. “There may be some exceptions for the few strong performers. On the other hand, some investment banking teams may be hit hard.”

The value of stock sales by Canadian investment banks dropped 15 per cent to $27.8-billion in the 12 months ended Oct. 31, according to data compiled by Refinitiv. The new year is off to an inauspicious start, with the cancellation of a much-anticipated initial public offering from waste disposal company GFL Environmental Inc. that could have raised as much as $2.4-billion. Equity underwriting is a significant source of revenue for dealers, which typically charge companies a 4-per-cent fee to sell stock.

Morgan Stanley sold the most stock for Canadian clients, raising $4.9-billion in just five transactions, including financings for Shopify Inc. and Tim Hortons parent Restaurant Brands International Inc.

Canaccord Genuity Group Inc. was the busiest shop, leading 53 equity offerings that raised $1.3-billion.

Corporate debt underwriting declined by 6 per cent to $57-billion, with RBC Dominion Securities topping the Street’s league tables by selling $16-billion of bonds in 88 transactions.

One bright spot for bankers was merger and acquisition activity, where the value of transactions rose 17 per cent to $114-billion. TD Securities was the No. 1 deal maker, in part owing to a strong presence in energy-related M&A, advising on 24 transactions worth $40.1-billion. Private equity activity was also robust and revenues from these capital-hungry clients help offset the dealer’s declining profits from public markets.

“The financing trend had been down for the past couple of years,” Mr. Russell said. Domestic investment banking revenue declined by 19 per cent to $1.98-billion through the first eight months of this year, according to IIAC’s data. Mr. Russell said: “The dealers have been focused on paring back operating expenses in investment banking for some time, particularly as the near-term outlook for the business is poor with continued slow economic growth, depressed capital spending and no signs of imminent change in spending in the energy sector.”

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Equity underwriting and M&A activity was dominated last year by five of the six Canadian bank-owned dealers and a handful of independent and foreign firms.

Scotiabank was an outlier, as the one Canadian bank that finished well down the ranks in equity sales and M&A work. Scotiabank has long-established lending relationships across Corporate Canada and ranked fifth in both corporate loans, with roles in 144 issues, and in corporate bond underwriting, with 45 transactions. Credit market transactions typically come with lower profit margins than equity and M&A assignments, and banks attempt to cross-sell their services to maximize the fees they earn from corporate clients.

Scotiabank’s debt-based relationships did not translate into more lucrative work on stock sales and takeovers last year. The bank was the No. 9 player in equity underwriting, raising $733-million in 15 deals. The firm ranked seventh in equity underwriting in the previous year. In M&A advisory work, Scotiabank ranked 16th, with a role in 18 transactions. The previous year, the bank ranked fourth in M&A. Scotiabank declined to comment on the results.

Scotiabank CEO Brian Porter is a former investment banker with close ties to corporate clients; he used to run the equity capital markets group that oversees stock sales. Mr. Porter put new executives in charge of Scotiabank’s capital markets group this year, appointing Jake Lawrence and James Neate as co-CEOs. The pair spent the year rebuilding their teams, in part by recruiting senior bankers in a number of divisions from rival dealers. Scotiabank’s former head of investment banking, Dieter Jentsch, had a background in corporate lending and retired last December.

top banks for canadianl equity

Rank

No. of issues

Amount(C$ Billions)

Morgan Stanley

$4.9

5

CIBC World Markets

3.2

33

RBC Capital Markets

3.2

38

BMO Capital Markets

3.0

47

TD Securities

2.7

29

top advisers for m&a

Rank

Value incl. net debt (C$ Billions)

No. of deals

TD Securities

$40.1

24

BMO Capital Markets

33.7

28

Goldman Sachs

28.8

8

RBC Capital Markets

26.7

37

BoA Merrill Lynch

21.7

7

top banks for corporate debt

Rank

Amount (C$ Billions)

No. of issues

RBC Capital Markets

$16.1

88

CIBC World Markets

11.9

68

TD Securities

8.9

52

BMO Capital Markets

8.8

49

Scotiabank

6.7

45

top banks for loans

Rank

No. of issues

Amount (Billions of US$)

TD Securities Inc

$40.8

136

BMO Capital Markets

38.7

160

RBC Capital Markets

36.4

136

CIBC World Markets

36.2

137

Scotiabank

34.6

144

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: refinitiv

top banks for canadianl equity

Rank

No. of issues

Amount(C$ Billions)

Morgan Stanley

$4.9

5

CIBC World Markets

3.2

33

RBC Capital Markets

3.2

38

BMO Capital Markets

3.0

47

TD Securities

2.7

29

top advisers for m&a

Rank

Value incl. net debt (C$ Billions)

No. of deals

TD Securities

$40.1

24

BMO Capital Markets

33.7

28

Goldman Sachs

28.8

8

RBC Capital Markets

26.7

37

BoA Merrill Lynch

21.7

7

top banks for corporate debt

Rank

Amount (C$ Billions)

No. of issues

RBC Capital Markets

$16.1

88

CIBC World Markets

11.9

68

TD Securities

8.9

52

BMO Capital Markets

8.8

49

Scotiabank

6.7

45

top banks for loans

Rank

No. of issues

Amount (Billions of US$)

TD Securities Inc

$40.8

136

BMO Capital Markets

38.7

160

RBC Capital Markets

36.4

136

CIBC World Markets

36.2

137

Scotiabank

34.6

144

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: refinitiv

top banks for canadianl equity

Rank

No. of issues

Amount(C$ Billions)

Morgan Stanley

$4.9

5

CIBC World Markets

3.2

33

RBC Capital Markets

3.2

38

BMO Capital Markets

3.0

47

TD Securities

2.7

29

top advisers for m&a

Rank

Value including net debt (C$ Billions)

No. of deals

TD Securities

$40.1

24

BMO Capital Markets

33.7

28

Goldman Sachs

28.8

8

RBC Capital Markets

26.7

37

BoA Merrill Lynch

21.7

7

top banks for corporate debt

Rank

Amount (C$ Billions)

No. of issues

RBC Capital Markets

$16.1

88

CIBC World Markets

11.9

68

TD Securities

8.9

52

BMO Capital Markets

8.8

49

Scotiabank

6.7

45

top banks for loans

Rank

Amount (Billions of US$)

No. of issues

TD Securities

$40.8

136

BMO Capital Markets

38.7

160

RBC Capital Markets

36.4

136

CIBC World Markets

36.2

137

Scotiabank

34.6

144

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: refinitiv

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