Skip to main content

Canada’s banks closed the books on their financial year at the end of October, and when it comes to deal-making in their capital markets divisions, 2018 goes down as a year to forget.

The value of stock sales for Canadian companies dropped significantly over the past 12 months, and independent investment dealers grabbed a bigger slice of a smaller pie. The decline, which comes after a blockbuster year in 2017, is going to drain money out of the bonus pool that makes up the bulk of investment bankers' compensation.

Domestic equity offerings fell by 28 per cent in the year that ended Oct. 31, to $32.2-billion from $44.6-billion in the same period a year earlier, according to data compiled by Thomson Reuters Corp.

Drill down into the numbers, and the news gets worse for Canada’s six large bank-owned firms. They largely missed out on raising money for cannabis companies, and the sector was smoking hot. Bank-owned firms are only starting to do business with marijuana producers, primarily because of concerns with U.S. regulations. In contrast, the previous year featured large equity offerings from utilities and energy companies, clients with strong ties to the big banks.

TD Securities Inc. was the top domestic equity underwriter in fiscal 2018, with $4.4-billion of stock sales, according to Thomson Reuters. In fiscal 2017, the investment banking arm of Toronto-Dominion Bank ranked second, with $7.7-billion in sales, so year over year, the dealer’s equity sales business dropped by 42 per cent.

TD was in on 48 deals over the last 12 months, compared to 61 the previous year.

The same trend is true for Royal Bank of Canada’s capital markets unit, which ranked second in fiscal 2018 and first the year before in Canadian equity underwriting. RBC sold $2.8-billion of stock in the past 12 months, down from $9.7-billion the previous year. RBC worked on 36 equity financings last year, compared to 59 offerings the year before. As a rule of thumb, domestic investment banks take a 4-per-cent fee on stock sales.

Canaccord Genuity Group Inc., the largest independent investment dealer, saw the value of deals it worked on double over the past 12 months, to $2.3-billion. The firm has strong ties to cannabis companies and advised on a total of 77 equity offerings. No other dealer did more than 50.

Cannaccord, which is scheduled to report financial results on Tuesday, ranked fifth over the past 12 months for equity underwriting, ahead of Bank of Nova Scotia and National Bank of Canada. Over the past year, Canaccord’s stock price is up 59 per cent.

The bright spot for investment banks over the past 12 months was merger-and-acquisition activity, with the value of deals involving Canadian companies rising by 28 per cent to US$272-billion, according to Thomson Reuters.

However, many of the biggest takeovers were done outside the country, with Brookfield Asset Management Inc.'s US$15-billion acquisition of Chicago-based mall owner GGP Inc. ranking as one of the largest takeovers. Global investment banks Goldman Sachs Group Inc. – an advisor to GGP – Citigroup Inc. and Morgan Stanley ranked first, second and third in advising on global M&A that had Canadian companies involved. RBC was the top Canadian bank on M&A, advising on US$70-billion of transactions.

In fiscal 2017, after a strong showing in equity underwriting, Canada’s six big banks handed out a total of $14.3-billion in performance pay, up 11 per cent from the previous year, according to regulatory filings. RBC, which has the largest capital markets platform among Canadian banks, increased its bonus pool by 14 per cent to $5.2-billion.

This year, the steep decline in fees from equity underwriting, along with M&A activity that was dominated by global firms, will cut into profits from capital markets operations at the six large banks. The banks begin reporting results for fiscal 2018 at the end of the month and typically hand out performance pay to dealmakers in early December. Lower investment banking profits can only mean smaller bonus cheques are coming this year on Bay Street.

Top 10 banks for Canadian equity sales

In millions of dollars, by fiscal year

Bank 2018 proceeds ($) 2017 proceeds ($)
TD Securities Inc. 4,435.1 7,691.0
RBC Capital Markets 2,793.2 9,681.6
BMO Capital Markets 2,751.9 6,245.9
CIBC World Markets Inc. 2,539.0 3,375.5
Canaccord Genuity 2,308.2 1,197.5
Scotiabank 2,038.1 1,987.9
National Bank of Canada Financial 1,749.0 2,022.8
GMP Capital Corp. 1,589.1 782.6
Morgan Stanley 1,191.3 645.3
Credit Suisse 1,103.6 608.1

Source: Refinitiv

Top 10 banks for Canadian M&A

In millions of U.S. dollars, by fiscal year

Bank 2018 value ($) 2017 value ($)
Goldman Sachs & Co. 113,783.0 38,256.0
Citi 86,275.8 17,482.4
Morgan Stanley 74,225.1 15,570.6
RBC Capital Markets 70,069.4 31,643.8
TD Securities Inc. 58,207.8 43,570.7
Barclays 53,624.5 28,018.0
Bank of America Merrill Lynch 51,293.6 31,748.9
Scotiabank 49,950.0 20,303.7
BMO Capital Markets 45,963.8 23,198.5
Deutsche Bank 45,430.1 N/A

Source: Refinitiv

Note: Value includes net debt of target

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 4:00pm EDT.

SymbolName% changeLast
Thomson Reuters Corp
Thomson Reuters Corp
Toronto-Dominion Bank
Royal Bank of Canada
Royal Bank of Canada
Canaccord Genuity Group Inc
Bank of Nova Scotia
Bank of Nova Scotia
Brookfield Asset Management Ltd
Brookfield Asset Management Ltd
Goldman Sachs Group
Citigroup Inc

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe