Bank of Nova Scotia, the top arranger of Canadian stock sales for the first time since at least 2000, is poised to reap Bay Street's biggest investment-banking revenue gains this year as Canadian lenders collect record fees from a surge in energy deals.
Scotiabank had the biggest jump in revenue from advising on takeovers and arranging financings among the six biggest Canadian banks, based on disclosures and analysts' estimates for the fiscal year. Investment-banking fees for the Toronto-based firm rose at least 40 per cent to more than $700-million, estimates compiled by Bloomberg show, on deals with companies including Fortis Inc., Manulife Financial Corp., Verasen Inc. and Baytex Energy Corp.
"It's kind of icing on the cake," said Anil Tahiliani, who manages about $1.1-billion including Scotiabank shares at McLean & Partners Wealth Management Ltd. in Calgary. "It's nice because it's a division that in the past hasn't contributed as much."
Scotiabank was the top underwriter for Canadian stock sales for the first time in at least 14 years and ranked No. 2 among domestic firms for advising on Canadian takeovers, according to data compiled by Bloomberg based on the year ended Oct. 31. Royal Bank of Canada, with the largest capital-markets operation among the lenders, kept its No. 1 ranking for advising on takeovers and handling corporate bond sales, while Toronto-Dominion Bank took top spot for managing debt sales of governments.
A surge in energy deals helped lift fees to new heights, boding well for Canadian bankers anticipating bonuses next month. Gains in incentive compensation at the six Canadian lenders are set to surpass last year's 5.2 per cent increase, based on company disclosures for the first three quarters. Firms led by Royal Bank and Toronto-Dominion set aside $9.4-billion for bonuses through July 31, up 14 per cent from a year earlier.
The largest Canadian banks pay bonuses in December after reporting fourth-quarter results. Bank of Montreal kicks off earnings season Dec. 2, with the five other large lenders reporting that week. Scotiabank, which has said it will record a $341-million charge in the quarter, reports on Dec. 5.
Scotiabank is the worst performer among Canada's six largest lenders this year, gaining about 4 per cent, compared with the 13 per cent advance of the eight-company Standard & Poor's Commercial Banks Index. National Bank of Canada is the top performer, at about 25 per cent, followed by Bank of Montreal, CIBC, Royal Bank and Toronto-Dominion.
The six banks will post an average 6.8 per cent increase in net income for the quarter ended Oct. 31 from a year earlier, according to Peter Routledge, an analyst with National Bank Financial in Toronto.
"The fourth quarter will close out what has been a very strong year for capital markets revenue for the Canadian banks," said Sumit Malhotra, an analyst with Scotia Capital in Toronto. "Stable market conditions and healthy corporate balance sheets creates a favourable environment" for mergers and acquisitions, he said.
The six banks will post a record $4.7-billion from investment-banking fees for this year, according to Mr. Malhotra. Those fees rose 20 per cent to $3.46-billion for the first nine months, according to bank disclosures.
"We expect that 2015 will be a tougher year for investment-banking revenue," Mr. Malhotra said. "The downside volatility seen in both equity markets and commodity prices in the past two months has resulted in a noticeable slowdown in new issue activity."