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A sustained downturn in Canadian capital markets claims its first big foreign victim Friday, as Stifel Financial Corp. shuts down its Toronto and Calgary operations and lets go of 60 people.

Businesses such as stock underwriting and trading have plunged, eating away at profits for investment dealers in Canada – particularly smaller ones – and forcing some firms to close or merge.

The problem is that deep weakness in the commodity and resource sectors and volatile markets have sharply curtailed deal volumes and new public offerings for investment dealers. The S&P/TSX materials index has fallen 22 per cent in the past year and the energy index was flat, even as U.S. markets have soared to record highs. That poor showing has curtailed investors' interest in junior mining and oil and gas stocks, meaning that fewer resource companies are able to raise money.

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Eleven investment dealers merged, closed their doors, or announced plans to do so in the first half of 2013, the Investment Industry Association of Canada said. Ten firms closed in 2012.

Stifel Nicolaus Canada's departure is an ignominious end for what began as boutique dealer Westwind Partners, before a series of takeovers left it under the umbrella of St. Louis-based Stifel Financial. In 2007, Westwind sold to Thomas Weisel Partners Group for $150-million; a few years later, Stifel bought Weisel, including its Canadian operations, for about $300-million (U.S.). There was talk of ambitious expansion in Canada from Stifel, but it never came to pass and the operation was barely registering on the Canadian capital markets scene of late.

Stifel has been hurt by the mining downturn given its underwriting specialty in the sector, but the company gave up on Canada just after being announced as the co-lead on a $21-million tech financing for Halogen Software Inc.

Even by the standards of a struggling industry facing a deal drought, Stifel's Canadian investment banking operations were not bringing in anything close to what its peers were.

According to the IIAC, firms in Stifel Canada's line of business were bringing in about $600,000 per employee in revenue in 2012. And at that level, many were not profitable.

Stifel looks to have done about half that revenue per employee. In a filing Thursday that confirmed the closure Stifel said its Canadian operations generated net revenue of $18.8-million (U.S.) in 2012.

On a headcount of more than 60 people, that's only about $300,000 (Canadian) of revenue per employee, or half the average. (IIAC uses revenue in its calculations and Stifel uses net revenue, so the numbers are not perfectly comparable. But there's not much difference at Stifel between net and total revenue, which in recent quarters have been very close in absolute terms.)

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Stifel was far behind in most measures of success. Its trading desk handled less than one half of one per cent of total stock trading volume in Canada, by one estimate. In the first six months of this year, the firm had a 0.2-per-cent share of all new stock underwriting in Canada, ranking a distant 25th, according to Thomson Reuters figures.

While the impact on the market of Stifel's disappearance will be negligible, the psychological effect will likely be bigger. Stifel's closure represents the first sizable U.S. firm to give up on Canada in this market cycle. There has always been a trend among U.S. firms to show up in booms, and vanish in busts.

An optimist might suggest this is a sign of the bottom in the securities industry, but there may well be more pain to come.

"If small dealers…continue to fall away, Canadian capital markets will suffer serious consequences, both in terms of reduced competitive stimulus in retail and institutional markets, and less financing opportunities for small Canadian businesses," said IIAC head Ian Russell in a letter to the brokerage industry.

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