A worker affixes a road sign to the intersection of Bay Street and Adelaide Street in the financial sector of Toronto July 14, 2014.© Chris Helgren / Reuters
Canaccord Genuity Group Inc. experienced one of its most dramatic trading sessions in recent memory on Friday.
Shares in the Vancouver-based independent brokerage firm traded down as much as 7 per cent early on – staged a brisk rebound mid-day -- and then ended the session up more than 3 per cent.
Investors were coming to grips with a staggering $346-million quarterly loss announced late Thursday -- Canaccord's steepest by far in its 12-year history as a publicly-traded company. Much of the hit came from from a $321-million goodwill writedown in the value of its capital markets business.
On Friday morning, Dan Daviau, Canaccord's chief executive officer only since October, had the unenviable task of trying to steady investors' nerves in a call with analysts.
"We are acutely aware that we are operating in a new reality" said Mr. Daviau minutes into the call.
The rookie CEO admitted that the company's vast geographic and business-line diversification afforded it little protection in the quarter that ended on Dec. 31.
Canaccord, he pointed out, was in the "awkward position" of having all markets going "in exactly the same direction" at the same time – i.e. way, way down.
Canaccord's approach to this "perfect storm" (as GMP Capital's CEO Harris Fricker calls the current environment) is similar to GMP's – cut costs and hope that the inevitable hit you take on revenue won't be too bad.
The bulk of the $30-million in cost-cutting measures over the next year will be in the form of human capital (125 people – or 7 per cent of its staff are being cut). Investment bankers, traders and analysts bring in money for the firm; fewer producers means less revenue.
The unprecedented loss at Canaccord comes amid a brutal operating environment for the entire industry that has seen key commodities like crude oil and base metals wallow in protracted bear markets, which in turn has crushed investment banking revenue at independent dealers. Last month, rival independent GMP Capital Inc. unveiled a drastic restructuring, including laying off one-quarter of its staff.
Canaccord's plan from here on in, is to no longer "try to be everything to everybody," with Mr. Daviau saying Canaccord will instead focus on six or seven sectors, such as health care, mining, and technology – and seek to "dominate."
Tellingly, Canaccord has added a few bodies here and there in recent months, including in mining – an area that unlike the moribund energy sector has shown some signs of life in mergers-and-acquisitions land.
Canaccord is also looking for new ways to cut costs and there's one potentially paradigm-shifting measure the company is contemplating: Canaccord has historically paid its investment bankers and senior management team according to the percentage of revenue they generate. Mr. Daviau says he is looking at moving to a model whereby senior managers are paid based on profit instead.
"Clearly the idea is for our senior managers to be aligned with our net income as opposed to our revenue and from a shareholders' perspective that seems a lot more shareholder-friendly" said Mr. Daviau.
Investment bankers will still be paid according to the amount of revenue they bring in, although that percentage will likely decrease in the next fiscal year, he said.
Mr. Daviau himself was one of the biggest beneficiaries of the old model. In 2014 he was paid $11.7-million, and a huge chunk of that was based on revenue he helped generate in online gambling M&A and advisory fees. Future investment bankers at Canaccord may not see those kinds of astronomical pay packets again.
Mr. Daviau has a long history on Bay Street and has lived through many rough cycles in the past -- having put in 27 years as an investment banker, first at CIBC World Markets Inc., then as a founder with Genuity Capital Markets and eventually with Canaccord Genuity (Canaccord bought Genuity in 2010).
In Oct. he took over the chief executive position -- 6 months after the sudden death of Paul Reynolds, Canaccord's long-time CEO.
"It certainly is demanding and certainly demanding in a market like this" Mr. Daviau said in an interview of the new job.
Niall McGee