GMP Securities' Harris A. Fricker.Fernando Morales/The Globe and Mail
GMP Capital Inc. just can't break out of this funk.
For the third time in four quarters, the investment bank lost money on the back of feeble capital markets activity and a weak global economy.
The loss in the second quarter: $4.1-million. That isn't as bad as the $6-million loss in the third quarter of 2011, but it's still worse than the first quarter of this year – and now management is suggesting that staffing cuts could be in the works.
Because the losses are so persistent, the financial community is concerned about GMP's capital position. But chief executive officer Harris Fricker promises that his firm isn't in trouble. Its capital levels are "far in excess of what is needed to sustain the capital operating requirements of our business," he said on a conference call Friday, without specifying a particular number.
However, he did add that the firm needs less capital these days because the level of activity is so suppressed, demanding a "historically low" level of capital across the entire business.
In total, revenues fell to $63-million in the second quarter – down 7 per cent from the year prior – hurt by cautious client trading and soft equity underwriting activity. Strip out U.S. debt trading, and GMP posted a $12-million loss on its liability book last quarter after horrendous April and May months. Mr. Fricker referred to the environment early in the quarter as "certainly two of the most difficult months I've seen in my trading career."
Equity underwriting was also particularly weak, suffering from soft mining and oil and gas activity. Mining revenues fell to $16-million this quarter from $22-million earlier this year, and oil and gas revenues slumped to $9-million from $12.5-million in the first quarter.
However, there were a few bright spots in the results. Mergers and acquisitions fees spiked this quarter to $27-million – almost double the figure from the previous quarter. And GMP's high yield business was strong, benefiting from deals like Allied Nevada's $400-million debt offering.
Almost 50 per cent of revenues this quarter came from outside the traditional resource banking, and 43 per cent of revenues came from outside of Canada.
Still, the entire business is suffering. In 2010 and early 2011, total revenues typically exceeded $100-million, meaning current levels are significantly lower. For that reason, GMP is looking to make itself more efficient – but management wouldn't specify on just how it would go about doing that. One analyst asked if it meant job cuts, and Mr. Fricker wouldn't say no. "As far as operations go, we're looking at everything," he said.
Will things get better soon? Don't count on it. In his remarks, Mr. Fricker said the weakness is showing "no sign of abatement in the near term."
Tim Kiladze