Canada's biggest investment banks should be grateful for the scorching fixed-income markets, because without them they would be in rough shape.
The big bank-owned dealers have already reached the half-way mark of their fiscal year, which runs from November to October, and some of the traditional money makers such as underwriting and mergers and acquisitions advisory aren't churning out chunks of cash. And because the summer months are typically slower, it could be hard to make budget this year.
Chiefly: equity financings for stocks listed on the Toronto Stock Exchange, according to new data from TMX Group, are down almost 20 per cent from the first six months of the previous fiscal year. About $20-billion was raised in the first six months of the fiscal year, down from about $25-billion during the same period a year earlier.
On top of that, the word on Bay Street is that a number of deals that different dealers took risks on didn't pan out – which means the investment banks are either still sitting on the unsold stock and marking it at a deep loss, or they cut and run from the position and already took the hit.
The pace of new mergers and acquisitions has also slowed, with $79-billion (U.S.) worth of deals involving Canadian participants announced in the first half of the fiscal year, according to Bloomberg. That's down from $89-billion in the same period a year prior.
This slowdown has long been discussed in the context of the small dealers, who are largely resource focused, but the numbers show that investment banks of all size are affected. Though the pain doesn't hit all banks equally -- BMO Nesbitt Burns, for instance, put up strong profit in the first quarter -- on the whole it's looking a little bleak out there.
However, fixed-income markets are a saving grace. With interest rates still suppressed, Canadian companies continue to borrow money at a record pace, which helps to offset the slower business in other areas.
The past four months alone have been mind-boggling for new debt issues. Roughly $31-billion was raised by Canadian companies from January to April, according to Desjardins Securities, topping the astronomical sum of $27-billion during the same period a year prior.
(Tim Kiladze is a Globe and Mail Reporter.)
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