Recent Trends and Performance in Canada’s Securities Industry · Recent Trends and Performance in...
Transcript of Recent Trends and Performance in Canada’s Securities Industry · Recent Trends and Performance in...
Recent Trends and Performance in Canada’s Securities Industry
IIROC FAS ConferenceSeptember 2014
Key Observations
• Robust Canadian and U.S. equity markets• More active trading and financing• Increased demand for wealth management products and services
• Fee‐based revenue now largest retail revenue component
• Overall Improvement in industry revenue and profits• Welcome rebound in boutique earnings• Client AUM at record levels• Some margin pressures persist• Industry consolidation continues
2
Equity Markets
3
Source: S&P
TSX Venture Market
4
Source: S&P
TSX: 31%
Venture: ‐14%
Client Assets Under Management
5
$B
0
200
400
600
800
1000
1200
1400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Full‐service brokers
Online/discount brokers
Source: Investor Economics
77% increase
Assets in Equity Mutual Funds
6
$B
Source: IFIC
200
250
300
350
400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2011 2012 2013 2014
Secondary Bond Trading
7
$Tr
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013
Secondary Equity Trading
8
$Tr
0
0.5
1
1.5
2
2.5
2007 2008 2009 2010 2011 2012 2013
Debt and Equity Financing
9
$B
0
5
10
15
20
25
30
35
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2011 2012 2013 2014
Corporate Bond
Common Equity
Small Equity Financing
10
Deals < $20M
0
500
1,000
1,500
2,000
2,500
3,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2007 2008 2009 2010 2011 2012 2013 2014
$M
Operating Revenues and ProfitsIndustry
0
1
2
3
4
5
6
7
0
2
4
6
8
10
12
14
16
18
20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Operating Revenue Operating Profit $B$B
Revenue: +13%Profit: +42%
Revenue Breakdown
2013
12
Mutual Fund Commissions
14%Non‐MF
Commissions18%
Investment Banking19%
Fixed Income Trading10%
Equity Trading1%
Net Interest11%
Fees21%
Other6%
Integrated65%
Boutiques35%
2007
Revenue ShareIndustry Total Revenue
2013
13
Integrated74%
Boutiques26%
Integrated74%
Boutiques26%
2012
Profit Distribution
2013
2013 % change
Integrated $4,374M 36%
Institutional $860M 42%
Retail $160M 979%
14
Integrated81%
Institutional16%
Retail3%
Industry Operating Revenue and Profit
15
H1 2014/2013
$B
+21%
+48%
0
2
4
6
8
10
12
Op. Rev Op. Profit
H1 2013 H1 2014
Profits123 firms
Losses79 firms
2013
Profits117 firms
Losses89 firms
2012
Overall ProfitabilityNumber of Firms with Operating Profits and Losses
Profits169 firms
Losses37 firms
2007
16
IIROC Firms with Profits and Losses
17
# of Firms
0
20
40
60
80
100
120
140
160
180
J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M
2008 2009 2010 2011 2012 2013 2014
Profits
Losses
$B
Commission RevenueExcluding Mutual Fund Sales
2.73.0
3.43.5
4.0 4.1
3.73.4
3.7 3.7
2.93.1
1.7
0
1
1
2
2
3
3
4
4
5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014
$B
Mutual Fund Revenue
1.1
1.4
1.7
2.0
2.2
1.9
1.6
2.0
2.2 2.2
2.4
1.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014
Net Sales of Equity Mutual Funds
20
$B
Source: IFIC
‐6
‐4
‐2
0
2
4
6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2011 2012 2013 2014
21
$B
Investment Banking Revenue
2.7
3.1
3.64.0
4.5
3.1
3.9 4.0 4.0
3.6
3.2
2.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014
Composition of Investment Banking Revenue
22
Equity57%
Debt13%
Corporate advisory30%
2007
Equity46%
Debt29%
Corporate advisory25%
2013
Share of Investment Banking Revenue
23
Integrated v. Boutiques
58%61%
66%64%
69%
73% 74% 73%
42%39%
34%36%
31%
27% 26% 27%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 2012 2013 2014e
Integrated
Boutiques
Fee Revenue
24
$B
1.1
1.4
1.7
2.1
2.6 2.62.4
2.7
3.13.2
3.7
2.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014
Industry fee‐based revenue
Market Share
25
Integrated76%
Boutiques24%
2013
Integrated70%
Boutiques30%
2007
Fee‐based Revenue
26
Integrated v. Retail boutiques$M
Retained EarningsBoutique’s Share of Industry Total
27
35%
30%
25%
22%
14% 13%11%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2007 2008 2009 2010 2011 2012 2013
Net Interest
28
The Advantage of Scale
29
Operating Costs per Dollar Revenue
Industry Consolidation: IIROC Resignations*
30
* Resignations include amalgamations and acquisitions
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 H1 2014
Summary
• Competition in industry remains high• Diversified business lines• Soundly regulated
• Regulatory capital at historic high
• Demand for Canadian investment product strong internationally• Canadian dollar growing as a reserve currency
• Canadian Capital Market Infrastructure• Efficient clearing and settlement systems• Already well regulated further bolstered by new IOSCO Principles
31
Summary
• Boutique firms continue to face pressures:• Prolonged poor earnings• Wide dispersion in profitability • lack advantage of scale• Competition: Downstream from EMDs Upstream from
Integrated
• Changing investor demographics/preferences
• Significant technology and compliance fixed costs• CRM – gradual phase‐in of CRM requirements• FATCA – July 2014• Mutual Fund Point‐of‐Sale • OTC Derivative Reporting – July 2014• Debt Securities Transaction Reporting – pending• Fiduciary standard ‐ unknown
32
Summary
• Dealers benefit from improved markets & economy• Investor and issuer confidence improved• More active trading and financing
• Increased retail investor participation• greater demand for financial and estate planning and
retirement products and services• High cash holdings• Record AUM levels
• Capital raising for corporations and governments
• Strategic partnerships/amalgamations
33
IIAC Advocacy and
Member Support Initiatives
Staying Connected to the IIAC
• New and Improved Website Launched• Don’t forget to register for ‘Members Only’ section• Industry Job Board
• Revamped weekly electronic newsletter
• IIAC Blog
• IIAC conferences/events/seminars/webinars
• Participate on IIAC Committees or Working Groups
35