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Recent Trends and Performance in Canada’s Securities Industry
IIROC FAS Conference
Whistler, British Columbia
September 2015
Key Observations
• 2014: Broad-based improvement in industry revenue and profits
• Welcome rebound in boutique earnings
• Active trading and financing despite depressed stock market and commodity valuations
• Client AUM at new record levels
• Increased demand for wealth management products and services
• Margin pressures persist
• Current headwinds pose challenges
2
Real GDP Growth
3
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2011 2012 2013 2014 2015
Source: Statistics Canada
Commodity Price Index
4
Source: Bank of Canada
-49%
Oil Prices and Canadian Dollar
5
Source: Bank of Canada, Federal Reserve
-64%
-20%
Gold price
6
Source: Deutsche Bundesbank
-40%
Equity Markets
7
Source: S&P
-1%
-12%
TSX Venture
8
Source: S&P
-48%
-12%
Operating Revenue and Profit Industry
$M
$20,000M +15%
$6,951M +29%
Operating Profit
10
$M
Integrated v. Boutiques
$5,293M +21%
$1,657M +62%
Profit Distribution
2014 % change
Integrated $5,293M 21%
Institutional $1,294M 50%
Retail $363M 126%
11
Integrated 76%
Institutional 19%
Retail 5%
2014
0
2,000
4,000
6,000
8,000
10,000
12,000
Op. Rev Op. Profit
1H 2014 1H 2015
Industry Operating Revenue and Profit
12
1H 2015/2014
$M
+3%
-5%
Profits 123 firms
Losses 79 firms
2013
Overall Profitability Number of Firms with Operating Profits and Losses
Profits 169 firms
Losses 37 firms
2007
13
Profits 116 firms
Losses 59 firms
2014
14
Overall Profitability Number of Firms with Operating Profits and Losses
IIROC Firms with Profits and Losses
15
# 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 J S N J M M
2008 2009 2010 2011 2012 2013 2014 2015
Profits
Losses
IIROC Dealers by Revenue
16
0
5
10
15
20
25
30
35
40
45
Greater than $1B Greater than $100M Greater than $10M Greater than $5M Less than $5M
Source: IIROC Annual Report 2014-2015
Based on 185 IIROC Members reporting revenue between April 1, 2014 – March 31 2015
Percentage of Firms
40%
14%
35%
8%
3%
Commission 29%
Investment Banking 19%
Fixed Income Trading
8%
Equity Trading 1%
Net Interest 15%
Fees 23%
Other 5%
Revenue Breakdown
2014
17
Integrated 65%
Boutiques 35%
2007
Revenue Share Industry Total Revenue
2013
18
Integrated 74%
Boutiques 26%
Integrated 73%
Boutiques 27%
2014
$M
Commission Revenue Excluding Mutual Fund Sales
4,029 4,066
3,732
3,447 3,681 3,660
2,942 3,081
3,224
1,539
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015
+5%
Secondary Equity Trading
20
$Tr
1
1.5
2
2.5
2007 2008 2009 2010 2011 2012 2013 2014
$2.3Tr +16%
Secondary Bond Trading
21
$Tr
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013 2014
$10.8Tr +76% since 2009
$M
Mutual Fund Revenue
1,966
2,249
1,860
1,605
1,950
2,156 2,175
2,435 2,576
1,450
0
500
1,000
1,500
2,000
2,500
3,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015
+6%
23
$M
Investment Banking Revenue
3,950
4,546
3,077
3,915 4,029 3,977
3,565
3,191
3,793
1,884
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015
+19%
Composition of Investment Banking Revenue
24
Equity 57%
Debt 13%
Corporate advisory
30%
2007
Equity 54%
Debt 21%
Corporate Advisory
25%
2014
Investment Banking Revenue
25
Integrated v. Institutional
$M
16% $2.75 B
$0.83 B 29%
Share of Investment Banking Revenue
26
Integrated v. Boutiques
20%
30%
40%
50%
60%
70%
80%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Integrated
Boutiques
Collapse in SME Financing
27
Common Equity <$20M
$M
Debt and Equity Financing
28
$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 Q3 Q4 Q1 Q2
2010 2011 2012 2013 2014 2015
Corporate Bond
Common Equity
Fee Revenue
29
$M
2,146
2,636 2,624 2,385
2,721
3,094 3,206
3,660
4,614
2,575
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015
+26%
Industry fee-based revenue
Market Share
30
Integrated 70%
Boutiques 30%
2007
Integrated 78%
Boutiques 22%
2014
Fee-based Revenue
31
Integrated v. Retail boutiques
$M
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Integrated
Retail
+29%
+16%
0
200
400
600
800
1,000
1,200
1,400
1,600
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Full-service brokers
Online/discount brokers
Client Assets Under Management
32
$B
Source: Investor Economics
92% increase
Net Interest
33
33%
Industry Consolidation: IIROC Resignations*
34
* Resignations include amalgamations and acquisitions
4
12 13
6
8
20
18
9
0
5
10
15
20
25
2008 2009 2010 2011 2012 2013 2014 1H 2015
IIROC Dealers by the Number of Approved Persons
35
0
10
20
30
40
50
60
70
80
90
Over 1,000 501-1,000 101-500 11-100 10 or fewer
Source: IIROC Annual Report 2014-2015
Number of Firms
67
85
8 5
22
IIAC Advocacy and
Member Support Initiatives
Staying Connected to the IIAC
• IIAC Website
• Don’t forget to register for ‘Members Only’ section
• Industry Job Board
• Weekly electronic newsletter
• IIAC conferences/events/seminars/webinars
• Participate on IIAC Committees or Working Groups
37