Tuesday, August 07, 2007

TD Bank Leads H1 2007 Equity Underwriting

The Globe and Mail, Boyd Erman, 7 August 2007

TD Securities Inc. has retained its grip on top spot in the rankings for selling stock on behalf of companies in the first half of the year.

In the second quarter, when equity issuance slowed down after a big first quarter, TD played a lead part in big deals for companies such as Provident Energy Trust and Saskatchewan Wheat Pool Inc. , bringing the firm's year-to-date tally for stock sales to $3.1-billion. TD also led after the first quarter with a total of $2-billion.

RBC Dominion Securities Inc., the country's biggest securities firm, moved into second place with a year-to-date result of $2.9-billion.

TD has made a big push in the equity capital markets business since Ed Clark, Toronto-Dominion Bank chief executive officer, said he wanted the securities arm of the bank to take a bigger share of business.

But with markets in turmoil, investment bankers at TD and elsewhere who handle stock sales said there's likely to be not much business to do in coming weeks. Companies are unlikely to issue stock when their shares have plunged.

“We're in for a quiet end of the summer, with all the volatility in the markets,” said Sante Corona, head of equity capital markets at TD.

“As long as things are bouncing around, with companies' share prices below where they expected to issue equity, we're probably going to see some deals that were planned put on hold.”

Things may pick up in September if markets settle down, as investors return to their desks and companies readjust their expectations about stock prices, Mr. Corona said.

Initial public offerings, which were very quiet in the first six months of the year, were just starting to pick up with a small flurry of filings in early July, but that market too is likely to go on hold for the time being, bankers said.

As of June 30, BMO Nesbitt Burns Inc. was leading the IPO business on the strength of two deals, one for OceanaGold Corp. and another for Northstar Healthcare Inc.
The Globe and Mail, Boyd Erman, 7 August 2007

Sometimes, the league tables don't tell the whole story.

The only one of the securities dealers owned by Canada's Big Five banks not to appear among the top five in overall equity underwriting or initial public offerings so far this year, Scotia Capital Inc. is nonetheless consistently among the top money makers.

So what is it that Scotia's doing, out of the limelight of the league tables, that's bringing in all that money?

The firm has put a big focus on derivatives trading, is known for its corporate lending, and has focused on metals trading and services to hedge funds. And, the firm isn't averse to opportunistic plays that some other firms might view as a little oddball, such as a big investment in U.S. retail automotive asset-backed securities, better known as car loans.

"We do have certain things that we do uniquely well, that are kind of niche business," says Steve McDonald, one of the firm's two co-chief executive officers.

None of those businesses show up in the league tables, which track high-profile deals such as IPOs and mergers and acquisitions, and are a big focus for many investment bankers, who use the tables when pitching for deal assignments and bigger bonuses.

"Everything that goes to making money safely and well is what we're interested in," says John Schumacher, the other half of the CEO tandem. "Tables don't really convey that."

For example, one of Scotia's highest return businesses is in derivatives, where the firm has specialties in interest rate and equity derivatives, Mr. Schumacher says. The business is a relatively small operation that is "very material" to the firm's results, he says, declining to elaborate on profit numbers.

The league tables, while a useful measure of one slice of the business and an indicator of which banks are winning relationships, have numerous doubters. One of the main criticisms is that securities dealers can buy business and market share by discounting fees, undercutting one of the reasons behind league tables - trying to figure out which firm is making the most money.

The tables are also governed by rules that exclude certain types of offerings. In Scotia's case, the bank has a leading business in issuing preferred shares, which aren't counted in some equity rankings, including those prepared by Thomson Financial and published in The Globe and Mail.

But whether they count or not, preferred share issues bring in fees, helping Scotia Capital report a profit of $616-million in the first six months of the year, second only to RBC Dominion Securities Inc.'s $746-million among the big Canadian dealers. Revenue was just over half of RBC's $2.4-billion, though comparisons can be muddied because different banks lump different businesses into their capital markets segments when reporting profits.

"We are very bottom-line oriented," Mr. Schumacher said. "A lot of people focus too much on the revenue line."

The bank's ability to hold down expenses, generating wide margins and lots of profit per dollar of sales, makes it a favourite of analyst Brad Smith at Blackmont Capital.

"That culture of efficiency at Scotia is ingrained for generations," Mr. Smith said. He does cite a concern about the bank's slower growth profile, but he's not fussed about Scotia Capital's no-show at the top of the league tables.

"I'm not sure I care too much about that. I don't want them to be less selective in the business they do."
The Globe and Mail, Boyd Erman, 7 August 2007

Five years ago, as CIBC World Markets Inc. scaled back from a foray into the United States, the firm's name started to ring hollow.

But with a big focus on China, and a large presence in Israel, a tiny country with a disproportionate impact in the technology business, CIBC World Markets is returning to an international strategy, albeit with limited aims.

"We're working on the 'world' part of CIBC World Markets," says Brian Shaw, head of the firm, which is owned by Canadian Imperial Bank of Commerce. "I view us as a strong North American franchise and outside of North America we compete in select markets: London, Asia and Israel."

While almost every bank in the world has some presence in London, the emerging market of China, where many of even the biggest foreign banks are starting from scratch, and the niche market of technology-rich Israel provide opportunities for a Canadian bank that might not have the heft to compete globally on every stage. In China and Israel, CIBC is one of the busiest banks for equity deals.

The increases in business abroad is one way the bank can offset the loss of income trust underwriting, one of its key focuses in Canada in recent years before the government clamped down on the structure last fall. CIBC, a fixture at the top of equity capital markets league tables in Canada for years, so far this year ranks fifth in overall stock sales.

CIBC has 37 people in Tel Aviv, serving a country that despite its tiny size exports the largest number of companies to the Nasdaq Stock Market. Israel has 69 companies listed on Nasdaq, topping even Canada and Britain.

In 2006, CIBC snagged a role in more than half the equity offerings coming out of Israel, and acted as lead manager most of the time when involved.

For its press on China, where regulatory hurdles often make it difficult for banks to establish offices that can do wide-ranging business, CIBC has teamed up with Balloch Group. This Beijing-based boutique investment bank was founded in 2001 by Howard Balloch, who served five years as Canada's ambassador to China. CIBC bought a one-fifth stake in Balloch Group, in essence adding the 40 deal makers at the firm to its deal-finding network, which revolves around Hong Kong, where CIBC has been located for almost four decades.

CIBC's strategy is based on bringing Chinese companies to North American stock markets, and the firm calculates that it's been involved in more deals than any other investment bank in the past four years when it comes to issuing stock for Chinese companies listed on U.S. exchanges.

The pace is picking up: The bank only recently graduated to leading its first transaction, a $259-million (U.S.) deal for solar-cell maker JA Solar Holdings. The company went public on Nasdaq in February at $15 a share and the stock has more than doubled since.

The Chinese operations are profitable and revenues have grown at least sixfold in the past year, says Chetan Bhatia, head of greater China investment banking for CIBC, adding there are more deals to come.

"There's a huge amount of pipeline for us in 2007 and 2008," Mr. Bhatia said.