Sunday, January 04, 2009

2008 League Table

The Globe and Mail, Boyd Erman, 5 January 2009

Share issues by Canadian banks helped shore up an otherwise dismal year for securities firms, with total sales of $30.3-billion coming in one-third below 2007's performance.

The busiest securities firms in Canada last year were those raising money on behalf of their bank parents. Bank issues accounted for $7.7-billion as four of Canada's Big Five banks tapped markets to strengthen their sagging balance sheets, according to figures compiled by Thomson Reuters.

Most of the action came in the final three months of the year, when such insurers as Manulife Financial Corp. and Great-West Lifeco Inc. joined the parade of financial institutions seeking funds. The final quarter also brought a wave of stock sales from utilities.

"Normally you might see a couple of billion-dollar deals a year," said Phil Smith, the deputy head of global investment banking at Scotia Capital Inc. "Well, we were seeing one a week there for a while, which is really extraordinary."

Even so, total issuance of stock fell by a third to $30.3-billion in 2008 compared with 2007.

RBC Dominion Securities Inc. was one of the biggest beneficiaries of parental largesse, raising the most money of any investment bank in 2008. It managed share sales worth $4.6-billion, but half that tally came from running a $2.3-billion sale for parent Royal Bank of Canada.

When deals for parent banks are stripped out of the data to give the true picture of which firm won the most business from outside clients, Scotia Capital was the leader with a total of $2.65-billion raised due to a focus on utilities and insurers. Scotia, whose parent bank did not sell common shares in 2008, led Manulife's $2.3-billion December share sale.

For big banks such as Bank of Nova Scotia, the fourth quarter salvaged an otherwise dismal year. But for the smaller, independent brokerages like Canaccord Capital Inc. and GMP Securities that flourished during the commodity bull run, 2008 was just plain dismal.

The outlook for all sectors of the market is still murky. Notwithstanding the big finish to 2008, it's no sure thing that the momentum will continue into 2009. Until markets settle down, it will be tough for anyone but the most-established companies such as banks and utilities to raise money. And even then, there's a question of how much investors will buy.

There are probably a couple more bank sales in the offing. National Bank of Canada is likely to sell equity, analysts forecast, to bring up its capital level, and there's talk that at least one other major bank that has already sold shares will have to come back seeking more cash. The odds-on favourite is Toronto-Dominion Bank if there are further losses in its U.S. loan portfolio.

It's a buyers' market, though, and for the moment there are signs that the heap of stock sold in recent months has sated investors' demand.

"There's generally appetite, the cash flow is pretty good, but you can't be hitting people with a ton of product in a short period of time," Scotia's Mr. Smith said.