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A sustained downturn in Canadian capital markets claims its first big foreign victim Friday, as Stifel Financial Corp. shuts down its Toronto and Calgary operations and lets go of 60 people.
Businesses such as stock underwriting and trading have plunged, eating away at profits for investment dealers in Canada – particularly smaller ones – and forcing some firms to close or merge.
The problem is that deep weakness in the commodity and resource sectors and volatile markets have sharply curtailed deal volumes and new public offerings for investment dealers. The S&P/TSX materials index has fallen 22 per cent in the past year and the energy index was flat, even as U.S. markets have soared to record highs. That poor showing has curtailed investors’ interest in junior mining and oil and gas stocks, meaning that fewer resource companies are able to raise money.
Eleven investment dealers merged, closed their doors, or announced plans to do so in the first half of 2013, the Investment Industry Association of Canada said. Ten firms closed in 2012.
Stifel Nicolaus Canada’s departure is an ignominious end for what began as boutique dealer Westwind Partners, before a series of takeovers left it under the umbrella of St. Louis-based Stifel Financial. In 2007, Westwind sold to Thomas Weisel Partners Group for $150-million; a few years later, Stifel bought Weisel, including its Canadian operations, for about $300-million (U.S.). There was talk of ambitious expansion in Canada from Stifel, but it never came to pass and the operation was barely registering on the Canadian capital markets scene of late.
Stifel has been hurt by the mining downturn given its underwriting specialty in the sector, but the company gave up on Canada just after being announced as the co-lead on a $21-million tech financing for Halogen Software Inc.
Even by the standards of a struggling industry facing a deal drought, Stifel’s Canadian investment banking operations were not bringing in anything close to what its peers were.
According to the IIAC, firms in Stifel Canada’s line of business were bringing in about $600,000 per employee in revenue in 2012. And at that level, many were not profitable.
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