AGF Management Ltd. profit tumbled 61% during the second quarter as a result of declines in global markets and an increase in provisions for loan losses at its trust company operations, the company said Wednesday.

This was partly offset by declines in selling, general and administrative and trailing commissions expenses and lower income tax and amortization expenses.

Net income during the quarter ended May 31 was $17.2 million, down 60.9% from $44.0 million in the same period in 2008.

Earnings per share during the quarter were 19¢ compared with 49¢ in the second quarter of last year.

Return on equity for the quarter was 6.3%, down from 15.6% a year ago.

Revenue during the quarter decreased 26.1% to $143.5 million compared with $194.3 million in the second quarter of the prior year. The drop was driven primarily by a 30.6% decline in investment management operations revenue which was directly related to lower year-over-year assets under management.

Total AUM declined 27.7% to $37.4 billion as at May 31, from $51.8 billion at May 31, 2008.

AUM increased by 14.7% from $32.6 billion at February 28, 2009 due to improving stock markets during the second quarter of 2009.

“The second quarter saw an improvement in global markets with higher indices contributing to our increased AUM levels and improved profitability compared to the first quarter,” Blake Goldring, chairman and CEO, in a release.

Selling, general and administrative expenses declined 16.7% in the quarter as compared to the corresponding period in 2008 as a result of cost reduction initiatives, AGF said.

AGF Trust real estate secured loan assets declined 9.1% over the previous year and investment loans declined 2.2% with total loan assets declining 5.3% year-over-year. The decline in loan assets reflects AGF’s strategy to suspend new originations of lower margin lending products and slow loan growth in 2009, the company said.

In spite of a higher provision for loan losses, AGF Trust remained profitable in the second quarter, representing 18.2% of AGF Management’s pre-tax income, the company said.

Selling, general and administrative expenses within AGF Trust dropped 22.9% thanks to lower staffing levels.

The company will continue to make cost-cutting efforts in the months ahead, Goldring said in a conference call on Wednesday. He expects AGF to achieve 10% in expense savings this year.

The company will also focus on risk management, improving profitability and maintaining a strong capital position until equity and capital markets stabilize, according to CFO Greg Henderson.

“It’s the prudent thing to do,” he said in the conference call.

While financial markets have shown improvement in recent months, Goldring noted that performance across the industry is still lagging last year’s levels substantially, indicating that a recovery remains far-off.

“The industry still faces some strong headwinds to overcome,” he said. “We still have a ways to go to get back to where we started.”

Going forward, AGF plans to further reinforce its core focus on investment management, in line with efforts the company has already made in recent months. In April, AGF announced a realignment of its organizational structure, integrating its retail business, AGF Funds Inc. and its institutional/private client business, AGF Asset Management Group, under one banner: AGF Investments.

The company also plans to streamline and simplify its product offering as part of its efforts to improve profitability, Goldring said.

IE