(June 20) – Goldman Sachs’ earnings report this morning blew away the consensus and its own guidance, perhaps signalling continued strong results for Canadian dealers, too. However, First Call Corp. analysts suggest that despite the good news the trend for brokers appears headed south.

Goldman and Morgan Stanley Dean Witter, reporting later this week, join previous strong results from Bear Stearns, Lehman Brothers, and A.G. Edwards. Most Canadian dealers are either private or bank-owned and don’t report their results publicly. The U.S. dealers have been coming in about 15% above expectations, indicating that the brokerage slowdown isn’t as severe as many expected. However, results are down sequentially.

First Call says that brokers have been hurt by the drop in trading volumes, a dearth of IPO activity and slowed M&A action. The M&A business has been sheltering a falloff in investment banking over the past year according to the Investment Dealers Association, much of it cross-border activity. However deal flow, “slowed significantly in April to US$69.6 billion, the lowest level since the 1998 global financial crisis,” according to Thomson Financial Securities Data.

First Call concludes that, “Even though the brokers continue to beat expectations, the upward revision pattern to securities brokers current quarter expectations appears in jeopardy of being broken. Securities brokers earnings growth is poised to tail off markedly from its torrid first quarter pace.”
-IE Staff