Securities industry performance weakened in the third quarter, reflecting the impact of September 11, and a period of difficult financial market conditions, according to the Investment Dealers Association.

The IDA’s latest Securities Industry Performance report says that poor economic and business conditions, coupled with an uncertain outlook, are resulting in less liquid equity markets and falling share prices. This hammered industry operating profits in the third quarter, resulting in profits for the year to date dropping 35% to $1.8 billion. Firms reporting losses continued to rise in the third quarter and were about double the number in the same period a year ago.

Retail investors continued to shun the equity markets. Cash in brokerage accounts jumping to a record $20.9 billion as investors cashed out of equities and share trading on the TSE fell more than one-third in the past nine months. Retail firms were particularly hard hit with revenues off 38% in the latest nine months, resulting in a third quarter loss of $27 million, the first red ink since the third quarter of 1998. This spells a $12 million loss through the third quarter, in sharp contrast to a $354 million profit in the same period 2000. This reflects a 4% rise in operating costs at the same time as revenues dipped nearly 40%.

While almost every industry metric is down, fee-based income jumped 26% in the first three quarters of this yea. Fee-based income now accounts for 9% of total industry revenues, more than doubling from 4% five years earlier.

Investment banking revenues fell 9% between January-September 2001, dragged down by a poor third quarter. Corporate financing dropped over 40% in the third quarter as issuers faced difficult market conditions. Merger and acquisition activity also trended down in the first nine months of this year at half the nearly $200 billion in the same period last year.

Fixed income trading was the bright spot for the latest quarter and for the period. Overall industry revenues from fixed income trading rose by 60% in the first three quarters this year. However, equity trading had its worst showing in three years, with revenues falling nearly 80%.