Exposure to the long-suffering resource sector is keeping profits under pressure at Canada’s major independent investment banks, says a report published Wednesday by Toronto-based DBRS Ltd.

Equity underwriting volumes remain weak for the independent investment banks, the report says, with fewer deals, and smaller transactions. So far this year, overall equity deal volume is down by 19%, and while overall mergers and acquisitions volume is up slightly from last year, mid-market deal volume is down by 31%.

The independents’ fortunes are more closely tied to the resource sector than the big bank-owned dealers, leaving them more closely tied to commodity prices, the report notes. “After peaking in 2012, commodity prices have declined considerably, and remain low and volatile. This reduces client activity and sidelines investors,” it says.

At the same time, the firms’ ability to recover lost market share is limited by “inconsistent profitability and weakening credit fundamentals,” the report says, and their internal restructuring initiatives may have hampered their ability to regain some of that lost share.

“Having recently completed restructuring plans, while also successfully executing on strategic initiatives, the independent investment banks are better positioned to manage through these challenges than they were prior. Despite this, the impact of the challenging operating environment appears to be overwhelming the benefits of these efforts,” the report says.

“Furthermore, pressured cash flows and increasing leverage are becoming more of a concern, as the challenging market conditions that are driving these trends are not abating. With each of the independent IBs recently adding to their debt burden, DBRS expects that the costs associated with servicing the extra debt will continue to hinder returns to shareholders. In DBRS’s view, the combination of these factors is adding ratings pressure,” the report concludes.