Canadian corporate operating profits tumbled 14.4% in the third quarter from the second quarter according to Statistics Canada.

This was the largest quarterly profit slide since the current series began in 1988. Profits have now fallen in four of the past five quarters, and at $37.6 billion were at their lowest level since the fourth quarter of 1998.

The events of September 11 contributed somewhat to the decline in third quarter profits. However, because this tragedy occurred late in the quarter, its full impact might not be felt until the fourth and subsequent quarters.

Led by a 26.3% decline in the manufacturing sector, overall non-financial industry profits dropped 11.7% to $28.5 billion in the third quarter. The oil and gas extraction industry (-21%) and the transportation industry (-45.8%) also reported significantly lower third quarter profit results. Mitigating these declines, management and holding companies earned 28.9% more in third quarter profits on the strength of higher dividend income.

The financial industries’ operating profits fell 21.8% to $9.1 billion, their lowest level in almost six years. By far the biggest contributor was the investment fund industry, where profits declined $2.9 billion, or 67.7%, due to substantial losses on the sale of investments within equity funds.

Funds’ operating profits fell to $1.4 billion in the third quarter from $4.3 billion in the second quarter, largely due to losses on the sale of securities and other assets, notably equity funds. This revenue item has been extremely volatile over the past two years, peaking with a gain of $5.6 billion in the first quarter of 2000, and falling to a loss of $1.3 billion in the most recent quarter.

Banks and credit unions saw operating profits slip to $4.2 billion in the third quarter from $4.3 billion in the second. Chartered bank profits edged down to $3.7 billion from a recent high of $3.8 billion in the second quarter. A $0.2-billion improvement in net-interest income was more than offset by higher other operating expenses and lower brokerage fees and trading commissions.

Insurance carriers earned $1.1 billion in third quarter operating profits, up from $0.9 billion in the second quarter. While the events of September 11 will influence the financial results of insurers around the world, preliminary data did not show a significant impact upon the Canadian results of insurance companies in the third quarter.

The operating profits of other financial intermediaries, including loan brokers, rose to $1.2 billion in the third quarter, up 18.8% from the second.

The operating profit margin fell to a three-year low of 7.2% in the third quarter from 8.3% in the second quarter. Margins peaked at 9.8% in the second quarter of 2000 and have been on a downward trend over the past five quarters. The return on equity of corporations tumbled to 3.8% in the third quarter, down sharply from the 6.1% returns in the second quarter and a far cry from the 9.2% returns seen early in 2000.