The number of deals in the financial services sector fell 37% this year over last as the weakness in the Canadian merger and acquisition market continued in the second quarter of 2003.

In its quarterly report on Canadian M&A activity, Crosbie & Co. Inc. said there were 36 deals worth $2.5 billion in the financial services sector in the six months to June 30 vs 41 deals worth slightly more than $4 billion last year in the same period.

Overall, the lack of large deals kept activity in the second quarter remained at a relatively low level, with 219 announced transactions totaling $13 billion vs 201 transactions worth $15 billion in the first quarter. Year-to-date transaction values for the first six months of the year were at their lowest levels in several years, dropping 43% to $28 billion from $49 billion in the same period last year.

This dramatic drop is almost entirely due to the continued shortage of deals valued in excess of $1 billion, Crosbie said.

For the first six months of 2003 there were only four transactions over $1 billion for a total value of $5.5 billion vs seven transactions totalling $24 billion in the first half of 2002. The only transaction valued at more than $1 billion in the second quarter was the proposed acquisition of Selfridges PLC by the Weston family’s Wittington Investments.

In the financial services sector, the biggest deal was the $593-million purchase by Deutsche Bank AG of an office tower from the Caisse de dépot et placement du Québec announced in April.

Sharla Sigmund, vice president at Crosbie, said there was an increase in the number of deals in July as equity markets began to recover.

Despite the low levels of overall activity and transaction values this year, there is action in smaller deals. In the second quarter, there was actually an increase in both the number of transactions and total dollar value of deals of less than $500 million vs the first quarter of 2003.

For the year-to-date, the value and number of transactions of less than $500 million was relatively unchanged compared to last year, with a total of 281 deals valued at $17.8 billion.