The securities industry’s woes continued through the second quarter this year as profits fell nearly 20% and revenues stagnated.

Expenses, on the other hand, rose. These results were discussed in the latest edition of Business and Profitability Trends published by the Investment Dealers Association.

The report noted that firms were challenged to generate income from traditional lines of business, in no small part due to frayed investor trust and confidence in the market. Revenues from equity trading plummeted by two- thirds from a year earlier in the second quarter. Commission revenues sagged as many investors shunned the equity markets. This was parallel with weakness in the North American stock markets in the April-June period, when major stock indexes fell steadily.

Firms that cater mainly to retail clients were hit hard by lower investor activity. Retail firms suffered a $17 million loss in the second quarter that wiped out profits from the first quarter. These firms may be unable to avoid a period of consolidation if business conditions do not pick up appreciably in the near future.

Only firms dealing primarily with institutional clients chalked up gains from the year-earlier period. These firms benefited from higher equity financings and income trust units, as well as from cost cutting.


Securities Industry Performance Highlights
April-June 2002:

> Industry operating profits totalled $595 million, down 18% annually.

> Integrated firms suffered a 29% annual drop in operating profits to $444 million in the second quarter.

> Operating revenues of a little under $2.6 billion were flat year to year.

> Commission revenues that account for two-fifths of total revenues declined 3% from a year earlier to $1 billion.

> Revenues from equity trading plunged two-thirds to $38 million from a year earlier. Fixed income revenues were down 7% to $200 million.

> Interest income fell 4% to $255 million from the same period 2001, partly reflecting a relatively low interest rate environment.

> Investment banking revenues were a bright spot, climbing 19% annually to $667 million in the second quarter.