Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Firm-wide revenue improved by 25% year over year and 5% sequentially to $429 million.
- Capital markets division revenue increased by 41% year over year to $206 million.
- Wealth management business revenue grew by 13% year over year to $216 million.
- Client assets in the wealth management division reached a record $106 billion.
- The Board of Directors approved a dividend per common share of $0.085, consistent with previous quarters.
Negative Points
- Profitability was impacted by higher interest expenses and increased G&A expenses.
- Development costs were higher due to ongoing investments in wealth management operations.
- Non-compensation expenses are expected to continue over the coming year.
- The US capital markets business reported a small loss due to increased G&A expenses.
- Revenue from principal trading and commission and fee activity declined compared to the prior fiscal quarter.
Q & A Highlights
Q: Can you remind us what all gets included in the development costs for wealth management?
A: Development costs generally include expenses associated with new hires, platform costs for systems development, and retention efforts. These costs were elevated this quarter due to aggressive recruiting and systems investments, but this level of elevation is not expected to persist.
Q: Can you speak to the pipeline of opportunities in Canadian wealth management and your focus on recruiting versus organic initiatives?
A: The number of teams decreased due to consolidation, not departures. We have a strong pipeline and expect continued recruiting momentum. In the UK and Australia, we are also aggressively recruiting and have added several new advisors. Our firm’s reputation makes it an attractive place for advisors.
Q: Why did compensation costs as a percent of revenue increase in the UK wealth management division?
A: The increase was partly due to stock-based compensation moves and the hiring of new staff. Additionally, there was some noise from a small acquisition in Glasgow at the start of the quarter.
Q: What caused the elevated G&A expenses in the US capital markets business this quarter?
A: The increase was due to front-end loaded costs, including expenses related to our global growth conference in Boston. There were also non-repeatable costs in the quarter, which impacted our earnings despite strong revenue.
Q: Can you provide details on the US trading provision and its potential impact?
A: We continue to engage with US regulators regarding our market-making operation. While we cannot provide a specific range for the provision, we are making significant investments in compliance infrastructure to address the matter.
Q: What steps are being taken to improve profitability in the US capital markets division?
A: We are looking at ways to streamline the business and create consistent profitability. Despite recent losses, we are confident in returning to profitability, though perhaps not to pre-pandemic levels.
Q: What is your outlook for mid-market activities and their impact on your business?
A: We expect increased M&A activity as interest rates fall and credit markets open up. While new issue revenue is harder to predict, we see a secular shift from mega-cap to mid-cap and smaller-cap stocks, which benefits our business.
Q: Were there any specific factors affecting the growth of Canadian wealth management AUA this quarter?
A: There were no departures or significant outflows. Growth was marginal due to no recruiting activity. However, we are investing in growth initiatives to bolster future net new asset growth.
Q: How material is interest income from client cash for your Canadian and UK wealth businesses?
A: In Canada, margin loans are the biggest contributor to interest revenue, while client cash is a component. In the UK, cash sweep income is relatively consistent and tends to offset changes in other revenue streams.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
