April 30, 2015 / 1:48 PM / 2 years ago

GMP Capital loss underscores challenge facing independent brokers

TORONTO, April 30 (Reuters) - GMP Capital reported a net loss on Thursday, as a slump in commodity prices damped issuance and deal activity among small- and mid-tier companies that account for a large portion of the independent brokerage firm's client base.

The results underscore the challenge that many small and mid-market firms face in Canada, as weak commodity prices and higher costs amid increased regulatory scrutiny weigh on results.

"Challenging market conditions persisted throughout first quarter 2015 as low commodity valuations produced subdued capital markets activity within our key mid-market sectors," Chief Executive Harris Fricker said in a statement, adding that GMP is "keenly focused on safeguarding capital and maintaining liquidity."

Still, Fricker, on a conference call on Thursday, said some recent commodity price stability made him more optimistic about the firm's second-quarter prospects.

Some analysts were less sanguine.

"While the capital position of the company remains in decent shape, from an operational perspective, there is very little to get excited about with GMP, and we expect the stock to continue to tread water," said Scotia analyst Sumit Malhotra in a note.

An extended slump in precious metals prices, coupled with sharp pullbacks in the price of everything from copper and coal to iron ore and oil, have led to the downfall of a slew of the smaller brokerages around Bay Street, Toronto's financial hub.

In 2013, Stifel Nicolaus shut its Canadian operations, and Stonecap closed its Calgary operations, only to later be bought out by Edgecrest Capital. Many others have trimmed staff headcounts, shut down or merged with other companies in the last three years.

These firms cater to the needs of the hundreds of small- and mid-tier mining and energy companies that make up a large swathe of Canadian public markets.

Ian Russell, the head of the Investment Industry Association of Canada, warned last month that the boutique brokerage model is under stress.

"The conflation of poor business conditions, widespread structural change in capital markets, and regulatory reform, has forced adjustments in the structural framework of the venture marketplace," Russell said in a public letter.

GMP said first-quarter revenue fell 16.6 percent to C$53.3 million ($44.2 million), as investment banking fees declined.

It posted a net loss attributable to shareholders of C$8.9 million, or 14 Canadian cents a share. That compared with a year earlier profit of C$2.2 million, or 3 Canadian cents a share.

$1 = 1.2053 Canadian dollars Reporting by Euan Rocha; Editing by Bernadette Baum

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