November 6, 2008 / 1:49 PM / 10 years ago

WRAPUP 3-Volatile markets hit GMP, Canaccord; shares mixed

* Revenues slide at GMP, Canaccord

* GMP ekes out C$0.11/unit profit; stock up 2.6 percent

* Canaccord loses C$0.11/shr, suspends dividend

* Canaccord stock down 8 percent at C$5.84 (Adds analyst comment, updates share prices)

By Lynne Olver

TORONTO, Nov 6 (Reuters) - Quarterly revenues fell at two Canadian brokerages as unprecedented market volatility cut underwriting and advisory work, leading to a loss at Canaccord Capital CCI.TO and a sharp drop in profit at GMP Capital Trust GMP_u.TO.

The pain is likely to linger into next year at least, according to executives at the independent brokerages, which focus mainly on small and mid-sized resource companies. Shares in that sector have swooned in recent months as commodity prices plunged.

The outlook prompted Canaccord to suspend its dividend, and its shares plunged as much as 11 percent after the news.

By late on Thursday afternoon, Canaccord shares were off 8 percent at C$5.84 on the Toronto Stock Exchange, while GMP shares were up 2.6 percent at C$5.05.

The global collapse of credit markets triggered an “exceptionally volatile bear market in equities,” prompting clients to move to the sidelines and causing financing activity to drop to historic lows, Canaccord Chief Executive Paul Reynolds said during a conference call.

Oil and metal prices have fallen on concerns that demand will shrink with slowing economic growth, while stock investors and companies trying to raise funds or do deals have stayed out of volatile capital markets.

The industry is likely to face difficulties for another 12 to 24 months, Reynolds said.

“The severity of this (crisis) ... has been staggering and more prolonged than we, and most industry participants, would have expected,” GMP Capital Chief Executive Kevin Sullivan said during a conference call.

GMP’s third-quarter profit was C$6.9 million ($5.9 million), or 11 Canadian cents a unit, down 82 percent from a year earlier. The latest results included some restructuring charges.

Revenue plunged 43 percent to C$74.8 million, led by a drop in investment banking and trading. GMP expects revenue to remain under pressure for the rest of this year and into 2009.

At Canaccord, revenue fell 30 percent to C$110.8 million. The Vancouver, British Columbia-based company lost C$5.4 million, or 11 Canadian cents a share, in its second quarter ended Sept. 30, compared with year-earlier net income of C$12.4 million, or 26 Canadian cents.

Both brokerage companies’ stocks have plunged in 2008, as fallout from the credit crisis spread, and both have recently announced staff layoffs.

GMP said last month it would cut staff and compensation for senior salaried employees. The measures will save the company about C$2.8 million a year.

Canaccord previously said it would trim staff by 170 people, or about 10 percent.

Its additional move on Thursday to suspend the quarterly dividend was not a surprise to some analysts.

Sumit Malhotra of Merrill Lynch, who rates both brokerage stocks “underperform,” said in a research note last week that Canaccord should suspend the dividend, not just reduce it, because investors do not own the stock for its yield.

In a note on Thursday entitled “Misery loves company,” Malhotra said that the capital markets and wealth management businesses of both Canaccord and GMP still face revenue pressure, so their shares “will encounter the same challenge.”

GMP had already slashed its monthly distribution twice this year.

$1=$1.19 Canadian Reporting by Lynne Olver and Frank Pingue; editing by Frank McGurty

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