Canaccord Genuity Group Inc. has posted a $346-million quarterly loss – by far its biggest ever as a publicly traded company.
The bulk of the $3.91 per share loss comes from a $321-million goodwill write down in the value of its capital markets business. While the write down is a non-cash item, analysts use goodwill to calculate book value – a key metric they use in valuing the shares.
Canaccord also announced it is eliminating its dividend and laying off 125 people. That amounts to 7 per cent of its global work force and will affect investment bankers, sales, trading and research staff in Canada, Britain and the U.S. Earlier in the week, The Globe and Mail reported that the Vancouver-based brokerage had already laid off about 55 people in Britain. Canaccord is taking a charge of $4.3-million in connection with the layoffs and other restructuring costs.
The fiscal third quarter results and the write down are materially worse than the Street was expecting. On an ex-items basis, Canaccord's 25 cents a share loss compared with a break even estimate from analysts.
The unprecedented loss at Canaccord comes amid a brutal operating environment for the entire industry. Key commodities are in protracted bear markets that have crushed revenue, particularly in equity underwriting. Last month, rival GMP Capital Inc. unveiled a drastic restructuring, which included slashing one-quarter of its staff.
Canaccord shares closed Thursday at a seven-year low and lost 19 per cent of their value this week alone.
Canaccord, like GMP has a strong capital buffer. The brokerage ended the quarter with working capital of $408-million – comfortably above where it needs to be. Canaccord says the restructuring will save the firm in the region of $30-million over the next year or so. The dividend cut alone amounts to about $5-million a quarter.
"We are making significant progress to reposition our business" said Dan Daviau, chief executive officer of Canaccord in a statement.
The big question mark for Canaccord and other independents is how much longer this vicious bear market will continue. The current quarter has started off poorly. Industry-wide equity financings plunged 75 per cent in Canada in January and 68 per cent in the U.K.
"[This year] is off to a terrible start," said Paul Holden, analyst with CIBC World Markets Inc. in a note to clients earlier this week. "The financing market can turn quickly, but we just don't see that happening in the near term."
Canaccord went public in June, 2004, but its predecessor company, Hemsworth, Turton & Co. dates back to 1950. According to Bloomberg data, Canaccord posted a $62-million loss in the third quarter of 2009 – which up to now had been its worst every quarterly showing.
Mr. Daviau, who has only been in the job since October is facing a gargantuan challenge in trying to turn around an independent brokerage firm in this historically hostile environment. He was widely acknowledged as an outstanding investment banker – first at CIBC World Markets Inc. and then as a co-founder with Genuity Capital Markets. When Canaccord bought Genuity in 2010, Mr. Daviau took on increasingly senior roles at the mothership. In 2014, Mr. Daviau helped generate about $60-million in mergers and acquisitions (M&A) and financings fees in the online gambling sector. For his efforts, Mr. Daviau was paid $11.7-million – only 10 CEOs of publicly traded companies in Canada made more money than Mr. Daviau in 2014. When Paul Reynolds, Canaccord's CEO since 2007, died suddenly in early 2015, Mr. Daviau was eventually named as his permanent replacement.