Canada has become one of the most lucrative markets on the globe for investment banking, punching well above its weight thanks to the boom in commodity deals and attracting a fresh wave of foreign competition.
Canada may only be 4 per cent of the global market capitalization of listed equities, and our economy is only the ninth largest in the world (with Russia nipping right at our heels). But when it comes to creating paydays for bankers, Canada is one of the titans.
Thanks to the huge deal flow of mergers, acquisitions and equity sales for oil and gas and mining companies, Canada now generates the fourth most investment banking fees in the world, behind the United States, Britain and Japan, according to a study one large financial firm did when planning its expansion in Canada.
As a result, foreign banks are pushing into Canada, grabbing talent in Toronto and increasingly in Calgary, as they try to scoop up the fees. Barclays Capital is now here in a large way and getting bigger. So is Credit Suisse. Citigroup recently retooled its leadership in Calgary. Nomura Securities has been adding to its resource practice in Canada after a long period of largely ignoring the country. Jefferies & Co., a mid-sized U.S. player, has been courting Canadian bankers to try to build a team with a focus on mining, sources say.
The result is a continuing battle for banking talent and business all across Canada between foreign shops and the locals.
The Canadians push their knowledge of the local market; the international shops push their ability to work on cross-border mergers and financings that are increasingly becoming the norm.
"Canada is definitely a growth market," said Bruce Rothney, Barclays' Canadian country head. "We believe the next 10 to 25 years will be about Canada's connection to the rest of the world rather than just the U.S."
London-based Barclays Capital had little in the way of a presence in Canada a year ago. Today, the firm, a part of Barclays PLC, has a large office atop Toronto's shiniest, newest downtown office tower. There are 45 people in the Toronto location, which officially opened in early December, many hired away from local firms. There are another 20 staff in Calgary, with similar backgrounds.
It's an expensive way to expand, because it means paying up to get bankers, sales professionals and traders out of their existing seats. That means topping bonuses and buying out stock the bankers have accumulated as part of their deferred bonuses at their old firms.
Foreign banks have in the past come in, paid up for talent, and found they haven't been able to generate enough deals to warrant staying. But when it works, the fruits can be rich.
Barclays is No. 3 in year-to-date mergers and acquisitions advisory work thanks to roles on two of the biggest deals in the country, both of which were announced last week. That's up from 12th last year, according to Thomson Reuters.
Barclays is advising London Stock Exchange Group PLC on its attempt to merge with TMX Group Inc. and it's aiding PetroChina in its $5.4-billion purchase of a half-share in an Encana Corp. shale gas development. (It's not like Barclays is running the locals out of town, however. RBC Dominion Securities, the biggest Canadian firm, had roles on both deals too, and ranks No. 1 in year-to-date mergers advisory volume.)
The fact that the bigger of those two deals came out of Calgary is increasingly the way of the Canadian banking world.
Toronto is still by far the biggest market, and as home to some of the biggest investors, including the largest concentration of pension funds, it will likely be by far and away the Canadian place to be for investment banks for some time to come. Toronto is also home to much of the mining action.
But Calgary's share of the deal-making revenue stream for investment banks is steadily growing.
There's been just shy of $750-billion in mergers and acquisitions of Canadian companies announced since the beginning of 2005, with almost one-third, or $260-billion, of that coming from the energy and power industries, according to Thomson Reuters figures.
There's been about $204-billion of stock issued by all companies in that same period, and again almost a third of that comes from energy and power.
Looking underneath those totals, the market share of energy and power has been consistently climbing, driven by M&A deals such as Encana.
The world is tipping Canada's way, and Canada is tipping Calgary's way.