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GMP Capital reported second quarter earnings on Friday morning, and they certainly weren't pretty. The firm barely eked out a $5.1-million profit.

The reason? Market volatility, which in turn reduced institutional trading volumes and lowered underwriting activity -- both of which are GMP's bread and butter.

To understand just how much these areas took a hit, investment banking revenue fell to $41-million, down from an average of $66-million over last four quarters, and trading commissions fell to $23-million, down from an average of $28-million over the last four quarters.

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Over all, GMP reported revenue of $67-million last quarter, which resulted in a profit of $5.1- million, or 4 cents per share. In the same period last quarter, the profit was $24-million, or 32 cents per share.

You might argue that the year-over-year comparison isn't the best, because GMP had record fees in the second quarter of 2010, which stemmed from underwriting deals such as Athabasca Oil Sands' initial public offering. However, even if you compare to the first quarter in 2011, the numbers are weak. Total revenue last quarter was $107-million, and earnings were $23-million.

To understand how rough this quarter was, the firm's expenses are typically about 65 to 70 per cent of its revenue, and compensation takes up the biggest chunk of that amount. This time around they were a whopping 89 per cent.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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