Issuance of structured products in Canada in the third quarter of 2017 increased by 25% year-on-year while sales volumes rose by 15% during the same quarter, according to SRP data. The 461 products, from five different distributors, that were sold during the quarter collected combined sales of C$3bn (US$2.5bn) between May 1 and July 31, compared to 370 products worth C$2.6bn that were issued in the same period last year. Equities, used as underlying in more than 90% of the products, dominated proceedings, followed by commodities, funds, interest rates and real estate.
SRP reviews the data and the third quarter 2017 results of the main providers of structured products in Canada.
BMO Financial was the most active distributor of structured products in Canada during the third quarter of 2017, according to SRP data. The bank sold 180 products in Q3 2017, a 19% increase from the 151 products that were launched during the same period last year. The products introduced by BMO this quarter included 169 notes, eight guaranteed investment certificates (a deposit investment security sold by Canadian banks and trust companies which is guaranteed by the provider and the principle is insured by a deposit insurance agency) and three principal protected notes (PPN). One hundred and thirty-seven of the bank's products were linked to a single equity index of which the local S&P/TSX 60 index (37 products) was the most popular.
BMO reported net income of C$1.4bn in the third quarter of 2017, up 6% year-on-year, with the bank's performance driven by strong growth in the bank's personal and commercial and wealth businesses, according to William Downe (pictured), CEO and executive director, Bank of Montreal. 'Wealth management continues to deliver strong results with double-digit earnings growth for the quarter and year-to-date [...] for the quarter, good performance in investment and corporate banking was offset by the impact of markets and lower client activity in trading products,' Downe said in a statement.
National Bank of Canada recorded a 140% increase in new issues with 163 structured products launched during the quarter, up from 68 products in Q3 2016. The vast majority of the bank's products (157) were linked to equities including the iShares S&P/TSX 60 Index ETF (23 products), S&P/TSX Composite Low Volatility Index (21) and the Eurostoxx 50 (20).
For the third quarter of 2017, National Bank of Canada reported net income of C$518m compared to C$478m in the third quarter of 2016. Net income for wealth management totalled C$106m, up 31% on the year while third quarter revenues amounted to C$403m. The bank's financial markets division recorded total revenues on a taxable equivalent basis amounted to C$392m, a C$22m or 6% year-on-year increase driven primarily by trading activity revenues, particularly revenues from equity securities, according to the bank.
Canadian Imperial Bank of Commerce, commonly referred to as CIBC, launched 70 structured products in the third quarter of 2017, split between 24 deposits (GICs) and 46 notes (Q3 2016: 61 products). The bank's products included six structures linked to the CIBC Monthly Income Fund, a mutual fund managed by CIBC which had approximately C$4.5bn in assets under management as of April 30, 2017.
CIBC reported net income was C$1.1bn, compared with C$1.4bn for the third quarter a year ago, and C$1.1bn for the prior quarter. The bank's capital markets division reported net income of C$252m for the third quarter, down C$29m or 10% from the third quarter a year ago. Adjusted net income, at C$252m, was down C$38m or 13%, primarily due to lower revenue, partially offset by lower expenses, according to the bank. Revenue was lower primarily due to lower equity derivatives and interest rate trading and lower equity underwriting revenue, partially offset by higher corporate banking revenue and investment portfolio gains, CIBC reported.
Toronto Dominion Bank issued 47 structured products via its TD Securities subsidiary in Q3 2017, up from 29 products during the same period last year. TD's offering included four notes linked to the iShares S&P/TSX Capped Reit Index exchange-traded fund (ETF) and one note linked to the BMO High Yield US Corporate Bond Hedged CAD Index ETF.
Net income for the third quarter, at C$2.8bn, was up 17% year-on-year (Q3 2016: C$2.4bn), TD Bank Group reported. Wholesale banking net income was C$293m reflecting revenue growth from corporate lending and trading, according to the bank.
Scotiabank distributed no new structured products in Canada during the third quarter (Q3 2016: 35 products), according to SRP data. The bank reported third quarter net income of C$2.1bn compared to C$1.9 million in the same period last year. In Q2, 2017, the bank reviewed and assessed the significance of volatility versus other inputs in determining the fair value of equity derivative contracts. Based on this assessment for certain equity derivative contracts volatility was considered an insignificant input. Accordingly a net amount of derivative assets of $56 million and derivative liabilities of $118 million was transferred out of Level 3 into Level 2 for equity derivatives during the three months ended April 30, 2017.
Desjardins Group launched two structured deposits during the quarter against 18 deposits in Q3 2016. Both products, which can be terminated by the investor annually from the third year onwards, were issued via Desjardins Wealth Management and are linked to a portfolio of 20 stocks. The group recorded surplus earnings of C$581m for the second quarter of 2017 ending June 30, 2017. Total financial assets at fair value through profit or loss stood at C$37bn as at June 30 and included, among other, debt securities issued or guaranteed by provincial governmental entities and municipal corporations in Canada (C$18.5bn), equity securities (C$1.6bn) and derivative financial instruments (C$3bn).
Royal Bank of Canada (RBC) did not issue any structured products in Canada during the third quarter (Q3 2016: 15 products). The bank, however, did target 142 structured notes worth a combined US$282m at retail investors in the US during the period.
RBC reported net income of C$2.8bn for the third quarter ended July 31, 2017, down C$99m or 3% from a year ago. Results reflected strong earnings growth in wealth management, insurance and investor & treasury services, partially offset by lower results in capital markets primarily due to less favourable market conditions, according to the bank.
Click the link to view the full results of BMO Financial (presentation), CIBC (news release & presentation), Desjardins Group (news release & quarterly report), National Bank of Canada (news release & presentation), RBC (news release & presentation), Scotiabank (quarterly report & presentation), Toronto Dominion Bank (news release & presentation).
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