PrefBlog

DBRS has announced that it:

has today confirmed the Pfd-3 (low) rating on the Preferred Share obligations of GMP Capital Inc. (GMP or the Company), but has changed the trend on the rating to Negative. The rating reflects the strength of the Company’s business franchise as a premier provider of investment banking and capital markets products and services to its targeted market of mid-sized Canadian companies, most of whom operate in the resource and energy sectors. The change in trend, however, reflects the current adverse market environment for the Company’s resource-oriented clients and DBRS’s belief that these conditions are not likely to turn favourable in the short term. While the Company has invested in geographical and business line diversification, largely through the 2011 acquisition of U.S.-based Miller Tabak Roberts Securities, LLC (MTR), which has provided new market opportunities and revenues, the weak market environment has caused earnings to remain weak since Q2 2011.
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The slump in underwriting and trading activities, which DBRS does not expect to recover in the short-to-medium-term, given the weak global economic outlook and continued absence of investor confidence, suggests that a Negative trend is appropriate until the Company returns to a healthy and sustainable level of net income, steady capital accumulation and improving capitalization ratios. In the current environment, the Company’s 32.7% interest in Richardson GMP, a high net worth wealth management operation with over $14 billion in assets under administration (AUA), is operating at break-even and is therefore not a source of profitable diversification for the Company. Similarly, the failure of the Company’s investment in EdgeStone Capital Partners, L.P., removes some of its previous potential for earnings diversification

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