Investment Banking in Canada

Investment Banking in Canada vs. United States

By contrast to the United States, Canadian Investment Banking is a smaller and more insulated market,

Client company coverage in the United States is based on size and investment banking potential. The Bulge Bracket banks and Elite Boutiques will cover the mega-caps and the large caps, middle market banks will cover mid-caps and small-caps, and regional boutiques or industry boutiques will cover micro-caps.

Canadian capital markets are generally much less deep compared to the US (the Canadian investment banking market is much smaller with a smaller pool of investors).

For example, when a Canadian corporate issues debt in public markets, it needs to be a relatively small size (C$150-500 million) as there is not enough market demand (buyers of Canadian bonds) and the limited number of Canadian dollar bond investors such as Canadian insurance companies or asset managers do not have enough cash. Large Canadian borrowers often will issue in the US instead.

Although a declining trend, Canada’s equity markets have historically been dominated by financials, energy and minerals.

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Top Investment Banks in Canada

Below are the most prominent investment banks operating in Canada, organized by type:

Canada Investment Bank Rankings – League Tables

Mergers & Acquisitions – As one might expect, Bulge Bracket banks loom large in Canada and will generally be in the top 10 for M&A as most cross border deals will be done using their global networks. Whether this is a Canadian pension fund looking to expand outwards or a global firm purchasing Canadian assets, usually a Bulge Bracket bank will be involved. RBC and BMO have expanded their US presence greatly and compete with the Bulge Brackets. Meanwhile, for domestic M&A, the Big 5 have a stranglehold on the business:

Source: Wall Street Journal

Debt Capital Markets – Bulge Bracket banks will be a staple in US dollar debt issuances for larger Canadian corporates, as well as junk bond and leveraged loan issuance via their leveraged finance teams.

Meanwhile, the Big 5 serve as relationship lenders through their corporate banking arms, and thus will usually be involved on a pro-rata basis for any debt capital markets (or equity capital markets business).

Source: Wall Street Journal

Equity Capital Markets – Equity raises in the US by large Canadian corporates (i.e. IPOs and secondary issuances) will often involve Bulge Bracket banks as they have the rolodex with the large buy-side institutional investors.

Source: Wall Street Journal

Investment Banking Groups in Canada

As discussed earlier, almost all coverage will be done out of Toronto, while all francophone coverage will be out of Montreal and corporate banking will be in all markets aligned with investment banking coverage.

Target Schools for Investment Banking in Canada

Recruiting for investment banking has historically come from undergraduate business-focused schools. By contrast historically, the US investment banks recruited from the most prestigious colleges & universities not just the business oriented ones. Historically, the top feeder schools have always been:

• Ivey Business School (Western University)
• Queens
• McGill

Recently, however, major Canadian universities have begun to increasingly place well. Many banks have started initiatives to expand beyond the traditional feeder pool of the business schools and now welcome STEM majors. with the list of semi-target schools expanding to:

• UBC
• University of Toronto
• York
• Waterloo
• McMaster
• The University of Alberta and Calgary will also place in Calgary, the oil and gas hub for Canada

Investment Banking Salaries in Canada

Investment banking salaries are lower in Canada versus the US, while roughly on par with London.

Similar to the US, investment banking comp for all the Big 5 is approximately $85,000 at the analyst level – with the catch being that this is in Canadian dollars with the recent long-term exchange rate being $1.30 in favor of the US dollar.

Inclusive of bonus, all-in compensation ends up being roughly 30% lower at all levels.

At the associate level, compensation is materially lower from a base perspective versus global peers but bonuses are a higher multiple of the base salary. This trend is the same for each subsequent position up the ladder.

Impact of Covid-19 on Canadian Investment Banking

Covid-19 has hit Canada hard like most other countries in Europe and the Americas, leading to major changes within investment banking. Eastern Canada, where most of the investment banking business is conducted in Toronto and Montreal, has been the worst affected by the coronavirus.

As such, most Canadian investment banks and their broader capital markets franchises have adopted work from home with most client interaction and internal meetings conducted over Zoom and Microsoft Teams.

Although the caseload for Covid-19 is not as severe in Canada versus the U.S. and Europe, Canada’s economy contracted in 2020 and will likely see anemic growth in 2021 as Canadian exports and trade are predominantly with the U.S.

However, Canadian investment banks have kept busy despite Covid-19. Canadian investment grade bond issuers have taken advantage of open debt capital markets windows to shore up liquidity or refinance upcoming maturities early given the uncertainty in the market.

Also, Canada’s investment banking industry has an outsized metals and mining coverage relative to mining in its economy. Precious and base metals have run up and junior and senior miners have taken advantage of Canadian Equity Capital Markets for equity fundraising.