30 May, 2017

Canada Bank Mergers & Acquisitions (Mouvement des caisses Desjardins)

Photo: Complexe Desjardins, 150 rue Sainte-Catherine Ouest in Montréal, is the head office of Mouvement des caisses Desjardins.

Co-operative banking and Quebec

Quebec, the French-speaking province of Canada, often emphasizes itself as a “distinct society” because of its French heritage, French-language culture and Roman Catholic society.  The rest of Canada sometimes makes fun (sarcastic or otherwise) of this “distinct society” assertion, but Quebec’s banking sector is indeed very different from the rest of Canada. While the Big Five banks oligarchy enjoys an absolute domination in so-called English Canada; in Quebec, the commercial banks’ combined share of the banking market based on deposits is only 55%, with the remaining 45% of deposits being held by co-operative credit unions known as “caisses populaires”. Interestingly, this market environment is very similar to France itself, where mutual banks (“les banques coopératives”) also enjoy a significant market share, particularly outside of major cities.

At the closing of the 19th century, a vast majority of Quebec’s 1.6 million inhabitants were Francophone and Roman Catholic. Their livelihoods were closely dependent on agriculture and most of them were too poor to possess a bank account. Access to regular bank credit (loans) was non-existent due to their unreliable income and lack of savings or property as collateral. In situations where they absolutely needed to borrow money for emergencies, frequently their only source was unscrupulous lenders who offered usury at extremely high interest rates, rendering the borrowers into a cycle of perpetual indebtedness and poverty.  This situation was not unique to Quebec, but indeed had been a common social ill across Europe and North America for centuries.

During the 19th century, farm workers displaced by the Industrial Revolution sought factory work in towns and cities en masse, where the working and living conditions were often appalling. A social and labour movement began to rise up to fight this social, economic and political inequality.  One result of this social movement was the birth of the co-operative movement in the mid-19th century.  The co-operative movement was based on democratic, anti-discriminatory, open-membership and mutually beneficial principles. In a co-operative business (often called simply a “co-op”), every customer must first become a member and co-owner of the business with a small fee. Because a co-op is collectively and mutually owned by the member-customers themselves, there is much less pressure to squeeze out more profits at the expense of customers, for it would be just like paying the right hand with money from the left hand of the same person. In fact, profitable co-ops periodically distribute part of their surplus (profits) to their members.

The world’s first co-operative business was established in Rochdale, Lancashire, England, in 1844. Most of the founders of the Rochdale Society of Equitable Pioneers were weavers, who pooled together their resources to open a shop to provide fresh and nutritious food produce that was otherwise unaffordable for many poor people at the time. Meanwhile in 1850, German politician and social reformer Hermann Schulze-Delitzsch established the world’s first banking co-op (credit union) in Delitzsch.

For the rest of this publication, the terms “caisse populaire”, “credit union”, “mutual bank”, “banking co-op”, and “co-op bank” are used interchangeably not to confuse the reader, but because indeed these terms all refer to the same type of bank in various countries. (In Britain, Ireland and some Commonwealth countries, a banking co-op is known as a “building society”.)

Credit unions in North America often cater to a geographic locale, a profession or a group of employees at a specific workplace, or to an ethnic group.  Initially, the credit unions in Quebec operated autonomously. Over time, however, they pooled together their resources to collaborate with each other, and three alliances emerged: the Desjardins group, the Quebec Credit Union League and the Fédération des caisses d’économie du Québec. The two latter alliances eventually amalgamated into the Desjardins group, but they would be described briefly under separate headings.

Mouvement des caisses Desjardins (Desjardins group)

In the final years of the 19th century, Quebec journalist-turned-social-reformer Alphonse Desjardins had become aware of the ruthlessly high interest being charged by lenders to the underclass. After making contact with Europe’s banking co-op promoters, Mr. Desjardins founded the Caisse populaire de Lévis in December 1900. This became North America’s very first credit union. Lévis is the hometown of Mr. Desjardins and is situated on the south shore of the St. Lawrence River across from Quebec City.

Interestingly, during Caisse populaire de Lévis’ first six years of existence, there was no legal framework to recognise such a business form. Despite Mr. Desjardins’ numerous attempts to get the Canadian parliament to legislate credit unions, the lawmakers failed to pass the legislation every time. It was only in 1906 that Mr. Desjardins was able to convince the Quebec provincial legislature to recognise credit unions as “legal” financial institutions. To this day, credit unions in Canada are still regulated by individual provinces even though banks are regulated at the federal level.

Society in the early 20th-century Quebec was still overwhelmingly rural and Roman Catholic, and villages and towns were organised into parishes. As such, many of the caisses populaires at the time operated out of the basements of parish churches.

Together, the tireless Alphonse Desjardins and his wife Dorimène travelled to other towns in Quebec and New England to promote the co-op banking movement across Canada and the United States.

Mr. Desjardins also believed that the habit of money-saving was a virtue that should be instilled not just to the working youths or adults, but to youngsters and school children. As early as 1901, he had tested the concept of a school-based credit union. In 1907, he formally launched the first caisse scolaire, again in his hometown of Lévis, to promote penny savings by children.

Interestingly, Mr. Desjardins is also the father of the banking co-op movement in the United States of America. At the beginning of the 20th century, as many as 600,000 Franco-Canadians lived in the New England region to seek better opportunities and lives, making up as much as 10% of the population at one point.  This was the result of a phenomenon known as the “Quebec Diaspora”. It was during a trip to visit the Quebec expat communities in 1908 that Mr. Desjardins founded the Caisse populaire in Sainte-Marie de Manchester in New Hampshire, creating the first credit union in America.

Also in 1908, Mr. Desjardins launched North America’s first workplace or profession-based credit union, known in French as a caisse d’économie or a “group caisse”, when the Civil Service Savings and Loan Society was established in Ottawa for federal government employees. This also became the first credit union in Canada outside of Quebec. And in 1913, for the first time the word “Desjardins” – the founder’s name – was used when Saint-Sauveur-des-Monts’ caisse populaire was established.

However, during these early days, not all of the credit unions would survive. The operations very much relied on volunteers, and the local economies could be unstable at the best of times. In any case, Alphonse and Dorimène Desjardins helped establish well over 130 caisses populaires in Quebec, around 20 in Ontario and nine in the United States. Following her husband’s death in 1920, Dorimène Desjardins continued to be consulted on key decisions regarding the development of the movement for a number of years. Though never given an official position during her lifetime, today the Desjardins group considers Dorimène an equal co-founder as much as her husband Alphonse.

Initially, each of the many caisses populaires was run independently, catering to its local community and had little collaboration with each other. In 1920, this began to change when the caisses populaires in the Trois-Rivières region formed the first “Union régionale”, initiating a strategy to create a liquidity oversight mechanism, to promote collaboration, and to defend the caisses populaires’ interests. In the next several years, three other Unions régionales were created in Quebec City, Montreal and Gaspé respectively. Over time, each of the four Unions régionales also established a new regional caisse to manage and transfer the affiliated caisses’ capital, and to clear cheque payments. This set the beginning of a more cohesive network.

The Great Depression that started in 1929 heightened the importance of regular and accountable audits of the caisses populaires. The Quebec government agreed to fund this regulatory mechanism, provided that the four Unions régionales establish a centralised and responsible organisation. This agreement led to the creation of the Fédération de Québec des unions régionales des caisses populaires Desjardins in 1932. For the first time, the many caisses populaires across Quebec came under a single umbrella organisation. However, there were still many other credit unions that were not under this Desjardins federation – see below.

In 1944, the Desjardins group branched into the property insurance business when the Société d’assurance des caisses populaires (SCAP) was created. Four years later, a life insurance division was founded: Assurance-vie Desjardins.

At the close of the 1940s, the Unions régionales agreed to contribute to a central reserve fund (“fonds de sécurité”) in case emergency capital was needed for any of the member caisses populaires, further bonding the Desjardins group together.

Throughout the 1960s, the historically religious, frugal, conservative and less affluent Quebec society underwent rapid changes. Rising consumer confidence and the rise of consumerism let to appeals for easier credit, and the caisses populaires relaxed their long-held opposition to personal loans.

Desjardins officially launched its inter-caisse computer system in 1975, allowing clients to make transactions at any caisse in the network, putting Desjardins several years ahead of the Big Five banks in Canada.

Two important events happened in 1979 to the Desjardins group: first, the Caisse centrale Desjardins (CCD) was created. As its name suggests, CCD performs certain “central bank” functions for the numerous caisses within the group, such as managing the Unions régionales’ reserves and clearing and settling payments (e.g. cheques) both between Desjardins’ member caisses and with other Canadian and foreign banks. The second momentous event was the merger of the Fédération de Québec des unions régionales des caisses populaires Desjardins and the Fédération des caisses d’économie du Québec, creating a massive network of community credit unions and workplace credit unions. The ten Unions régionales became regional federations following the combination. The combined entity adopted the name Confédération des caisses populaires et d’économie Desjardins du Québec.

The 1980s was a decade of expansion and diversification for Desjardins. In 1981, the credit unions under the Quebec Credit Union League (see separate heading below) joined the Desjardins group. And in the same year, after years of consideration, Desjardins finally began offering Visa card products. The year also saw the installation of the first ATM (bank machine). In order to broaden its deposit base and penetrate the vast credit (loan) market in Canada’s primary financial market, Caisse centrale Desjardins opened an office in Toronto in 1986. Then in 1988, for the first time Desjardins entered the securities brokerage business when it acquired a stake in discount brokerage Disnat. A securities arm called Corporation Desjardins des valeurs mobilières (CDVM) was promptly created, which in 1989 acquired a majority stake in full-service broker Deragon, Langlois. By 1991, Desjardins had taken full control of both Disnat and Deragon, Langlois, which eventually became today’s Desjardins Securities.

As many as 500,000 Canadians own vacation homes in the U.S. Sunbelt (chiefly in Florida and Arizona). Each year, these so-called “snowbirds” fly down to the U.S. to escape the long and cold Canadian winter. It was only natural for Quebec’s largest financial institution to cater to these seasonal Canadian residents in Florida.  In 1992, Desjardins launched the Desjardins Bank in Hallandale Beach (near Fort Lauderdale) in Florida, and now runs a four-office network in the state.

In 2001, Desjardins decided to simplify its bureaucratic and cumbersome three-tier structure (the caisses populaires, regional federations and the Confédération) by removing one layer of management. The ten regional federations and the Confédération were combined into a new Federation.

As of the time of publication (early 2017), the Desjardins group serves over five million members on-line, over the telephone, and through more than 800 branches and 2,000 ATMs (bank machines) in Quebec and Ontario. In addition to banking products, the group also offers auto, home, property and life insurance, asset management, and full-service and discount brokerage service.

Quebec Credit Union League

Initially, the workplace credit union mode proliferated more so in the U.S. than in Canada. But in the 1940s, the Canadian subsidiaries of American corporations caught on with the movement and Bell Canada (at the time a subsidiary of the American Bell Telephone Co.) was one of the first large private employers to have a workplace or profession-specific credit union, where savings were made through payroll deductions. Within a few years, Montreal’s firefighters, hospital workers, and police all established their own caisses d’économie, as did workers from Canadian National Railway and the Canadian Pacific Railway. In 1944, some of these predominantly English-speaking workplace credit unions banded together and created the Quebec Credit Union League to promote their cause and co-ordinate their activities. During the 1950, dozens of French-speaking credit unions also joined the Quebec Credit Union League so that its membership numbered 70 caisses by the time it joined the Confédération des caisses populaires et d’économie Desjardins du Québec in 1981.

Fédération des caisses d’économie du Québec

During the 1960s, a seismic shift in socio-economic and political ideology later termed the “Quiet Revolution” was brewing in Quebec, and one key discord was the contentious issue of the historic domination of the English language in Quebec’s business world and amongst its socio-political elites. In September 1962, 14 French-speaking caisses d’économie split from the English-language Quebec Credit Union League and formed the French-language Fédération des caisse d’économie du Québec. Within a few months, another 18 caisses d’économie had joined the federation.

In 1979, the Fédération des caisses d’économie du Québec’s 116 affiliated caisses agreed to combine with the Desjardins Group, resulting in the new Confédération des caisses populaires et d’économie Desjardins du Québec.

Recent transactions:
  • In 2000, Desjardins General Insurance acquired The Personal Insurance Co. and CIBC General Insurance Co. from CIBC for CAD $330-million. The acquisition gave Desjardins 400,000 new policies.
  • In 2011, Desjardins acquired Western Financial Group for CAD $443-million. Western Financial Group had 121 offices in British Columbia, Alberta, Saskatchewan and Manitoba offering insurance and investment products to individual clients.
  • In 2013, Desjardins took a 40% stake in on-line brokerage Qtrade Financial Group. Qtrade held CAD $7.5-billion of client assets.
  • In 2015, Desjardins bought the Canadian property and casualty, and life insurance operations of State Farm Mutual Automobile Insurance Co. The acquisition added over 1.2 million clients to Desjardins and would nearly double Desjardins’ annual premium revenue from CAD $2-billion to $3.9-billion.
  • In February 2017, Desjardins sold its Western Financial Group and Western Life Assurance operations to Wawanesa Mutual Insurance Co. for CAD $775-million.
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