Quebec’s Desjardins Group wants to expand further in the rest of Canada, its top executive said, an ambition that means it needs to make deals and add staff in wealth management and capital markets.
The financial co-operative is flush: it has more than C$4 billion ($2.9 billion) of available capital after a year in which surplus earnings — a measure of profitability before member dividends — rose 14% to C$3.8 billion.
“Scale is important when you look at the level of investment you need to do, whether it’s in artificial intelligence, security, digital transformation,” Chief Executive Officer Denis Dubois said in an interview. The firm spends C$2 billion per year on technology. “And if you don’t have the scale, it’s just hard to keep pace with that.”
Desjardins has a pending deal for Toronto-based money manager Guardian Capital Group Ltd., which will boost its wealth business to around C$300 billion of assets under management and advisement. Dubois set a goal to reach C$500 billion within five years. “Mergers and acquisitions will be part of the play to get there,” he said.
Desjardins is among the largest retail financial institutions in Canada, with a C$510 billion balance sheet that makes it only a little bit smaller than Montreal-based rival National Bank of Canada — despite 65% of its business being in a single province, French-speaking Quebec.
Dubois, an actuary who spent most of his career at Desjardins, succeeded Guy Cormier in September. He played a key role in the firm’s growth in insurance and wealth management, notably with the acquisition of State Farm General Insurance Co.’s Canadian operations in 2015, which made it a significant player in home and auto insurance outside Quebec, and last year’s Guardian deal.
Desjardins’ current Tier 1 capital ratio is near 24%, almost double that of Canada’s largest banks. “That means excess capital over C$4 billion we need to redeploy,” said Dubois, “so we’re in a position where we have the resources.”
The credit union’s push to expand its national footprint started about 15 years ago and took place on multiple dimensions, said Dubois, citing as one example the increased presence of its economic research department. “We’re kind of like a big fish in a small bowl here in Quebec,” he said. “When you look at the Canadian market, there’s clearly more space.”
But competition remains fierce, particularly with Desjardins’ main Quebec competitor, which has the same ambitions. National Bank acquired Canadian Western Bank for more than C$5 billion to capture new clients in the western provinces, and CEO Laurent Ferreira wants more. “Our strategy was always to grow out of Quebec. Now this is a footprint to be able to leverage even more,” he said in a recent interview.