Canada’s Desjardins Scouts for Hires and Deals to Expand Wealth, Capital Markets

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.

Capital Markets

Desjardins’ capital markets business came into existence around 2010 as commercial clients were growing and is now one of the drivers of the expansion road map. “Building up a solid capital markets capability is ultimately just making sure you’re not dropping the ball someplace along the way,” said Francois Carrier, the division’s head.

Carrier, who manages the unit out of Montreal, plans to double revenue and increase headcount by about 50% over time, with most of those new jobs being in Toronto, where some of the expertise he’s looking for is more easily found.

“It’s really about completing the toolbox, adding the right people, the right set of relationships,” he said, adding that he wants to build capabilities such as over-the-counter equity derivatives.

The bulk of the credit union’s corporate finance and M&A advisory activity is in the mid-market segment, notably in real estate, energy transition and mining. It acted as joint bookrunner for Champion Iron Ltd.’s $500 million offering of senior unsecured notes last year, and worked as an adviser to Minto Apartment Real Estate Investment Trust’s special committee for its C$2.3 billion sale to Crestpoint Real Estate Investments Ltd.

“It takes time to pick your spots and start having a bit of an impact,” said Carrier. “But I’m not waking up every morning going out elephant-hunting.”

Photograph: Desjardins Group’s CEO Denis Dubois; photo credit: Andrej Ivanov/Bloomberg