Has Canadian co-op Desjardins Group moved away from its original mission and co-op culture? A new study by the Institute of Research and Socio Economic Information (Iris) argues that changes in the banking sector have impacted Desjardins’ own approach to meeting its members’ needs.
In its report,, the Montreal-based research institute examines the evolution of Desjardins from the moment it was set up by Alphonse Desjardins to its current position. Desjardins is the largest federation of credit unions in North America. The local credit unions are known as caisses.
According to the research, Desjardins’ first shift in approach occurred in the 1960s when workers started to earn more and – finding themselves in a more prosperous economy – wanted to own more property and luxury goods. They started turning to banks for loans to acquire them – and, in response, Desjardins increased its number of consumer loans.
In 1961, its loans accounted for only 8.8% of total assets, the research says – but in 1971 this proportion reached 19.3%. Since 2002 mortgages and loans for consumption represent on average 50% of the group’s total assets.
The paper also highlights that Desjardins has set the target of being a leader in terms of credit cards and consumer loans. This erodes the incentive to save, says the study – and it warns that Desjardins is supporting mass consumption and indebtedness.
Another change ushered in by the 1960s was a move away from a desire to emancipate people to a desire for managerial efficiency.
During this period, to free Quebec from its dependence on US capital, the leaders of the federation proposed the use of savings from depositors to stimulate local business development. Desjardins also started acquiring enterprises and created a number of financial subsidiaries.
But while this approach offers a variety of services, the researchers say it also affects the co-operative’s mission. Because they provide complex financial services, these subsidiaries are run by professionals who are not familiar with the co-operative movement – which means they might have problems integrating.
To address this, the confederation has decision-making power for the whole movement of caisses, controlling the subsidiaries and centralising the resources of the individual caisses.
The report claims the federation no longer aims to put in place measures that contribute to the economic emancipation of its members, but rather to maximise returns and surpluses. And those who run the federation now come from management schools or the banking community, it adds: and because its management is no longer politically active but paid professionals, Desjardins has lost its mission.
The report says another big transformation took place during the 1990s due to legislative changes. Traditionally banks had been forbidden from combining traditional banking and market activities, such as securities issues, insurance, brokerage and fiduciary management. But in 1991, changes to the law enabled them to form large financial conglomerates, regrouping several or all fields of financial activity.
Because Desjardins was classed as a local bank it never had to comply with the law. From the 1990s, the situation changed and it started facing competition from other banks; the movement had to enter new markets.
Since it cannot acquire capital by issuing shares, Desjardins could not raise capital when it wanted, as other banks could. After lobbying the government to enable it to have access to funds, a change in legislation enabled it to issue securities to raise funds from investors. This also means that the yield (interest) offered to investors must be high enough for them to want to invest in the first place.
To attract investment, the report says, Desjardins started adopting similar criteria to other banks. Remuneration also resembles that of traditional banks, focused on bonuses dependant on how the bank is performing.
In its 2000 annual report Desjardins said that it chose to comply with capital requirements imposed by international regulators. The federation began to increasingly define itself by the credit ratings granted to it by the major rating agencies. And since 2013, Desjardins has been considered one of the banks that are “too big to fail” and has to comply with Basel III regulations.
To improve performance, the federation started developing a culture similar to that of traditional banks. The report says this is noticeable across three different areas: the organisation of work inside the caisses; operating costs; and the organisational structure.
In terms of changes within the branches, many services were automated while service became more personalised, with cashiers being replaced by advisers. Advisers also get financial incentives for selling the most beneficial financial products for Desjardins.
The reducing of operating costs is visible in two ways. The first is the merger or closure of the caisses that have low growth potential. The movement went from 1,350 caisses in Quebec in 1990 to 671 in 2002. It now has just 238 caisses.
The second cut in costs came in the amount paid to members via rebates – which depends on how much members spend with the co-op.
The amount spent on rebates in 2016 decreased by more than two-thirds since 2002: from CA $490m to $144m – or 58% of the surplus amount in 2002, falling to 8% in 2016.
The total amount returned to members in 2017 was $202m while in 2018 this amounted to $253m. While there has been an increase, these figures represent only 9.4% and 10.9% of the annual surplus, says the report. Members who have more financial products with the co-op are rewarded more than those who do not use all of its services.
The research argues that the closure of branches and the lowering of rebates paid to members impacted the mission of the co-op, which was set up by Alphonse Desjardins to provide financial services to those who could not afford them.
After outside investors were attracted in the 1990s, Desjardins’ structure with local branches, regional caisses and the national federation also changed. The regional caisses were abolished and the leading organisation is now the central federation of caisses of Quebec.