Co-op News (August 2019)

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.
“CONTRARY TO WHAT ALPHONSE
DESJARDINS WANTED, CAPITAL IS
NO LONGER A MEANS, IT HAS BECOME
THE MAIN OBJECTIVE,”
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.
AUGUST 2019 | 39