Credit Union Group Rules Roost in Quebec

U.S. bankers may be envious of the coast-to-coast reach of Canada's big financial institutions, but the Quebec-based Caisses Desjardins have something even more attractive: killer market share.

Little known outside of Canada, the French Canadian confederation of credit unions has 35% of all savings deposits in Quebec province, 23.1% of the commercial lending market, 31% of personal loans, and 38% of all mortgages.

Behind the group's powerful market position lies Desjardins' traditional role as defender of the economic interests of some 6 million French Canadians ever since its founding 91 years ago.

But as growth in traditional banking products flattens out, Desjardins aims to turn itself into a financial supermarket for the independence-minded Quebecois, offering everything from trust banking to insurance.

"We're well ahead of the banks when it comes to diversifying," says Claude Beland, the group's 58-year-old president and mastermind of the growth.

"We think that's where our growth will come from in the future."

Since 1985, the group has nearly doubled consolidated assets to $45 billion, compared with a 75% increase in assets at banks in Quebec to $67 billion.

Desjardins is targeting three areas for expansion: asset management, insurance, and brokerage services.

To achieve this, the group has acquired or set up a string of nonbanking financial companies and set up a separate holding company, Societe Financiere des Caisses Desjardins Inc., to manage them, and strengthened capital by bringing institutional investors into the holding company and subsidiaries and listing some units, such as Trustco Desjardins Inc. on the Montreal stock exchange.

Contribution to Strength

The strategy is already paying off.

Desjardins is now second biggest in Quebec in life insurance with $488 million (U.S.) in premiums and 9.2% of the market and third-biggest in property insurance with $241 million (U.S.) in premiums and 7.7% of the market.

It owns the biggest discount broker in Quebec, Investissements Disnat Inc., and runs Canada's eighth-largest trust company, Trustco Desjardins, with $2.8 billion in assets and $22.3 billion in assets under management.

Analysts say several factors operate in the group's favor:

* Its special provincial charter that permits it to engage in financial activities that Canadian banks can't get into.

* A total of 1,336 locally managed branches across Quebec called Caisses Populaires. That includes 675 in communities where Desjardins is the only financial institution in town.

* Effective community relations that burnish the group's image as a corporate good citizen and an institution democratically run by its 4.3 million members.

* Rising French Canadian separatist sentiment.

"They're a force to reckon with and particularly so in Quebec," a spokeswoman for the Canadian Bankers Association acknowledges.

Linked to Nationalism

Analysts add that Desjardins has a significant advantage over banks when it comes to doing business in Quebec, largely because of its extensive grass-roots network and its skill in turning French Canadian nationalist sentiment to its own advantage.

Alongside a buildup in non-banking activities, Desjardins is expanding its retail network to other French-speaking enclaves in Canada.

The group brought 153 French Canadian credit unions in New Brunswick, Manitoba, and Ontario into its own network last year and is hoping to expand alliances with credit unions in other provinces.

Outside Canada, Desjardins is discussing possibilities for either acquiring a Florida thrift or opening a federally licensed agency. It is strengthening alliances with big cooperative banks in Europe, Japan, and Australia, such as Credit Mutuel de France and Japan's Norinchukin Bank.

Affiliates Aid Immigrants

The group is also helping organize affiliated credit unions among immigrant communities in Montreal, launched an ambitious commercial paper funding program on international capital markets, and is thinking of adding offices in New York, Tokyo, and London to drum up corporate deposits and loans.

"They've gone way beyond being just a credit union," says Allen Charbonneau, chief executive of the World Council of Credit Unions in Madison, Wisc.

"Their cooperative roots are well in past," says Ronald Rudin, a professor at Concordia University in Montreal and author of a recently published book on the group, "In Whose Interest - The Caisses Populaires of Quebec."

"What they've got in mind is turning themselves into the central financial institution for French-speaking Quebecers."

Wind at Their Backs

"It's an extraordinary organization that's grown steadily by appealing to French Canadian nationalism," says A. Roy Palmer, a Montreal-based bank analyst with Bunting Warburg.

"The wind is on the side of the Caisses Desjardins and less so on side of banks," says Mr. Rudin.

"It's an us-and-them situation in Quebec," said another analyst who declined to be named. "They play upon the need to keep the business, and the money, in Quebec hands."

"Nationalism has worked in our favor," Mr. Beland acknowledges.

Windfall or Disaster?

Several analysts also predict that political independence for Quebec could trigger a new retreat by banks out of the province, completing an exodus that started in the mid-1980s, when Royal Bank of Canada and Bank of Montreal shifted their main operations to Toronto.

Any such retreat, they say, would leave Desjardins the undisputed financial master of Quebec.

"It's quite uncertain what the banks' position would be if the political situation changes,' Mr. Rudin said.

Involved with Separatists

As head of the biggest financial institution in Quebec, Mr. Beland has been at the forefront of a decade-long battle to secede from the rest of Canada.

This, he hopes, can be achieved without damaging Quebec's economic interests.

"Our policy is to seek greater sovereignty while remaining economically linked to the rest of Canada," Mr. Beland says.

"We want to be able to decide our own future," he said. "But we remain firmly attached to competition and market globalization."

But with the Quebec government planning to hold a referendum on independence next year, some say Mr. Beland is riding the back of a tiger.

Independence, they predict, will create economic confusion, deter badly needed outside investments needed to relaunch Quebec's depressed economy, and limit the credit union's own ability to expand.

An Economic Gamble?

They add that Quebec can ill-afford to gamble with its economic future.

"The separation of Quebec would mean less economic integration, less control over currency, more barriers to trade and commerce, no Group of Seven membership, and the loss of considerable international influence," Canadian Prime Minister Brian Mulroney warned in October.

Independence for Quebec could also harbor some very immediate dangers for Desjardins.

"If Beland scares too many people and we wind up with our own currency, a lot of people will move their money to chartered banks outside Quebec," worries one financial consultant in Montreal.

With about 80% of deposits held by only 20% of the credit union's members, he points out, Desjardins is particularly vulnerable to a flight in deposits.

"They've got a financial, political, and economic perspective that's very shortsighted," adds a Toronto-based bank analyst said.

"They're not going to get great economies of scale in a country that's got six-and-a-half million people."

PHOTO : GROWTH PLATFORM: Desjardins credit unions, led by president Claude Beland, use success as springboard into new businesses.

PHOTO : A Growing Force in Quebec

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