Desjardins Group

Desjardins Group (also known as Mouvement Desjardins) is a Canadian financial services cooperative and the largest federation of credit unions—known locally as Caisses populaires or “people's banks”—in North America. Headquartered in Lévis, Quebec, it operates like a bank but with a fundamental twist: it is owned by its members, not by outside shareholders. Instead of focusing solely on maximizing profit for investors, Desjardins aims to serve the financial well-being of its members and support community development. It offers a full suite of financial products, including personal and business banking, insurance, wealth management, and brokerage services. Its massive scale and cooperative structure make it a unique and powerful force in the Canadian financial landscape, embodying a model of stakeholder-centric capitalism.

Imagine a bank that’s owned by you and your neighbors. That’s the core idea behind Desjardins. Unlike a typical publicly-traded bank where power lies with shareholders who own stock, Desjardins is owned by its customers, who are called members.

The foundation of Desjardins is its network of local Caisses populaires. When you open an account at a caisse, you purchase a member share (typically for a nominal amount like $5), which makes you a co-owner of that local branch. This ownership comes with democratic rights.

• One Member, One Vote: Regardless of how much money you have in your account, each member gets one vote in electing the caisse's board of directors. This is a stark contrast to corporations where voting power is proportional to the number of shares owned.
• Member-First Focus: Because the owners are also the customers, the institution's primary goal is to provide better rates, lower fees, and superior service to its members, rather than maximizing profit for external investors.

While each local caisse is democratically controlled by its members, they are all part of the larger Desjardins Group federation. This structure is a brilliant blend of local autonomy and centralized power. The central body provides shared services like technology, security, product development, and risk management, allowing the small local credit unions to compete with Canada's giant national banks. This collective strength gives Desjardins immense stability and a wide economic moat.

This is where things get interesting for an investor. If Desjardins is owned by its members, can an outsider even invest in it? The short answer is: yes, but not in the traditional way.

You can't go to the Toronto Stock Exchange and buy common stock in Desjardins Group because common stock, in the traditional sense, doesn't exist. The ownership is held by its millions of members. However, to raise capital and maintain a strong financial position, Desjardins issues special types of securities that are available to the public. These often behave like a hybrid of bonds and stocks.

• Capital Shares: Desjardins has issued various classes of preferred shares (sometimes called Capital Shares) that trade on the stock market. These securities pay a fixed or floating dividend to investors. They don't come with voting rights, but they offer a way to invest in the financial strength of the Group and receive a steady income stream.
• Subordinated Notes: Desjardins also issues subordinated debt, which is another form of investment that pays interest to holders. These are essentially loans to the institution that rank below other debts in case of liquidation, so they carry slightly more risk but typically offer a higher yield.

For a value investing enthusiast, Desjardins presents a compelling case for stability and capital preservation, even if it lacks explosive growth potential.

1. Fortress Balance Sheet: Cooperatives are often managed more conservatively than their publicly-traded peers. Desjardins consistently maintains a very high capital adequacy ratio, well above the minimums required by regulators. This is the ultimate sign of a financial institution that prioritizes safety over risky, high-return bets—a principle that would make Benjamin Graham smile.
2. Predictable, Not Sensational: Investing in Desjardins' publicly-traded securities is not a bet on soaring stock prices. It's an investment in a highly-rated, stable institution for income. The analysis focuses on the company's ability to continue paying its distributions and interest—its creditworthiness—rather than its potential for earnings growth.

One of the most unique features of Desjardins is the concept of member patronage dividends, or ristournes as they're known in French. At the end of the year, if the Group has a surplus (profit), a portion of it is returned to the members. The amount each member receives is often based on the extent to which they used the caisse's services throughout the year. This practice does two things:

• It directly rewards members for their loyalty.
• It reinforces the Group’s commitment to community, as another portion of surpluses is dedicated to community projects and sponsorships, further strengthening its brand and member loyalty.

Desjardins Group is a financial titan built on a foundation of community ownership. For the average person, it’s a member-focused alternative to traditional banking. For the value investor, it represents an opportunity to invest in a low-risk, stable, and conservatively managed institution. While you can't own a piece of the cooperative in the traditional sense, its publicly-traded preferred shares and notes offer a way to benefit from its fortress-like financial stability and generate steady income, making it a worthy consideration for the defensive portion of a portfolio.