Desjardins Group Returns to Profitability and Announces Surplus Earnings
Before Member Dividends of $1,077 Million for Fiscal 2009

LÉVIS, QC, Feb. 26 /CNW Telbec/ -

    
    Financial highlights

    -   Surplus earnings before member dividends of $244 million for the
        fourth quarter of 2009, compared with a deficit of $476 million for
        the same quarter in 2008.
    -   Surplus earnings before member dividends of $1,077 million for fiscal
        2009, compared with $78 million in 2008.
    -   Strong balance sheet with $11.2 billion in capitalization and a
        quality loan portfolio.
    -   Tier 1 capital ratio still among the best in the industry.
    -   Assets of $157.2 billion, up 3.2%.
    -   Good performance of the insurance subsidiaries.

    Key financial data:

    -------------------------------------------------------------------------
                                For the year             For the quarter
                              ended December 31         ended December 31
    -------------------------------------------------------------------------
                              2009         2008         2009         2008
    -------------------------------------------------------------------------
    Surplus earnings
     (deficit) before
     member dividends       $1,077M         $78M        $244M       $(476)M
    -------------------------------------------------------------------------
    Return on equity          10.4%         0.8%         8.6%       (19.3%)
    -------------------------------------------------------------------------

    -----------------------------------------------
    Assets                  $157.2B      $152.3B
    -----------------------------------------------
    Equity                   $11.2B        $9.9B
    -----------------------------------------------
    Tier 1 capital
     ratio(*)                15.86%       13.39%
    -----------------------------------------------
    Sponsorships,
     donations and
     scholarships              $73M         $80M
    -----------------------------------------------
    (*) The 2009 ratio is calculated according to the new rules of the
        Basel II Capital Accord, while the 2008 ratio was assessed under the
        former regulatory framework or Basel I.

    Key accomplishments

    -   Capitalization strengthened with the issuance of permanent shares and
        debt securities.
    -   Maintained its position as a leader in Quebec with market shares, as
        of December 31, 2009, of 39.6% in residential mortgage credit, 45.3%
        in farm credit and 44.2% in personal savings, despite an uncertain
        economic environment and robust competition.
    -   Not only did Disnat post the highest rate of satisfaction among its
        investor clientele of all of the on-line brokerage firms in Canada,
        but its sales were up sharply in 2009.
    -   Outstandings in Desjardins Funds grew by 20.7%, which exceeds the
        industry average.
    -   Success of SocieTerra socially responsible investment funds with a
        clientele of investors that is hoping to invest based on
        extrafinancial criteria. The SocieTerra portfolios, which were
        launched in January 2009, have already reached some $110 million in
        assets at the end of the year.
    -   New organizational structure to achieve greater flexibility and gains
        in productivity.
    -   The 20th Desjardins Group Congress, tangible proof of democratic
        participation at Desjardins Group.
    

2009 Fourth Quarter Results

When the fourth quarter of 2009 ended on December 31, 2009, Desjardins Group, the largest cooperative financial group in Canada, posted better financial performance, with surplus earnings before member dividends of $244 million, as compared with a deficit of $476 million one year earlier. Return on equity was 8.6%, as compared with (19.3%) on a year-over-year basis.

Financial performance for the fourth quarter benefitted from strong growth in trading income and income on available-for-sale securities, despite lower interest rates, which restrained caisses' net interest income and, at the same time, limited their profitability. Insurance activities, particularly in the life and health insurance subsidiary, and securities activities also posted better results.

The financial results for the fourth quarter of 2008 were affected by the very difficult conditions encountered on the financial markets, which had a major bearing on the investment portfolio of subsidiaries and on other activities directly related to the financial markets, including securities, venture capital and investment funds.

In terms of income, the Desjardins Group's total income reached $2,583 million at the end of the fourth quarter of 2009, an increase of $854 million or 49.4% as compared with the same quarter of 2008.

Net interest income stood at $941 million in the fourth quarter of 2009, up $61 million or 6.9% over the same quarter in 2008. Net premiums stood at $1,082 million, up $55 million or 5.4% as compared with the fourth quarter of 2008, mainly due to the strong growth of annuity premiums.

Other income reached $560 million, as compared with a loss of $178 million in the same quarter of 2008. This significant growth was due to a $495 million increase in trading income and a $200 million rise in income from available-for-sale securities as a result of improved markets. Most of this income comes from the Personal and Commercial sector. Trading income in the life and health insurance subsidiary posted a decline, which was offset by a drop in expenses related to claims, benefits, annuities and changes in this subsidiary's insurance provisions.

The quality of Desjardins' loan portfolio remains excellent, in spite of a slight rise in the ratio of gross impaired loans to gross loans of 0.46%. Provisions for credit losses for the fourth quarter of 2009 stood at $86 million, compared to $88 million in 2008.

Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $773 million, down $192 million or 19.9% as compared with the fourth quarter of 2008. A large part of this decline is explained by an equivalent drop in investment income at the life and health insurance subsidiary, as mentioned above.

Non-interest expenses stood at $1,425 million, a $168 million or 13.4% increase over the same quarter of 2008. Much of this increase was due to increased salaries and fringe benefits related to the annual indexation of salaries and the incentive plan. The combined results for the fourth quarter of 2009 also include a $36 million expense arising from the cost of the Group's development plan, presented as part of reorganization expenses.

Results for Fiscal 2009

At the end of fiscal 2009, Desjardins Group announced surplus earnings before member dividends of $1,077 million, as compared with $78 million in 2008, when a severe financial crisis was underway. Return on equity was 10.4%, as compared with 0.8% one year earlier.

Financial performance in fiscal 2009 was enhanced by an increase in trading income and income from available-for-sale securities, thanks to an improvement in market conditions as well as a write-down of the portfolio of restructured ABCP notes that was smaller than the write-down recorded in the same period of 2008. An amount of $43 million was recorded in 2009 as a decline in the fair value of all the portfolios of restructured ABCP notes along with the write-off of an ABCP security excluded from the moratorium of the Montreal Accord. This compares to a write-down of $472 million recorded in 2008.

It is also worth noting that insurance and securities activities were more profitable. The surplus earnings of the caisse network declined 25.5%, from $693 million in fiscal 2008 to $516 million in 2009, primarily due to lower interest rates, which had a negative impact on net interest income.

"Fiscal 2009 was a pivotal year for Desjardins Group, and as 2010 begins we are very confident," said Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group. "Our financial performance is solid, our new teams are ready to tackle the challenges ahead, and our caisses are cooperating with our various components more than ever before. We are very ambitious, but above all we are certain that this is how Desjardins Group will continue to excel in a highly competitive environment. Furthermore, while we continue to draw support from our solid capital base and manage our activities in a sound and prudent manner, we will be offering our members and clients quality financial products and services, and we will continue to grow and develop with a view to sustainable prosperity."

The 2009 financial statements include a provision for member dividends of $311 million, which compares with $215 million in 2008. In addition, $73 million was returned to the community in the form of sponsorships, donations and scholarships. In all, individual and collective dividends totalled $384 million.

The Tier 1 capital ratio, assessed under the new regulatory framework (the Basel II Accord), reached 15.86% as at December 31, 2009, as compared with 13.39% in 2008 as assessed under the former regulatory framework (Basel I Accord). This exceeds the Group's capitalization target and is one of the best in the industry. In addition, the total capital ratio, assessed under the Basel II Accord, stood at 15.86%, as compared with 12.85% as assessed under the Basel I Accord as at December 31, 2008.

Total income reached $10,670 million at the end of 2009, an increase of $2,297 million or 27.4% as compared with the preceding year.

Net interest income stood at $3,522 million, a $104 million or 3% increase from 2008. Net premiums grew by $116 million or 2.8% as a result of good growth in insurance premiums, particularly in life and health insurance, and in annuity premiums. Other income was up $2,077 million due to a $1,667 million increase in trading income and a $484 million increase in income from available-for-sale securities as a result of improved market conditions. With respect to the trading income increase, an amount of $814 million came from the life and health insurance subsidiary and was offset by a $610 million increase in expenses related to claims, benefits, annuities and changes in this segment's insurance provisions. Note that the write-down of the portfolio of restructured ABCP notes was lower in 2009 than in 2008, which benefittted "other income." Other income was also enhanced by a $34 million or an 8.3% increase in lending fees and credit card service revenues. Income from brokerage, investment fund and trust services fell $36 million or 5.8%, primarily due to uncertainty in the markets.

The quality of Desjardins' loan portfolio remains excellent, even though provisions for credit losses rose slightly to $271 million, as compared with $243 million in 2008.

Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $3,758 million in 2009, up $614 million or 19.5% as compared with one year earlier. A large part of this growth is explained by an equivalent increase in investment income reported by the life and health insurance subsidiary, as mentioned above.

Non-interest expenses stood at $5,141 million, up $341 million or 7.1% as compared with 2008. More than half of this increase resulted from increased salaries and fringe benefits, in particular as a result of the annual indexation of salaries and the incentive plan. The combined results for fiscal 2009 include a $101 million expense arising from the cost of implementing the Group's development plan. It is also worth noting that the non-interest expenses reported in 2008 included a $68 million write-off related to strategic decisions.

The productivity ratio is calculated as Desjardins Group's non-interest expenses to total income, net of expenses related to claims and insurance benefits. The ratio was 74.4% at the end of fiscal 2009, an improvement over the 91.8% ratio posted for 2008. It should be recalled that various initiatives were undertaken to improve productivity, such as the implementation of a new organizational structure announced last May.

Desjardins Group had $157.2 billion in total assets as at December 31, 2009, compared to $152.3 billion one year earlier. This represents growth of $4.9 billion or 3.2%.

Results by Business Segment

Personal and Commercial

    
    This segment primarily encompasses the caisse network, the Fédération des
    caisses Desjardins du Québec, Caisse centrale Desjardins, the Fonds de
    sécurité Desjardins, Capital Desjardins Inc., Desjardins Trust and the
    Ontario Federation and caisses. It should be noted that, since the first
    quarter of 2009, the companies created specifically to hold the ABCPs
    repurchased by Desjardins Group and previously included in the Personal
    and Commercial segment are now presented in the "Other" segment. The
    information of previous periods has been reclassified to conform to the
    new presentation.
    

At the end of the fourth quarter of 2009, surplus earnings before member dividends in the Personal and Commercial segment stood at $123 million, in contrast to the $276 million deficit in the corresponding quarter of 2008. The financial results of this sector were seriously affected by the financial crisis and the problems with ABCPs in the fourth quarter of 2008.

At the end of fiscal 2009, surplus earnings before member dividends for this segment reached $740 million as compared with $360 million in 2008, due primarily to improved market conditions and good results at the Caisse centrale Desjardins. Results for the caisse network were down over 2008, as noted above, due to the impact of low interest rates on their profit margin.

Total income stood at $5,269 million at the end of 2009, up $760 million or 16.9% as compared with 2008. Net interest income was $3,565 million, up $99 million or 2.9% over 2008.

Other income reached $1,704 million in 2009, an increase of $661 million or 63.4% as compared with 2008. As mentioned earlier, other income was enhanced by a $637 million increase in trading income and $138 million more income from available-for-sale securities as a result of improved market conditions. This item also benefitted from a $34 million or 8.2% increase in income related to credit card activities.

Provisions for credit losses for 2009 totalled $270 million, as compared with $242 million in 2008.

Non-interest expenses totalled $3,973 million, an increase of $248 million or 6.7% as compared with 2008. Much of this increase was attributable to an increase in salaries and fringe benefits expense, due in part to the annual indexation of salaries and costs related to the Group's transformation in 2009. It should be recalled that $68 million in assets related to strategic decisions were written off in 2008.

Improved profitability at Caisse centrale Desjardins

The net income of Caisse centrale Desjardins (CCD) stood at $127.4 million at the end of fiscal 2009, up $164.0 million from 2008. The relevance of the business plan and rigorous enforcement of the risk management policy were behind these good results, which were more than double those of 2007. This performance reflects the determination and efforts of all the CCD's areas of activity to make up for the impact of the financial crisis and consolidate all of its activities. The Group Treasury segment made a major contribution to this growth, producing gross income of $176.9 million, a sharp increase of $147.2 million over 2008. This segment was the hardest hit by the financial crisis. Trading activities and, to a lesser degree, asset-liability management and management of cash resources explain this growth. As a result, the CCD's contribution to the Personal and Commercial segment was $123 million, as compared with a negative contribution of $33 million in 2008.

In the Personal and Commercial segment's financing activities, loans outstanding net of the allowance for credit losses grew 5.7% annually (or $5.8 billion) as at December 31, 2009 to reach $108 billion, while it had only grown 8.7% (or $8.1 billion) one year earlier. This slower pace is attributable to a lower demand for financing from households and businesses.

Less activity in the Quebec and Ontario housing markets, particularly in new construction (housing starts plummeted by 9.4% and 32.9% respectively last year) affected demand for residential mortgage credit. As at December 31, 2009, outstanding mortgage loans in the sector stood at $61.4 billion, up 4.7% or $2.8 billion annually. This compares with a rise of 7.4% or $4.1 billion recorded on the same date in 2008. This sector continues to stand out in consumer funding, credit cards and other personal loans, mainly due to the very popular Versatile Line of Credit mortgage guarantee. Outstanding loans in this market rose 14.8% (or $2.6 billion) to $20.2 billion as at December 31, 2009, as compared with the 9.2% (or $1.5 billion) growth posted one year earlier.

In business and government financing, clearly the economic and financial environment was not very conducive to business development in this area. The sharp decline in business investment considerably affected demand for such loans in 2009. The Personal and Commercial segment was not spared by these more difficult circumstances; outstanding loans in this market inched up 1.6% (or $424 million) to $27.3 billion, compared to the 11% (or $2.7 billion) increase reported at the end of 2008.

As at December 31, 2009, deposit liabilities outstanding in the Personal and Commercial sector stood at $106.6 billion, up 4.5% (or $4.6 billion). This compares with growth of 5.9% (or $5.7 billion) posted one year earlier. This is attributable, in part, to savers' growing interest in off-balance sheet savings products. Sales of investment funds and other securities substantially improved as a result of the recovery of the stock market. Deposits by individuals, which represented 70.8% of deposit liabilities in the Personal and Commercial sector at the end of the last fiscal year, grew 4.8% or $3.5 billion annually to $75.4 billion as at December 31, 2009, as compared with 9.4% (or $6.2 billion) growth recorded at the end of 2008.

Deposits by businesses and governments grew 8.3% or $1.8 billion over the year, to $23.3 billion as at December 31, 2009. This compares with a 3.1% (or $654 million) rise noted one year earlier. Outstanding amounts of other types of deposits (e.g., securities issued on capital markets) declined 8% or $688 million on a year-over-year basis, to $7.9 billion. This compares with a 12.1% (or $1.2 billion) drop registered at the end of 2008.

The resounding recovery of Canadian stock markets in 2009 (the S&P/TSX index closed the year up sharply by 30.7%, after having plunged 35% in 2008) helped the sale of off-balance sheet savings products, such as investment and securities brokerage. The Personal and Commercial segment also profited, as can be seen in the excellent results it posted last year. Investment funds and assets under administration and under management by the securities brokerage business grew 24% or $5.4 billion on a year-over-year basis, to $27.8 billion as at December 31, 2009, as compared with an 18.3% (or $5.0 billion) decline posted at the end of 2008.

Life and Health Insurance

For the fourth quarter of 2009, the contribution of Desjardins Financial Security (DFS) to the Group's combined results was $46 million, as compared with a negative contribution of $70 million in 2008. Net income for the quarter was $42.9 million, up $120.4 million over the same quarter of 2008. Insurance premium income came to $698.1 million for the quarter, and insurance sales totalled $33.6 million, as compared with $33.1 million posted for the same quarter of 2008.

At the end of fiscal 2009, DFS recorded $193.8 million in net income and a 25.9% return on shareholders' equity, one of the best in the financial services industry. Its contribution to the Desjardins Group's combined results stood at $192.8 million, as compared with $40.1 million in 2008. Insurance premium income for this period was $2,725.4 million, up $54.0 million, while insurance sales totalled $193.5 million, up $12.7 million. Retirement savings sales grew to $1,499.8 million as compared with $692.4 million for the same period of 2008.

In group insurance, the volume of gross premiums from groups and companies and those related to the plans provided through financial institutions, including Desjardins caisses, stood at $2,213.2 million, up $32.5 million from the same period of 2008. Sales from groups and companies totalled $144.3 million.

In personal insurance, the volume of gross premiums was $512.2 million. Sales came to $49.2 million.

Aggregate retirement-savings sales stood at $1,499.8 million. In personal savings, sales reached $1.1 billion, more than double what they were in 2008. Sales of group retirement savings stood at $403.6 million and sales of mutual funds totalled $314.5 million.

Lastly, assets under management and under administration were $22.8 billion.

General Insurance

Desjardins General Insurance Group (DGIG) contributed $27.1 million to the Group's results for the fourth quarter of 2009 as compared with a net loss of $2.3 million for the same period of 2008. At the end of fiscal 2009, DGIG posted a net profit of $94.2 million, as compared with $35.9 million in 2008.

As at December 31, 2009, return on equity stood at 17.5%, as compared with 8.5% on the same date in 2008. The quarterly and combined results for 2009 compare favourably with those for 2008 due to a favourable claims experience in automobile and housing insurance and investment income numbers that far outpaced those of 2008.

Improved results in insurance can be traced to the milder weather conditions in 2009. The previous year was marked by a record snowfall and violent storms. In December 2009, the Supreme Court of Canada refused to hear an appeal of a case that challenged the automobile insurance cap on minor bodily injuries introduced by Alberta. Allowances recorded in recent years in connection with this case were reversed in the final quarter, which helped improve automobile insurance results for 2009 for subsidiaries outside Quebec.

Premium income increased across all banners. Gross premiums written rose 3.4% from $342.8 million in the fourth quarter of 2008 to $354.9 million in the same quarter in 2009. At the end of fiscal 2009, the figure was $1,498.5 million, a 2.7% increase over the $1,459.6 million achieved in 2008, mainly due to the growth of home insurance. In addition, in the last quarter of 2009 a portion of the increase in premiums written can be attributed to the partnership agreement signed with a Canadian financial institution under which DGIG has the privilege of being both the manufacturer and distributor of general insurance products for the latter.

In addition, the improved return was also explained by greater investment income, which stood at $2.6 million in the fourth quarter of 2009, compared to a $18.7 million loss in 2008. At the end of fiscal 2009, investment income reached $71.5 million, compared to $24.3 million in 2008, a year when values plummeted. In 2009, lower interest rates and narrower credit spreads resulted in higher bond values. Moreover, a portfolio reorganization conducted in the first quarter of 2009 also led to gains on bond dispositions. However, some securities suffered other than temporary declines in value.

In recent years, DGIG has been making investments to pursue growth and maintain its leadership in general insurance, which helped raise its operating expense ratio. Although this ratio was slightly higher than last year, it still compares favourably with the industry as a whole.

DGIG's capitalization exceeds regulatory requirements by a wide margin, since the profits realized in 2009 and the significant increase in the value of equity investments have expanded equity.

Securities Brokerage, Asset Management and Venture Capital

    
    The Securities Brokerage, Asset Management and Venture Capital segment
    primarily encompasses the operations of Desjardins Securities, Desjardins
    Asset Management and Desjardins Venture Capital.
    

This segment posted a net loss of $1 million in the fourth quarter of 2009 as compared with a net loss of $19 million in the same quarter of 2008, bringing net income to $22 million for fiscal 2009, as compared with a net loss of $29 million in 2008. This improved profitability was attributable to a gradual recovery in the markets, which had a favourable impact on securities and venture capital activities. It is worth noting that the securities subsidiary reported a much improved financial performance, achieving net profit of $20 million in 2009, as compared to a net loss of $23 million in 2008, which was mainly driven by strong performances of the Fixed Income Group and of the online brokerage services. It should be mentioned, however, that the financial results for asset management activities declined, since in 2008 the damage produced by the financial crisis gave rise to a disinvestment program in the underlying investments for structured products. The impact of this program was felt throughout 2009.

Other

    
    Since the first quarter of 2009, the "Other" segment has included the
    results of companies that were specifically created to hold the ABCPs
    repurchased by Desjardins Group and previously included in the Personal
    and Commercial segment. It should also be recalled that since the second
    quarter of 2009, all ABCP securities held by Desjardins Group have been
    reported by the "Other" segment following their sale into newly created
    entities.
    

This segment posted $49 million in net income for the fourth quarter of 2009, as compared with a $109 million net loss for the same quarter of 2008. Results for fiscal 2009 showed net income of $28 million, as compared with a net loss of $329 million at the end of 2008. This increase was due mostly to improved market conditions, including those of the market for restructured ABCP notes. The results for 2009 include the write-off of an ABCP security excluded from the moratorium of the Montreal Accord.

In addition, the combined results of Desjardins Group take into account various consolidation adjustments not reflected in the results of the business segments, including the adjustment related to the Group's employee future benefits expense, which rose $29 million after taxes as compared with 2008. This adjustment resulted primarily from the updating of certain actuarial assumptions.

Desjardins Group is the largest cooperative financial group in Canada, and the sixth largest in the world. Desjardins Group is backed by the strength of its caisse network and is home to a wealth of expertise in property and casualty insurance, life and health insurance, wealth management, services for businesses of all sizes, securities brokerage, venture capital, asset management and secure leading-edge virtual access methods, all part of an integrated offer that is the only one of its kind in Canada. One of the largest employers in the country, Desjardins draws on the knowledge and skills of its 42,000 employees and the commitment of its 6,300 elected officers. To find out more, go to www.desjardins.com.

For further information: (for journalists only): André Chapleau, Director, Media Relations, Desjardins Group, [phone], 1-866-866-7000, ext. 7229; Raymond Laurin, Senior Vice-President, Finance, Treasury and Chief Financial Officer, Desjardins Group