Allocution de M. Jean-Guy Langelier, président et chef de l'exploitation de la Caisse centrale Desjardins et de la trésorerie du Mouvement des caisses Desjardins, lors de l'assemblée et du congrès annuels de l'Association canadienne du commerce des valeurs mobilières

La Malbaie, Québec, le 11 juin 2007

(Allocution bilingue)

Ladies and gentlemen,
Mesdames et messieurs, bonsoir,

It is a pleasure for me to be here with you.

I would like to thank both your association for having me here today, and also my colleague and friend Jacques Nadeau, Vice-President of the Board of directors of Desjardins Securities, who extended this invitation.

I will provide an overview of Caisse centrale Desjardins, and say a few words about our role within the Desjardins Group.

Beyond presenting Caisse centrale and the Desjardins Group, I would also like to share my thoughts with you about some fundamental changes currently taking place within the financial services market.

Finally, I will present a few very promising growth opportunities that we, at Caisse centrale, have identified and which you may like to hear about.

Caisse centrale acts as the financial agent and treasurer for Desjardins in the financial market. Our mandate is to promote Desjardins to institutional investors, brokers, investment banks and credit rating agencies.

We also provide services to both SMEs and large businesses, as well as to the institutional sector, and have a growing offering of international services. We are part of most banking syndicates in Québec and are regularly the lead underwriter in a number of sizeable deals.

At the end of 2006, Caisse centrale had 17.6 billion dollars in assets and 5 billion dollars in assets under management, as well as a derivatives portfolio of more than 120 billion dollars.

For the latest fiscal year, our total contribution to the network of independent caisses populaires which owns us totalled 96 million dollars, a 13 per cent increase over 2005. I should mention that all our business units contributed to growth, which was 22 per cent higher than forecast.

We are part of Desjardins Group, a network of 549 financial services cooperatives which operates 1471 service centres and 56 business centres in Québec and Ontario. Desjardins Group is also comprised of some 10 substantial subsidiary companies offering services to its close to 6 million members as well as to their own client networks. They provide services such as insurance, securities brokerage, venture capital, asset management, real estate and international development.

On a day to day basis, we work very closely with the dedicated professionals at Desjardins Securities. In the beginning of the year, our teams moved in at the same premises, namely the Windsor Building in downtown Montreal. Sharing the same building was certainly a good idea, and we now have more opportunities than ever to cooperate in a number of areas. Working together, the investment arm and the treasurer of Desjardins represent a force to be reckoned with in the market.

With 135 billion dollars in assets at December 31st, 2006, 40,000 employees and more than 7,000 elected officers, Desjardins Group is currently the foremost financial institution in Québec and the sixth largest deposit-taking institution in Canada.

As part of our role of providing funding for Desjardins, Caisse centrale has been increasingly taking advantage of opportunities in the financial markets. In 2006, for instance, we were active on the Canadian market through the regular and ongoing issue of short-term deposits in the form of bearer notes and Desjardins Acceptances. At year-end, these deposits totalled 4 billion dollars.

Last year, we launched two medium-term note issues in Europe, namely a first 500 million euro issue, followed by a second, one-billion euro issue, which were lead by cooperative banks. These issues had four and five-year maturity, respectively. With a value of one billion euros, the second issue was the largest in the Desjardins history, and it received orders of nearly 1.8 billion euros, or almost twice the amount we needed.

I am pleased to say that we currently have 5 issues outstanding in the European market, which total close to 5 billion euros, or some 7 billion Canadian dollars. These were snapped up by more than 100 investors from 15 countries.

At the end of 2005, we initiated a highly successful securitization program in conjunction with Québec and Ontario caisses populaires. This initiative allowed us to participate in four Canada Mortgage Bond issues under the Canada Mortgage and Housing Corporation's program, for a cumulative total value of 1.6 billion dollars and we expect to hit the 2 billion dollars mark with the upcoming issue.

Dans le cadre d'une initiative récente avec les caisses Desjardins, nous offrons aux PME membres de caisses un accès direct aux cambistes et la possibilité de s'entretenir avec des spécialistes de notre salle des marchés, afin d'élaborer une stratégie qui réponde à leurs besoins. À la suite de cette initiative, les volumes de change ont augmenté de 30 pour cent en 2006 et ce, tant pour les caisses participantes que pour les PME membres.

Nous offrons également une gamme étendue de produits et de services aux grandes et moyennes entreprises. Nous avons été heureux de constater que, dans le cadre de sondages effectués en 2006, 98 pour cent de nos clients ont indiqué qu'ils étaient satisfaits ou très satisfaits de notre offre de services.

Nous continuerons de fonder notre stratégie sur notre expertise reconnue dans les quatre secteurs d'industrie suivants : l'agroalimentaire, les communications, les produits forestiers et les ressources énergétiques.

En 2006, ces secteurs spécialisés ont représenté 50 pour cent des nouveaux crédits autorisés.

Le secteur institutionnel au Québec et en Ontario, qui comprend les organismes publics et parapublics, a continué de progresser de façon soutenue en 2006.

Au cours de la dernière année, nous avons maintenu toutes nos positions à titre de coagent de syndicats bancaires et nous avons effectué plusieurs percées, entre autres avec l'obtention du compte d'une des nouvelles mégacités au Québec.

Les nouvelles affaires étaient en hausse de 16 pour cent comparativement à l'année précédente et en hausse de 36 pour cent comparé à 2004 et nous avons maintenant 6 milliards de dollars de crédits autorisés dans ce segment de marché.

Au cours des dernières années, la Caisse centrale a cherché à étendre sa portée géographique afin d'offrir du financement aux entreprises canadiennes dont le siège social est situé à l'extérieur du Québec. Aussi, en 2006 nous avons établi la Caisse centrale U.S. Branch, afin de servir à la fois les clients canadiens avec des affaires chez nos voisins du Sud et les clients américains qui souhaitent étendre leurs activités commerciales au Canada. Au cours du dernier exercice, la Caisse centrale U.S. Branch a autorisé des engagements totalisant 500 millions de dollars US.

Now that you have a better idea of who we are and how we operate, I would like to say a few words about the major changes that are currently taking place in the Canadian banking industry. I will also share a few thoughts about how, at Caisse centrale, we are embracing these changes and charging forth to take advantage of the new trends transforming our market.

The Canadian banking industry is experiencing the initial signs of disintermediation. For one, the retail consumer seems to be fleeing away from traditional savings models. For example, in April our sales of mutual funds were three times greater than the historical average for this month of the year.

Traditionally, banks used to hold loans on their books until they reached maturity, but this is no longer the case. Banking institutions no longer want to carry the overall credit risk, and this is partly why financial markets have had such an appetite for credit derivatives like credit default swaps, or CDS.

CDSs allow a banking institution to spread credit risk around to diversify it. As many of you are aware, there are now CDS portfolios available to institutional investors, some of which hold up to one hundred loans. And some CDSs are further divided into collaterized debt obligations, or CDOs, which can then be sold further in tranches, some of them with a 3A rating.

Banking institutions need to adapt to the new environment and find new ways of managing credit risk. In the past, the larger the bank, the more solid it was perceived to be. This has changed. Nowadays, rating agencies want to know how banks manage their credit risk, and they take this into consideration when issuing ratings. Additionally, the return we generate through capital management has become a key measure of our solidity.

While the use of credit derivatives allows banks to make a greater number of loans with the same capital base, the rate of return shrinks gradually through the process. However, your overall return on assets increases thanks to the sheer volume of activity.

European-based banks have been selling CDSs and CDOs for some time now, and they are far ahead in this game. Over the years, the Europeans have developed advanced technology and mathematical models that help them manage complex scenarios for derivatives. US banks, meanwhile, are lagging behind.

We, at Caisse centrale, are enthusiastically embracing disintermediation and moving forward in this niche. In fact, we currently hold a 50-percent share of this emerging market in Québec and believe this new trend will grow into a major phenomenon over the next few years.

I mentioned earlier how we participated in the Canada Housing and Mortgage Corporation's recent bond issues. Our overall mortgage loan securitization program now has a total value of 1.6 billion dollars, and we are only at the beginning.

Eventually, we believe that all types of assets on our balance sheet could be securitized, packaged and sold either to mutual funds or institutional and retail investors.

Credit securitization allows us to take institutional credit off our balance sheet and move it into the hands of retail investors, and vice versa. For example, we could securitize our Visa credit card retail receivables and sell them to institutional investors.

In fact, there is hardly any limit to the creative use of this vehicle. Some of our European banking partners, such as French-based Calyon and Natexis, as well as German-based DZ Bank, have an impressive track record in the use of these instruments.

For your information, Calyon is owned by Crédit Agricole, a cooperative financial institution that is the largest financial group in France. Within Crédit agricole, the activities of Calyon are the equivalent of Caisse centrale and Desjardins Securities merged together but Crédit Agricole is 14 times larger than the entire Desjardins Group!

Calyon has a team of a few hundred financial engineers who devote much of their time and effort to constructing innovative new products. Creativity is certainly one of Calyon's hallmarks, and it seems to reward them well, because they have grown tremendously over the past 10 years. And for those of you who believe that all cooperatives are poor, well, think again! The profitability of our European-based cooperative partners would be the envy of any bank in North America.

It is worth mentioning that Calyon has been achieving strong growth and high profitability while at the same time remaining true to its values. It belongs to a cooperative financial institution, and it has remained true to its roots and its local communities. The same can be said about Caisse centrale. While we are an innovative organization, market driven and client focused, we will always remain true to the local communities and caisses populaires who own us. It is on their behalf and to satisfy their requirements that we work so hard every day.

Il est intéressant de noter que tandis que Calyon affiche une forte croissance et une rentabilité remarquable, elle n'en est pas moins toujours demeurée fidèle à ses valeurs. Elle appartient à une institution financière coopérative et n'a jamais renié ni ses racines, ni ses communautés locales. Nous pourrions en dire de même de la Caisse centrale. Notre organisation est innovatrice, en lien avec le marché et à l'écoute de ses clients. Mais nous demeurerons toujours fidèles à nos communautés en région et aux caisses populaires auxquelles nous sommes redevables. C'est pour elles, et afin de répondre à leurs besoins, que nous sommes au poste à chaque jour.

And now, I would like to share a word of advice.

More and more, these foreign-based banks will have access to the Canadian market. The competitive landscape is evolving rapidly, and it will never be the same once these large banks have established a presence here.

As I said a moment ago, at Caisse centrale we are pleased with this trend and are actually looking forward to the arrival of new players.

I would like to share with you a real-life example that illustrates to what extent some financial institutions will need to adapt to remain competitive. When we do an issue in Europe, we pay a commission of one-half of one basis point.

For an issue in Canada or the US, the commission is 8 basis points. Big difference, isn't it? This is partly why the vast majority of our issues are now done in Europe.

This means that Canadian banks face a competitive threat. But at the same time, we have a fantastic opportunity to grab a share of an emerging market with immense potential.

As Canadians, if we can take a leadership role in creating and selling these new securitization products in our home market, the future will be very promising.

Because beyond Canada, there is the vast US market where no one in the industry seems to care much about this new niche.

I will leave you with these words. Forget about income trusts, this issue is behind us. Today, it's all about disintermediation and securitization. This is where you want to be, and the US market is wide open.

So, will you be up to the challenge?

Thank you, merci.