DBRS Confirms Caisse centrale and Desjardins Group at AA and R-1 (high); Capital Desjardins at AA (low)

DBRS has today confirmed the ratings of Desjardins Group (Desjardins or the Group) and its related entities, Caisse centrale Desjardins (Caisse centrale) and Capital Desjardins Inc. (Capital Desjardins), including the Group’s long-term debt at AA and short-term debt at R-1 (high). The trends for all remain Stable. The ratings are supported by the Group’s leading market positions in the province of Québec and diversified business base, with an emphasis on low-risk retail business lines.

Although diversification outside of Québec has modestly improved with wealth management, insurance and other efforts in recent years, key challenges persist, due to the Group’s concentration in Québec and its high cost structure. The Group continues to maintain strong asset quality metrics, reflecting the retail concentration and relative strength of the Canadian and Québec economies.

Desjardins’ funding profile remains a positive factor in its rating, with a substantial portion of its funding through core retail deposits, which is considered the most stable source of funding. While the individual attributes of Caisse centrale and Capital Desjardins are important to their respective ratings, the strength of the Group as a whole is the most critical factor, although the funding activities of the two rated entities are integral to the Group’s operations.

Improvements to risk management processes, which follow substantial losses in the securities portfolio during the global financial crisis and exposures to some asset classes which were not necessary to the core Desjardins businesses, appear to be having the desired effect. DBRS is now less concerned that these past events suggest a weakness in the Group’s overall risk management process and expects management to continue with prudent risk practices. Although the nature of the Group does not entail the same risk-taking incentives experienced by other institutions, Desjardins is unique among Canadian co-operative-type organizations as the only one with a full-service securities broker, and therefore must remain diligent in this regard.

Desjardins’ senior long-term debt rating of AA is composed of an intrinsic assessment of AA (low) and a support assessment of SA2, resulting in a final rating that is one notch higher. DBRS views Desjardins as systemically important to Québec, and although Desjardins is provincially regulated, the SA2 reflects the expectation of systemic and timely external support by the federal government in line with that expected of the large banks.

Notes:
Typically, DBRS issuer ratings apply to all general senior unsecured obligations of the issuer in question. In Desjardins Group’s case, the issuer ratings represent DBRS’s opinion on the overall creditworthiness of the Group from a theoretical perspective, as the Group is not a legal entity and cannot issue debt.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Canadian Provincial Credit Centrals, Credit Unions and Desjardins Group (April 2011), Global Methodology for Rating Banks and Banking Organizations (June 2012) and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments (February 2009), which can be found on DBRS’s website at www.dbrs.com under Methodologies.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.