The most powerful woman in Canadian finance can cede her title with a sense of mission accomplished.
When Monique Leroux took over at Desjardins Group eight years ago, the giant financial co-op that dominates retail banking in Quebec was reeling from a bad bet on commercial paper and a bloated cost structure. The 2008 financial crisis left it undercapitalized and short on liquidity. It was landlocked and hampered by a business model anchored in a previous century.
Amid opposition from individual caisses populaires scattered in remote regions and small towns, Ms. Leroux closed scores of branches, merged dozens of caisses, added billions in capital and expanded operations outside Quebec. Profits not only recovered; Desjardins was ranked as the world's fifth-strongest bank by Bloomberg last year. CIBC was the only other Canadian institution to rank in the top 20.
Why in the world would Desjardins let her leave? Blame co-op democracy. Desjardins CEOs, who are elected by a small group of regional delegates, can serve only two consecutive terms.
So Ms. Leroux, the first woman to lead a top-tier financial services provider, will step down next month as chair and chief executive of the country's sixth-largest deposit-taking institution by revenue – Desjardins ranks just behind the Big Five banks, but well ahead of its Quebec-based rival, National Bank of Canada. She'll be replaced by Guy Cormier, currently the senior vice-president who oversees Desjardins' network of 335 caisses populaires in Quebec and Ontario. He was elected to the post last Saturday and, at 46, he will be the youngest CEO in Desjardins's 116-year history.
Just because Ms. Leroux, 61, leaves the institution in strong shape does not mean Mr. Cormier won't have big challenges of his own. Desjardins still has a higher cost structure than the banks, while it faces the same threat as them from new fintech players. And while its brand remains strong at home, Quebeckers' sense of proprietorship and loyalty toward Desjardins has been eroded in recent years. Many accuse it of becoming a bank in all but name.
Still, increasing efficiencies is Job 1 if it is to stay competitive. Mr. Cormier has a solid base to build on. Desjardins has held on to its share of the residential mortgage market in Quebec – estimated at 36 per cent by real estate data firm JLR – despite a recent push by Bank of Montreal and TD Canada Trust into a province they had neglected. Still, while Desjardins holds almost half of the mortgage market outside Montreal, its share falls to about a quarter in the Greater Montreal Area. It will need to fight harder to protect that turf in the face of competition from bank and non-bank lenders.
Home mortgages account for two-thirds of Desjardins's loan portfolio. That explains why its gross impaired loan ratio stood at 0.36 per cent in the third quarter of 2015, compared with an average of 0.57 per cent among its peers, according to Fitch Ratings.
Desjardins's Tier 1 capital ratio of 16 per cent, compared with a peer average of 11 per cent, is a double-edged sword. While such low leverage comforts regulators, it might be seen as excessively conservative and a drag on returns. But without the access to equity markets of a shareholder-owned bank, having extra capital to weather financial storms may not be such a bad idea (see 2008).
Ms. Leroux made slow but steady progress expanding the co-op's footprint outside Quebec. Her purchase of State Farm Canada in 2014 vaulted Desjardins into second place nationally in the property insurance sector. (Aviva's recent acquisition of Royal Bank of Canada's general insurance business just knocked Desjardins into third.) The sector remains ripe for consolidation, but Mr. Cormier may need to act fast to capitalize on opportunities. Ms. Leroux was highly picky about her acquisitions. Mr. Cormier may need to show more appetite for risk.
Mr. Cormier's biggest challenge, however, may be silencing critics at home who accuse Desjardins of losing its soul as it centralizes operations and closes money-losing caisses. Le Mouvement Desjardins, as it's known in French, was founded as a "movement" that sought to democratize lending at a time when few Quebec francophones had easy access to bank credit. Individual caisses were deeply rooted in their communities, with boards made up of locals. Generations of Quebeckers became financially literate by volunteering at the local caisse pop.
Nostalgia is not a business plan for the 21st century, however. Mr. Cormier will need to make Desjardins as competitive as a bank without turning it into one. Luckily, Ms. Leroux pointed the way.