Desjardins Group Announces Surplus Earnings of $149 Million in Third Quarter and $554 Million After Nine Months

    Market instability adversely affects overall results but main indicators
    remain solid.

    Financial highlights

    Surplus earnings before member dividends of $149 million for the third
    quarter, down 39.9% from the third quarter of 2007.
    Surplus earnings before member dividends of $554 million for the first
    nine months of 2008, down 33.1% from the same period a year earlier.
    Drop in major stock market indices had a negative impact on the overall
    performance of investments in the various business segments.
    Financial intermediation activities continued to grow.
    Tier 1 capital ratio still among the best in the industry.
    Assets up 2.3% to $150.3 billion.

    -------------------------------------------------------------------------
                   For the three months             For the nine months
                    ended September 30               ended September 30
               --------------------------------------------------------------
                2008       2007     Change       2008       2007     Change
    -------------------------------------------------------------------------
    Surplus
     earnings
     before
     member
     dividends  $149       $248      (39.9%)     $554       $828      (33.1%)
             million    million               million    million
    -------------------------------------------------------------------------
    Return
     on
     equity      6.2%      11.0%         -        7.8%      12.5%         -
    -------------------------------------------------------------------------


     Other financial data:

    ---------------------------------------------
    Assets    $150.3     $146.9        2.3%
             billion    billion
    ---------------------------------------------
    Equity      $9.7       $9.1        7.1%
             billion    billion
    ---------------------------------------------
    Tier 1
     capital
     ratio     14.15%     14.02%         -
    ---------------------------------------------
    Growth
     in
     total
     loans       8.9%       8.1%         -
    ---------------------------------------------
    Growth
     in
     total
     deposits    7.0%       8.7%         -
    ---------------------------------------------

    Third quarter 2008 results

    LEVIS, QC, Nov. 17 /CNW Telbec/ - For the third quarter ended September
30, 2008, Desjardins Group, the largest cooperative financial group in Canada,
announced combined surplus earnings before member dividends of $149 million,
down $99 million or 39.9% from the corresponding quarter last year. Return on
equity was 6.2%, compared to 11.0% in 2007. These results reflect the sharp
deterioration in capital markets during the third quarter, causing stock
market gyrations and unprecedented volatility.
    For its part, the caisse network, the backbone of Desjardins Group,
recorded growth in surplus earnings, which were up 10% on a year-over-year
basis to $212 million for the third quarter of 2008, mainly due to a $38
million increase in income from securitization activities and firm cost
control.
    However, a $94 million write-down ($65 million after income taxes) for
asset-backed commercial paper (ABCP) holdings reduced surplus earnings before
member dividends in the third quarter. Most of this write-down was recorded in
the Personal and Commercial segment, which was also affected by an
other-than-temporary decline in value of $78 million before income taxes of
certain Caisse centrale Desjardins financial asset-backed securities as a
result of the deterioration of capital markets.
    In addition, Desjardins Group's third quarter profitability was adversely
affected by the weaker results of the general insurance subsidiary, stemming
from higher loss experience in home insurance because of poor weather
conditions and lower investment income due to, among other things, the stock
market decline.
    The performance of the life and health subsidiary was down from the third
quarter of 2007 for the same reason, i.e., a drop in investment income caused
by the trying events on capital markets, which also affected the profitability
of the securities subsidiary.
    "This quarter's results were achieved in the midst of a financial crisis
that rocked capital markets around the world. This put pressure on activities
with greater exposure to these markets, and our overall performance since the
beginning of the year was therefore affected," said Desjardins Group president
and CEO Monique F. Leroux. "Desjardins is still doing well, especially in
terms of capitalization and loan portfolio quality. Our caisse network
continues to expand, its main indicators remain solid, and costs are well
controlled."
    As for income, net interest income rose to $890 million, up $63 million
or 7.6% from the same quarter last year, chiefly due to higher business
volume. Net premiums grew by $166 million or 17.6% as a result of brisk growth
in insurance premiums, particularly life and health insurance premiums, which
advanced $62 million or 10.3%, together with a $113 million or 315% jump in
annuity premiums. As previously mentioned, other income, however, was severely
affected by the drop in the insurance subsidiaries' investment income, with an
equivalent amount also affecting expenses related to claims, benefits,
annuities and changes in the life and health insurance subsidiary's insurance
provisions, by the ABCP portfolio write-down and the other-than-temporary
decline in value of certain Caisse centrale Desjardins financial asset-backed
securities. Also affected by deteriorating market conditions, income from
brokerage, investment fund and trust services fell by $30 million or 17.9%.
    Overall, Desjardins Group's total income rose to $1,997 million for the
third quarter of 2008, down $377 million or 15.9% on a year-over-year basis.
    Provisions for credit losses charged to income in the third quarter
amounted to $65 million, up $18 million or 38.3% from the same period in 2007.
Despite the upward trend, Desjardins continues to enjoy a high-quality loan
portfolio with a ratio of gross impaired loans to the gross loan portfolio of
0.40%.
    Expenses related to claims, benefits, annuities and changes in insurance
provisions totalled $579 million in the third quarter, down $196 million or
25.3% from last year. A large part of this decrease was due to an equivalent
drop in the life and health insurance subsidiary's investment income, as
previously mentioned.
    Non-interest expense amounted to $1,132 million for the three-month
period ended September 30, 2008, up $42 million or 3.9% from the corresponding
quarter of 2007.

    Results for the first nine months of 2008

    For the nine-month period ended September 30, 2008, Desjardins Group
posted combined surplus earnings before member dividends of $554 million,
compared to $828 million for the corresponding period in 2007. Return on
equity was 7.8% versus 12.5% a year earlier. The caisse network recorded 20.8%
growth in surplus earnings, from $472 million for the first nine months of
2007 to $570 million for the corresponding period in 2008.
    However, Desjardins Group's overall profitability was affected by the
$292 million cumulative decline in value of ABCP holdings ($200 million after
income taxes) recognized during the first nine months of 2008.
    The financial results of the Personal and Commercial segment for the
first nine months of 2008 were further affected by other specific items,
including an other-than temporary decline in value of certain Caisse centrale
Desjardins financial asset-backed securities as well as a $25 million
write-off of deferred charges recorded in the first quarter of 2008.
    The performance of the insurance subsidiaries was also down at the end of
the first nine months of 2008. The general insurance subsidiary was especially
hard hit, like the entire industry, by a higher loss experience in home
insurance and a decline in investment income.
    As for the life and health insurance subsidiary, its weaker financial
results for the first nine months of 2008 stem from the ABCP write-down, the
drop in investment income because of difficult conditions on capital markets
and deteriorating experience during this period. It should, however, be
recalled that the experience was particularly favourable in 2007.
    Securities operations were also affected by the adverse conditions on
capital markets since the beginning of the year. Profitability declined for
the investment funds managed by the venture capital subsidiary as a result of
the negative fluctuation in the fair value of certain investments in public
companies due to their changing quoted prices.
    Every quarter, Desjardins Group must estimate, as accurately as possible,
the amount that will be recognized for payment of caisse member dividends at
the end of the fiscal year. A $304 million provision for member dividends was
therefore recorded for the first nine months of 2008, compared to $415 million
a year earlier.
    It bears mentioning that Desjardins Group is still one of the best
capitalized financial institutions in Canada: its Tier 1 capital ratio was
14.15% as at September 30, 2008, compared to 14.02% a year earlier, exceeding
its target capitalization and qualifying as one of the best in the industry.
The total capital ratio was 13.45%, versus 13.48% as at September 30, 2007.
Moreover, Moody's credit rating agency recently confirmed Caisse centrale
Desjardins' credit ratings in a report published in October 2008. Moody's made
particular mention of the Group's strong capitalization and the sound
diversification of its funding sources.
    As for income, net interest income rose by $133 million or 5.5% to $2,557
million at the end of the first nine months of 2008, fuelled by business
volume growth. Net premiums were up by $301 million or 10.7% as a result of an
increase in insurance premiums, particularly for life and health insurance,
which moved ahead by $182 million or 10.6%, combined with higher annuity
premiums, which were up $108 million or 72%. The increase in other income was
attributable to a $77 million rise in income from securitization activities,
and to a $25 million or 9.0% increase in lending fees and credit card income.
    Overall, Desjardins Group's total income stood at $6,611 million for the
first nine months of 2008, down $337 million or 4.9% on a year-over-year
basis.
    Desjardins continues to enjoy a high-quality loan portfolio, with the
provision for credit losses charged amounting to $155 million, versus $132
million a year earlier.
    Expenses related to claims, benefits, annuities and changes in insurance
provisions totalled $2,179 million for the first nine months of 2008, up
slightly by $71 million or 3.4% on a year-over-year basis.
    Non-interest expense amounted to $3,510 million for the first nine months
of 2008, a slight increase of 2.5% over the corresponding period a year ago,
confirming effective control over operating expenses by the caisse network and
all Desjardins Group components.
    The productivity ratio is calculated as Desjardins Group's non-interest
expense to total income, net of expenses related to claims and insurance
benefits. Despite effective cost controls, the impact of the financial crisis
on investment income, including the write-down in ABCP securities recorded
against investment income for the first nine months of 2008, significantly
affected the productivity ratio. This ratio was 79.2% at the end of the first
nine months of 2008, versus 70.7% for the same period a year ago, reflecting
the significant impact of market volatility on trading and investment income.
    Lastly, Desjardins Group's total assets stood at $150.3 billion as at
September 30, 2008, compared to $146.9 billion a year earlier, up $3.4 billion
or 2.3%.

    Results by business segment

    Personal and Commercial

    This segment comprises mainly the caisse network, the Fédération des
    caisses Desjardins du Québec, Caisse centrale Desjardins, Fonds de
    sécurité Desjardins, Capital Desjardins inc., Desjardins Trust and
    Ontario's Federation and caisses.

    For the third quarter, surplus earnings before member dividends in the
Personal and Commercial segment totalled $128 million, down $40 million or
23.8% from the same quarter in 2007.
    Despite the enhanced profitability of the caisse network for the first
nine months of 2008, surplus earnings before member dividends in the Personal
and Commercial segment totalled $432 million, down $132 million or 23.4% from
the same period in 2007. This drop was chiefly attributable to the decline in
value of the ABCP portfolio.
    Total income for this segment was $3,462 million for the first nine
months of 2008, down $77 million or 2.2% from a year earlier. Net interest
income rose $142 million or 5.8% to $2,572 million, chiefly as a result of
higher business volume.
    Other income totalled $890 million for the first nine months of 2008, a
decrease of $219 million or 19.7% from the year-earlier period. Even though
other income was boosted by the $77 million increase in income from
securitization activities and by a $26 million or 9.3% increase in income from
credit card activities, growth in other income was affected by the ABCP
write-down, the other-than-temporary decline in value of Caisse centrale
Desjardins financial asset-backed securities, and the $48 million or 17.6%
drop in income from brokerage, investment fund and trust services.
    Despite the tough situation on the capital markets, the ratio of gross
impaired loans to the gross loan portfolio remained stable. As a result, the
provisions for credit losses charged for the first nine months of 2008
totalled $155 million, up $25 million from a year ago.
    Non-interest expense totalled $2,718 million for the first nine months of
2008, up $191 million or 7.6% from the same period in 2007. Over 38% of this
increase stemmed from the annual indexation of salaries and higher fringe
benefits. The $25 million write-off of deferred charges in the first quarter
also affected this item.
    In addition, Caisse centrale Desjardins contributed $37.4 million to the
Personal and Commercial segment.
    As regards financing activities, the Personal and Commercial segment did
not perform as well as in the third quarter of 2007. The loan portfolio
outstanding, net of the allowance for credit losses, grew 7.8% or $7.3 billion
on an annual basis to $100.2 billion, compared to a rate of 9.0% or $8.1
billion recorded as at June 30. This slight decrease is mainly attributable to
softer demand for business and government loans since demand for residential
mortgages and consumer loans (including credit card advances and other
personal loans) increased over the previous quarter.
    More specifically, business and government loans outstanding rose by an
annual rate of 8.8% or $2.1 billion as at September 30, 2008 to $26.1 billion.
In contrast, thanks to the continuing strength of the housing market in Québec
and Ontario, demand for residential mortgages remained strong during the
quarter, with credit outstandings reaching $57.7 billion as at September 30,
up 7.0% or $3.8 billion on an annual basis. Although much smaller, the
increase in average property prices also fuelled the robust demand for
residential mortgages.
    Private-sector loan outstandings for business financing operations, an
area specific to Caisse centrale Desjardins, grew by $855 million or in the
order of 30% since the beginning of 2008 to $3.7 billion as at September 30,
2008, while commitments were up $774 million.
    Deposit recruitment in the Personal and Commercial segment slowed
somewhat during the third quarter of 2008. Deposit liabilities outstanding
rose 6.8% or $6.4 billion since the previous year, to $101.2 billion as at
September 30, compared to 10.1% or $9.3 billion recorded in the previous
quarter. Personal savings -the main source of financing, accounting for 68.5%
of deposit liabilities-grew by 7.0% or $4.5 billion on an annual basis to
$69.3 billion as at September 30. Deposits from business and government
increased 14.8% or $2.9 billion on an annual basis, to $22.6 billion as at
September 30, 2008. Other financing sources available to the Personal and
Commercial segment, i.e., deposits related to securities issues on capital
markets, fell 9.7% or $1.0 billion to $9.3 billion for the third quarter.
    Lastly, the stock market turmoil has left investors worried and jittery,
especially in September, and the Personal and Commercial segment was not
immune to these particularly tough times. As such, the amount of outstanding
investment funds and assets held in custody in the securities brokerage
segment stood at $24.0 billion as at September 30, 2008, down 8.4% or $2.2
billion on an annual basis.

    Life and health insurance

    For the third quarter of 2008, Desjardins Financial Security (DFS)
contributed $19.8 million to Desjardins Group's combined results, compared to
$46.4 million a year earlier. Net earnings amounted to $16.4 million, versus
$48.2 million for the same quarter in 2007. The global financial crisis
coupled with the liquidity crunch was behind the decrease of close to $30.0
million in net earnings. Gross insurance premium income rose to $684.6 million
while insurance sales stood at $31.8 million for the quarter.
    The contribution of DFS to Desjardins Group's combined results was $110.0
million for the first nine months of 2008, compared to $157.0 million in 2007.
DFS posted net earnings of $112.0 million, versus $166.4 million for the same
period a year earlier. Quarterly profitability was also affected by the ABCP
situation.
    Although lower than last year, return on shareholders' equity, at 20.6%,
was still one of the best in the financial services industry. Assets under
management and under administration stood at $21.1 billion. DFS is maintaining
its regulatory capital ratio in the target range, fully meeting capital
adequacy requirements. Its capitalization continues to exceed regulators'
expectations despite the most recent upheavals on international capital
markets.
    Despite the situation, income from gross insurance premiums grew
significantly again, reaching $1,987.0 million for the first three quarters of
2008, for an increase of $185.6 million or 10.3%. In group insurance, group
and business gross premiums as well as premiums related to plans offered
through financial institutions, including Desjardins caisses, rose by $170.5
million from the same year-earlier period to $1,623.9 million, on sales of
$109.1 million. In individual insurance, gross premiums reached $363.1
million, up $15.1 million on a year-over-year basis. Sales amounted to $31.6
million. As for savings, aggregate sales were $848.4 million.

    General insurance

    For the third quarter, Desjardins General Insurance Group (DGIG)
contributed $25.1 million to Desjardins Group's results, versus $45.0 million
for the same quarter in 2007, bringing the year-to-date contribution to $38.2
million, compared to $117.0 million in 2007.
    During the third quarter, DGIG was again affected by poor weather
conditions, which drove up the loss experience. Moreover, investment income
fell sharply as a result of the stock market slump, the impact of fluctuating
interest rates and the Canadian dollar's decline against the greenback. This
same trend was observed across the entire Canadian property and casualty
insurance industry.
    For the first nine months of the year, income from premiums written was
up 3% to $1,116.8 million, outperforming the industry. Sales were ahead in all
business lines but particularly in individual insurance in Ontario (7%), where
products now carry the Desjardins name, an initiative backed by a major
advertising campaign in the province.

    Securities brokerage, asset management, venture capital and other

    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 an overall net loss of $7 million for the third
quarter of 2008, as against the breakeven point for the same quarter in 2007.
For the first nine months of 2008, this segment recorded a net loss of $10
million, versus net earnings of $16 million a year earlier. The lower
profitability stems mainly from the unfavourable conditions on capital markets
and from the decline in value of certain investments in public companies due
to changes in their quoted prices.
    Finally, Desjardins Group's combined results also take into account
various consolidation adjustments not reflected in the business segments
including, in particular, the recognition of the adjustment related to the
employee future benefits expense, which declined by $41 million after income
taxes compared to the corresponding period in 2007, primarily due to the
update of certain actuarial assumptions.

    Relying on the strength of its cooperative difference, its network of
subsidiaries and its financial equilibrium, Desjardins Group seeks to become
the leading financial institution in terms of meeting the needs of members and
clients and fostering business development through an accessible, effective
and comprehensive service offering. Desjardins Group's mission is to
contribute to the economic and social well-being of both individuals and
communities. The Desjardins website is at www.desjardins.com.

For further information: (for journalists only): André Chapleau,
Director, Information and Media Relations, (514) 281-7229, 1-866-866-7000,
ext. 7229, andre.chapleau@desjardins.com; Raymond Laurin, Chief Financial
Officer, Desjardins Group