DESJARDINS GROUP’S RECENT decision to buy a stake in Qtrade Financial Group will allow Desjardins, the Lévis, Que.-based financial services giant, to extend its reach into the credit union system outside its home province. At the same time, the deal will strengthen Vancouver-based Qtrade’s existing position as a third-party wealth-management provider to the credit union system.
“This is a deepening of the relationships we already have in the co-operative movement [outside Quebec],” says Denis Berthiaume, senior vice president and general manager of Desjardins’ wealth management and life and health insurance division, about the acquisition. “The partnership approach with credit unions is, for us, very important.”
Desjardins, which has almost $200 billion in assets under administration, is far and away the largest co-operative financial services organization in Canada. It has long been interested in finding ways to build out its business beyond Quebec’s borders.
Qtrade, a privately held firm established in 1999, has a successful online brokerage unit, Qtrade Investor, and serves as the securities and mutual fund dealer for more than 180 credit unions.
Desjardins initially will take a stake of between 25% and 40% of Qtrade’s outstanding shares, depending on the number of shares tendered in the bid. Desjardins will have the right to buy the majority of the remaining shares of Qtrade over the next six years. The financial terms of the deal were not disclosed.
“Certainly, [the offer] is a very good and attractive opportunity for investors who made an investment years ago in Qtrade,” says Scott Gibner, that firm’s president and CEO, adding that early indications suggest that the proposed offer would have the strong support of Qtrade’s largest shareholders.
Potential synergies
Both Desjardins and Qtrade executives say that the intention is to have Qtrade continue to operate independently from Desjardins, and under the same management group in Vancouver, after the deal.
“We made this transaction for growth purposes; not to consolidate operations,” Berthiaume says. “Over the years, down the road, I’m sure we’ll see potential synergies that will benefit both organizations.” (In particular, he points to technology platforms as an example of potential synergy.)
@page_break@ For Desjardins, the Qtrade deal broadens its connection to, and partnerships with, credit unions outside Quebec – a strategic goal for the organization over the past several years. Since 2007, for example, Desjardins and the provincial credit union centrals have offered socially responsible investment funds through NEI Investments, which is jointly owned by Desjardins and Vancouver-based Northwest & Ethical Investments LP. And in 2011, Desjardins bought Western Financial Group, a High River, Alta.-based provider of insurance, investment and banking products, for $443 million.
As part of the Qtrade deal, Desjardins acquires a position in Qtrade Investor, an independent online brokerage that has received generally strong reviews from industry analyst firms and other third-party observers. Desjardins has its own discount brokerage units, Disnat Direct for active traders and Disnat Classic for regular investors. Executives at both Desjardins and Qtrade say they intend for Disnat and Qtrade Investor to continue to operate as separate units.
Bolsters competition
For Qtrade, the deal gives it the implicit backing of Desjardins and would appear to bolster its competitive position vis-à-vis its chief rival, Vancouver-based Credential Financial Inc., which is owned by the credit union system.
“This transaction firmly places us in the credit union system landscape in a very obvious and material way,” Gibner says. “The fact that we have a partner with a $200-billion balance sheet making an investment in Qtrade is obviously a very powerful statement.”
The deal also addresses another lingering concern of Qtrade’s credit union partners and potential partners: that Qtrade might one day be acquired by a bank.
“That has always been an issue for us,” Gibner says. “Credit union executives couldn’t give assurances to their boards that [Qtrade being acquired by a bank] wouldn’t happen. With this acquisition, that’s been taken off the table entirely.”
The announcement of the deal appears to have been well received by one credit union partner firm, at least: Ottawa-based Alterna Savings, a subsidiary of Alterna Financial Group and the second-largest credit union in Ontario.
“Desjardins is Canada’s leading financial co-operative and it has an excellent reputation, so the fact Qtrade will remain part of the co-operative movement is very good news,” says José Gallant, interim president and CEO of Alterna Financial. “Desjardins’ investment in Qtrade will provide support for a strong wealth-management offering, which is very positive for Alterna.”
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