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					TABLE of conTEnTs
1.0 oVERVIEW of DEsJARDIns GRoUP
1.1 Profile and strategic orientations                                                                     46
                                                                                                           50


                                                                                                                  management’s
1.2 Monitoring of priority financial objectives
1.3 The economy, industry and outlook                                                                      51
2.0 REVIEW of fInAncIAL REsULTs
2.1 Analysis of 2010 results                                                                               53
2.2 Analysis of business segment results                                                                   59
      2.2.1
      2.2.2
      2.2.3
      2.2.4
              Personal Services and Business and Institutional Services
              Wealth Management and Life and Health Insurance
              Property and Casualty Insurance
              Other
                                                                                                           60
                                                                                                           65
                                                                                                           69
                                                                                                           72
                                                                                                           73
                                                                                                                  discussion and
                                                                                                                      analysis of
2.3 Analysis of fourth quarter results
3.0 REVIEW of fInAncIAL PosITIon
3.1   Balance sheet management                                                                             75
3.2   Credit quality                                                                                       81
3.3   Capital management and credit ratings                                                                83
3.4
3.5
3.6
3.7
      Cash position and sources of financing
      Off-balance sheet items
      Risk management
      Additional information related to exposure
      to certain risks
                                                                                                           87
                                                                                                           88
                                                                                                           90

                                                                                                         100
                                                                                                                      desjardins
4.0 ADDITIonAL InfoRMATIon
4.1
4.2
4.3
    Regulatory context and caution
    Material changes subsequent to December 31, 2010
    Financial framework and financial governance
                                                                                                         103
                                                                                                         104
                                                                                                         105
                                                                                                                          group
4.4 Related party transactions                                                                           106
4.5 Non-GAAP measures                                                                                    106
4.6 Critical accounting policies and estimates                                                           107
4.7 Transition to International Financial
    Reporting Standards (IFRS)                                                                           110
4.8 Five-year statistical review                                                                         116
4.9 Glossary of financial terms                                                                          118




Desjardins Group (hereinafter referred to as either “Desjardins Group” or simply “Desjardins”)
is made up of the Desjardins caisse network in Québec and Ontario (hereinafter referred to as the
“caisse network”), the Fédération des caisses Desjardins du Québec (hereinafter referred to as
the “FCDQ”) and its subsidiaries.

This MD&A, dated February 24, 2011, presents the results of the analysis of the key elements of and changes
to Desjardins Group’s financial position for the year ended December 31, 2010, in comparison to previous
fiscal years. The MD&A must be read in conjunction with the audited Combined Financial Statements
(including the accompanying notes) as at December 31, 2010, which were prepared according to Canadian
generally accepted accounting principles (GAAP). It was also prepared according to the requirements of
Regulation 51-102 respecting Continuous Disclosure Obligations of Canadian securities administrators.
Some figures from prior years have been reclassified to conform to the presentation adopted for 2010.
Some of the financial measures presented in this report do not have a standardized GAAP definition and,
as a result, the amounts disclosed are not comparable to similar measures presented by other financial
institutions. These measures are described in section 4.5 “Non-GAAP measures”.

Additional information about Desjardins Group is available on the SEDAR Web site at www.sedar.com
(under the Capital Desjardins inc. company profile), which is also where you can find the annual information
form for Capital Desjardins inc. and Caisse centrale Desjardins (under the Caisse centrale Desjardins
company profile). More information is also available on the Desjardins Web site at www.desjardins.com;
however, none of the information presented on our site should be considered as incorporated by reference
into this report.

This Annual Report contains forward-looking statements, as defined by certain securities legislation.
Desjardins Group cautions readers against placing undue reliance on forward-looking statements when
making decisions. Section 4.1 “Regulatory context and forward-looking statements” presents the many
risk factors that could cause our actual results to differ significantly from what is expressed in the forward-
looking statements.




                                                                                                                         management’s discussion and analysis   45
                                               1.0   Overview
                                                     Of DesjarDins
     sEcTIon 1.0
     Overview of
     Desjardins Group
                                                     GrOup
     This section presents Desjardins
     Group and its strategic orientations            sEcTIon 1.1
     for 2010 to 2012. It includes a summary
     of our results compared to our priority         Profile and
     financial objectives and highlights for
     2010. Also included are information
                                                     strategic orientations
     on the 2010 economic situation,
     industry trends and the economic
     and financial outlook for 2011.

     sEcTIon 2.0
     Review of
     financial results
                                                     Desjardins Group is a cooperative financial group providing services across
     This section provides an analysis               Canada, mainly in Québec and parts of Ontario. It has more than $172 billion
     of Desjardins Group’s results for               in total assets and a Tier 1 capital ratio of 17.7%.
     the year ended December 31, 2010.
     This section contains information               Desjardins Group is currently the largest financial institution in Québec and
     on Desjardins Group’s business                  the leading cooperative financial group in Canada. By drawing on the strength
     segments, including a profile                   of its caisse network in Québec and Ontario, as well as of its subsidiaries, several
     of each segment, a description                  of which are active nationwide, Desjardins offers a comprehensive range of
     of the industry, the segment’s                  financial products and services to its 5.8 million members as well as its individual
     orientations and achievements in                and business clients.
     2010, an analysis of its financial
     results and its strategy and priorities         As at December 31, 2010, Desjardins Group had more than 42,500 employees,
     for 2011. It also includes an analysis          nearly 5,900 elected officers and 451 caisses in Québec and Ontario with
     of fourth quarter results.                      924 service centres, 48 business centres and 2,652 ATMs.

     sEcTIon 3.0                                     Desjardins Group also draws strength from its long-standing business partnerships
     Review of                                       with the Fédération des caisses populaires acadiennes, the Alliance des caisses
     financial position                              populaires de l’Ontario limitée and the Fédération des caisses populaires du
     This section provides commentary                Manitoba, which recently became the Caisse Populaire Groupe Financier Ltée.
     on Desjardins Group’s financial                 These partnerships support the economically viable development of cooperatives
     position. It also addresses credit              in their respective communities.
     quality, capital management, cash
     position, sources of financing,                 MIssIon
     off-balance sheet items and,
     lastly, risk management.                        To contribute to improving the economic and social well-being of people
                                                     and communities within the compatible limits of its field of activity
     sEcTIon 4.0                                     • by continually developing an integrated cooperative network of secure
     Additional                                        and profitable financial services, owned and administered by the members,
     information                                       as well as a network of complementary financial organizations with
     This section presents                             competitive returns, controlled by the members;
     information on the regulatory                   • by educating people, particularly members, officers and employees,
     context, a caution concerning                     about democracy, economics, solidarity, and individual and
     forward-looking statements,                       collective responsibility.
     material events subsequent to
     December 31, 2010, frameworks and
     financial governance, related party
     transactions, non-GAAP measures,                VIsIon
     critical accounting policies and
     estimates, the transition to                    Desjardins,
     International Financial Reporting               the leading cooperative financial group in Canada,
     Standards (IFRS), annual statistics,            inspires trust around the world
     a glossary of financial terms used              through the commitment of its people,
     in this report and in the notes                 its financial strength and
     to the financial statements.                    its contribution to sustainable prosperity




46     management’s discussion and analysis
Structure of
Desjardins Group


                                                                                MEMBERs

                          REGIonAL GEnERAL MEETInGs                             cAIssEs

                          coUncILs of REPREsEnTATIVEs                           GEnERAL MEETInG                                         MonIToRInG
                                                                                                                                      Desjardins Group
                          AssEMBLy of REPREsEnTATIVEs                           BoARD of DIREcToRs                                    Monitoring Office


                                                                                PREsIDEnT AnD chIEf ExEcUTIVE offIcER


 cAIssE                                                BUsInEss
 nETWoRk                                               sEcToRs(1)
Cooperative Development                              Personal Services                       Business and                            Wealth Management              Property and
and Democratic                                       Regular, convenience                    Institutional Services                  and Life and Health            Casualty Insurance
Governance Support                                   and savings transactions                Regular, convenience                    Insurance                      Automobile insurance
Cooperative Network Support                                                                  and savings transactions                Insurance for individuals
                                                     Financing                                                                                                      Motorcycle and
                                                                                                                                     and businesspeople
                                                                                             Integrated offer                                                       recreational vehicle
                                                     Desjardins Card Services
                                                                                             for businesses                          Group insurance plans          insurance
                                                     AccèsD Services
 DEsJARDIns GRoUP                                                                            Integrated offer for                    Savings for individuals        Home insurance
                                                                                             the agriculture and                     and businesspeople
 fUncTIons                                                                                                                                                          Business insurance
                                                                                             agri-food industry
                                                                                                                                     Specialized savings
Finance and Treasury                                                                         Specialized services
and Office of the CFO                                                                                                                Group retirement savings
                                                                                             Capital markets
Risk Management           (2)                                                                                                        Brokerage and private
                                                                                             Development capital                     management
Technology and Shared Services                                                               and business ownership
People and Culture                                                                           transfers




 TRAnsfoRMATIon
 AnD PERfoRMAncE
Strategy, Performance
and Development(2)
Communications
Desjardins Group
Management Support


(1) Details on the activities are presented in section 2.2, “Analysis of business segment results”.
(2) The scope of these functions was reviewed subsequent to December 31, 2010. See section 4.2, “Material changes subsequent to December 31, 2010”.



Desjardins Group’s structure has been designed to take into account the needs                              AT A GLAncE
of our members and clients, as well as those of the markets in which we operate.
The caisse network in Québec and Ontario has the support of four main Business                             • More than $172 billion in assets
Sectors, which reinforces our ability to build on our products and services.                               • 5.8 million members
                                                                                                           • Nearly 5,900 elected officers
                                                                                                           • More than 42,500 employees
                                                                                                           • 451 caisses in Québec and Ontario with:
                                                                                                              - 924 service centres
                                                                                                              - 48 business centres
                                                                                                              - 2,652 ATMs




                                                                                                                                                                 management’s discussion and analysis   47
WhAT MAkEs Us DIffEREnT                                                              Thanks to convenient distribution channels and numerous intermediary
Desjardins Group stands out from other Canadian financial institutions because       networks, Desjardins Group can maintain proximity with its members, clients
of its cooperative nature. Our mission and values reflect our cooperative nature     and, by extension, with the community.
and are championed by our officers, managers and employees. Our mission and
our values are echoed in our strategic orientations and help us achieve our vision   Another one of the hallmarks of Desjardins Group is the active participation of
in favour of sustainable prosperity within the communities we serve. Since the       elected officers in the caisses and in Desjardins Group’s decision-making process
first caisse was founded in 1900 in Lévis, Desjardins Group has been a key player    though the Regional General Meetings and the Assembly of Representatives.
in financial education. We believe that the cooperative business model is more
relevant than ever and a key to sustainable prosperity.



hIGhLIGhTs
Combined surplus earnings of $1,437 million, up 33.8% over 2009, generated by the profitable growth of caisse network and Business Sector activities as well
as several productivity initiatives
Bolstered Desjardins Group’s financial capitalization through capital funding of $2.1 billion, with $1.6 billion coming from Canadian institutional investors
and $0.5 billion from members, which helped bring the Tier 1 capital ratio up to 17.7%, compared to 15.8% as at December 31, 2009
Provision for member dividends of $305 million for the year, compared to $282 million in 2009. An additional $80 million was returned to the community
as sponsorships, donations and scholarships in 2010
Fitch rating agency issued its first long-term (AA-) and short-term (F1+) ratings for Caisse centrale Desjardins in December 2010
Formed a partnership with Groupe Promutuel to acquire its savings portfolio of over $160 million and loan portfolio of over $220 million
Continued Desjardins Group’s growth outside Québec, in particular by making a public take-over bid for Western Financial Group Inc., as announced
on December 23, 2010
Successful launch of Desjardins mobile services
Merger between Fiera Capital Inc. (an investment management firm partnering with Desjardins Group) and Sceptre Investment Counsel Limited
Signed a general agreement for $320 million in computer processing services over the next six years
Named “Bank of the Year 2010 – Canada” by British magazine The Banker
Winner of the social responsibility category of the Prix québécois de l’entreprise citoyenne (Québec corporate citizenship award) presented by Korn/Ferry
International, NATIONAL Public Relations and L’Actualité magazine
Named one of Canada’s 10 Most Admired Corporate CulturesTM
Ranked seventh among the Best 50 Corporate Citizens in Canada by Corporate Knights magazine




48   management’s discussion and analysis
Table 01 – Operating results and financial position
Data for years ended December 31
(in millions of $ and as a %)

                                                                                                                                                           2010               2009                   2008
                                                                                                                                                                             restated(1)            restated(1)
Operating results
Total income(2)                                                                                                                                        $ 11,685          $ 10,670              $     8,373
Provisions for credit losses                                                                                                                                197               260                      223
Claims, benefits, annuities and changes in insurance provisions                                                                                           4,168             3,758                    3,144
Non-interest expense                                                                                                                                      5,403             5,149                    4,805
Surplus earnings after income taxes and before member dividends(2)                                                                                        1,437             1,074                       89
Returned to members and to the community(3)                                                                                                                 385               355                      267
Financial position
Total assets                                                                                                                                            172,275            157,442                 152,532
Average assets(4)                                                                                                                                       169,003            158,689                 149,722
Loans                                                                                                                                                   116,611            110,300                 104,756
Average equity(4)                                                                                                                                        12,396             10,538                   9,600
Deposits and subordinated bonds                                                                                                                         115,749            107,455                 102,184
Key ratios
Return on equity(2, 4)                                                                                                                                     11.6 %               10.2 %                  0.9 %
Productivity index(2, 4)                                                                                                                                   71.9                 74.5                   91.9
Tier 1 capital ratio(5)                                                                                                                                    17.7                 15.8                   13.6
Total capital ratio(5)                                                                                                                                     18.7                 15.8                   13.0

(1)   Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2)   Data for 2008 were affected by the financial crisis.
(3)   Includes the provision for member dividends for the current year, donations, sponsorships and bursaries.
(4)   See section 4.5, “Non-GAAP measures”.
(5)   Since 2009, these ratios have been calculated according to the Basel II Accord; previously, they were calculated according to Basel I.




sTRATEGIc oRIEnTATIons                                                                                           2011 PRIoRITIEs
Desjardins Group’s strategic orientations were adopted by Board of Directors                                     Our main priority for 2011 is to continue with the Desjardins Group Development
in February 2010 as part of its 2010–2012 Strategic Plan. Their purpose is to                                    Plan, as follows:
make Desjardins Group a stimulating, distinctive and successful organization
                                                                                                                 • To further Desjardins Group’s strategic development through a
that makes a unique contribution to the development of our society. The strategic
                                                                                                                   comprehensive range of products and services adapted to our clients, while
orientations define the main avenues for achieving this vision, to reach Desjardins
                                                                                                                   optimizing the potential of our physical and virtual distribution channels and
Group’s full business development potential and optimize its financial strength.
                                                                                                                   continuing its development across Canada
They lay a common foundation on which the caisse network and the Business
Sectors can build their own orientations, strategies and priorities. Desjardins                                  • To optimize the performance of Desjardins Group through the
Group’s strategic orientations are as follows:                                                                     improvement of our management and business processes so that we can
                                                                                                                   increase our competitive strength
• Cooperation and involvement: Capitalize on cooperative values and social
                                                                                                                 • To optimize information technology by creating a specialized IT subsidiary
  responsibility to differentiate Desjardins and increase its brand power
                                                                                                                   and making changes to IT systems operations
• Member/client experience: Implement a member- and client-centred
                                                                                                                 • To work together with officers to develop a framework that will help them
  approach throughout Desjardins Group
                                                                                                                   fulfil their role
• Growth and innovation: Achieve sustained and profitable growth
                                                                                                                 • To motivate our people by identifying and implementing conditions that
  by emphasizing openness, innovation and agility
                                                                                                                   foster mobility and career development across the organization
• Profitability and financial stability: Optimize overall productivity and
  performance and reinforce the financial strength of Desjardins Group
• Leadership and mobilization: Count on the leadership and the mobilization
  of officers and employees to support Desjardins Group’s development

For the most part, our achievements with regard to the Cooperation and
involvement and Leadership and mobilization strategic orientations
can be found in the Desjardins Group’s Distinctive Profile section on pages 2
to 44 of this Annual Report.




                                                                                                                                                                    management’s discussion and analysis      49
sEcTIon 1.2
Monitoring of priority
financial objectives
Table 02 – Progress report on 2010 results
Data for the year ended December 31
(in millions of $ and as a %)

                                                                                                                                     PRIoRITy fInAncIAL
  DEsJARDIns GRoUP                                                                                                              oBJEcTIVEs foR 2010-2012                       2010 REsULTs
Growth and development
  • Growth in operating income(1)                                                                                                          Greater than 8%                               6.1%
Productivity and profitability
  • Productivity index(2)                                                                                                           Less than 70% in 2012                               71.9%
  • Gap between revenue growth and non-interest expense growth(3)                                                                  Greater than 2% in 2012                               3.8%
  • Growth in surplus earnings after income taxes                                                                                    Between 5% and 10%                                 33.8%
  • Return on equity(2)                                                                                                                   Greater than 9%                               11.6%
Financial stability and risk management
  • Tier 1 capital ratio                                                                                                                  Greater than 15%                              17.7%
  • Total capital ratio                                                                                                                   Greater than 15%                              18.7%
  • Gross impaired loans/gross loans                                                                                                          Less than 1%                              0.44%

(1) Total income, net of income from available-for-sale securities, trading income and other investment income.
(2) See section 4.5, “Non-GAAP measures”.
(3) Total income, net of claims and insurance benefits.




The financial objectives presented in Table 02 above were established during                                Increasing productivity has always been a priority for Desjardins Group.
the implementation of the 2010-2012 Strategic Plan. These performance targets                               Continuous improvement is an imperative for carrying out Desjardins Group’s
are based on orientations and initiatives that support and are consistent with                              growth initiatives and so that it can attain a favourable competitive position
Desjardins Group’s strategic ambitions, and are aimed at achieving profitability                            by providing its members and clients with a superior service offer.
that reflects the desired balance between cooperative and financial performance.
                                                                                                            Desjardins Group will start off 2011 with a solid foundation, including a strong
Overall, Desjardins Group posted a higher-than-expected financial performance                               level of capitalization that is significantly higher than the Canadian banking
in 2010, with surplus earnings after income taxes up 33.8% over 2009.                                       industry average. Desjardins Group therefore has the vision and is fully equipped
                                                                                                            to reach its various strategic objectives in 2011, based on well-defined orientations
Desjardins Group has undertaken different initiatives that have enabled it to                               for shaping a strong and forward-looking Desjardins Group.
improve its performance and its productivity while improving its service offer
by gearing it to members’ changing needs. The business segments developed in
2009 have proven themselves and will take full advantage of their respective
strengths going forward. The caisse network, Desjardins Group’s driving force,
is currently engaged in a process of transformation and change that will help it
prove its relevance and consolidate its leadership position in its various markets
in the years ahead.




50    management’s discussion and analysis
sEcTIon 1.3
The economy, industry
and outlook
Canadian dollar                                                                      Prime rate
(C$ / US$)                                                                           (as a %)



1.04                                                                                 8
1.00                                                                                 7
0.96                                                                                 6
0.92                                                                                 5
0.88                                                                                 4
0.84                                                                                 3
0.80                                                                                 2
0.76                                                                                 1
           04     05    06    07    08    09        10                                        04       05   06   07   08   09    10



Unemployment rate                                                                    GDP growth
(as a %)                                                                             (as a %)



10                                                                                   4
                                                                                     3
9
                                                                                     2
8
                                                                                         1
7                                                                                    0
                                                                                     -1
6
                                                                                     -2
5
                                                                                     -3
4                                                                                    -4
        04       05    06    07    08    09    10                                             04       05   06   07   08   09     10
       canada                                                                                canada
       Quebec                                                                                Quebec
       ontario                                                                               ontario




2010 EconoMIc EnVIRonMEnT                                                            InDUsTRy DEscRIPTIon AnD TREnDs
The year got off to a good start for most of the industrialized countries. Then,     The recovery took hold in 2010 when economic growth resumed again. The
the sovereign debt crisis in Europe and deep-seated structural problems in the       Canadian financial industry, which had done well during the 2008-2009
U.S. economy sowed seeds of doubt concerning the sustainability of the global        recession, was able to capitalize on the improvement in the climate and did
economic recovery. These events created considerable volatility on capital           not experience any major changes. There are still approximately 1,000 savings
markets. Given the environment, the central banks kept their key interest rates      and loan cooperatives, slightly less than 50% of which belong to Desjardins Group
very low. On the other hand, certain emerging countries had to deal with the risk    and some 70 institutions, divided between Canadian and foreign banks. All these
of overheating. China even had to tighten access to credit, raising its key rates    institutions were able to provide a very broad range of financial services, except
twice. Growth in global real GDP ended the year close to 4.5%, after posting         for the seven branches of foreign banks that offered only loans.
a decline in 2009.
                                                                                     Insurance companies are another major industry player. In 2010, more than
In spring 2010, Greece’s financing problems and the risk of their spreading          300 were in operation in Canada. Although some were present in both property
to other euro zone countries caused financial tensions to flare up worldwide.        and casualty insurance and in life and health insurance, most of them, that is,
Implementation of a stabilization plan by European authorities reassured the         almost two-thirds, specialized in property and casualty insurance, while the
markets. The U.S. Federal Reserve’s announcement of a second wave of quantitative    remaining third operated in life and health insurance. More specifically, there
easing also helped to restore calm. The S&P 500 staged a comeback, and was also      are a few major players in life and health insurance, and the top three account
supported by good results in corporate earnings. In spite of uncertainty in          for close to 61% of the premiums collected in this industry in Canada. Desjardins
financial marketplaces, stock markets did well in 2010. The U.S. and Canadian        Group, through its subsidiary Desjardins Financial Security, ranks fourth in this
indexes ended the year on a strong note, with an increase of almost 15%.             market. The picture is different in property and casualty insurance, where there
                                                                                     is a greater number of large institutions, with the top three accounting for only
Resource prices rose strongly in 2010, sustained by the global economic recovery.    about 26% of the industry. Desjardins Group, through its subsidiary Desjardins
Oil prices, which were close to US$75 a barrel at the beginning of 2010, ended the   General Insurance Group, ranks 10th in this market.
year at over US$90. As a result, the loonie increased in value and even exceeded
parity. This had a strong impact on foreign trade and slowed the Canadian economy
during the year. Household spending and business investment nonetheless
increased substantially, while government contributions dwindled as the stimulus
plans began to wrap up.




                                                                                                                                        management’s discussion and analysis   51
The Canadian financial industry can rely on the presence of 10 major financial            The U.S. residential real estate market is likely to remain depressed because of
groups, including Desjardins Group, that feature a comprehensive service                  the glut of homes for sale, low demand and relatively tight credit conditions. The
offer. In some cases, independent trust or loan companies are attached to these           labour market will take time to get back to normal, with more than 7 million jobs
institutions. Rounding out the service offer are finance companies, investment            to be recovered in the U.S., and the unemployment rate is not expected to fall
fund promoters and pension fund managers.                                                 back to around 8% until the end of 2012. Under the circumstances, the Federal
                                                                                          Reserve will leave its key rates unchanged in 2011, and will stay on track with its
The Canadian financial sector continued to receive accolades in 2010. For a third         quantitative measures until June.
consecutive year, the World Economic Forum and Moody’s Services rated the
Canadian banking system as the safest in the world, as well as the strongest from         Even though the Canadian economy lost some of its steam at the end of 2010,
a financial point of view. In Global Finance Magazine’s list of the world’s 50 safest     the outlook is positive. Employment regained all the ground it lost during the
banks, based on credit ratings and assets, Canada came in 10th. Desjardins Group          recession, and the unemployment rate has already dropped below 8%. The
ranked 4th in North America and 25th in the world. Desjardins Group’s financial           residential sector continues to surprise observers, with prices climbing to new
soundness is reflected in its credit ratings, which are of the highest quality; Moody’s   highs. The measures announced by the federal Minister of Finance should slow
has rated it P-1 for the short-term, and Aa1 for senior medium- and long-term.            household credit growth somewhat starting in the spring and reduce the risk of
                                                                                          overheating in the real estate sector. Given the difficulties in foreign trade along
The year was marked by a re-energized economy. The first half of 2010 was a               with stable inflation, the Bank of Canada should, in the opinion of Desjardins
period of vigorous growth, under the influence of the catch-up effect. There was          Group management, delay another key interest rate increase until summer 2011.
a surprisingly strong rebound in the real estate sector, in both the construction
and home resale markets, which stimulated consumer spending. Since Canadian                Québec’s economy should continue to expand in 2011 after slowing down in fall
financial institutions had prudently managed their mortgage credit during the             2010. Even though the trade deficit has reached a record level, the improvement in
pre-recession period, they did not experience the kind of collapse that struck the        the labour market should continue to support consumer spending. The measures
U.S. market. Canadian institutions were therefore ready to get on board when the          implemented to return to a balanced budget in 2013-2014 could nonetheless cool
Canadian real estate market started to recover. The second half of the year was           the expansion in Québec. Ontario will also be making a major effort to clean up its
less frenetic, but business still remained brisk at Canadian financial institutions.      public finances. Economic growth in both provinces should nevertheless exceed
                                                                                          2% in 2011, slightly off the pace in 2010.
The Canadian economy may have rebounded quickly, but its subsequent loss of
vigour revived fears of another recession which, fortunately, did not materialize.        fInAncIAL oUTLook foR 2011
For one thing, Canada could not keep up such a rapid rate of expansion for a long         The anticipated financial performance carries forward the financial objectives set
period. For another, the conditions in the U.S. were not in place for a vigorous          out in Desjardins Group’s 2010-2012 Strategic Plan and 2011-2013 Financial Plan.
recovery. This situation caused businesses to hesitate in making investment
decisions, because they were uncertain about the economic recovery’s staying              Desjardins will develop in an uncertain economic environment and will continue
power. On the other hand, interest rates remained very low, which made for more           to face fierce competition from the industry in 2011. A moderate increase in interest
favourable credit conditions. In spite of this uncertainty, Canadian financial            rates is expected, which will contribute to limiting the growth of the caisse network’s
institutions were able to turn in better financial results compared to 2009.              interest margin.

Finally, several fears resurfaced in 2010. The shaky financial situation of               Ongoing efforts will be made in the area of productivity and in sound and prudent
Canadian households and particularly their debt levels were the focus of much             capital management at Desjardins Group. Heightened regulatory requirements
attention and could eventually involve the Canadian financial system. However,            will bring some pressure to bear on the management of Desjardins Group’s level
low interest rates combined with the good performance so far of the labour                of capitalization.
market have kept household finances on a relatively even keel. This question
will be a special focus of attention for 2011.                                            Nevertheless, Desjardins intends to stay on course by continuing with growth
                                                                                          initiatives that are in line with its strategic orientations. These initiatives, through
EconoMIc oUTLook foR 2011                                                                 the Desjardins Group Development Plan and work to optimize its performance,
Even if Europe has weathered the sovereign debt crisis better than expected,              will continue to enhance both performance and productivity, as well as the
the situation is still fraught with risk. The European banking system continues           Desjardins member and client experience.
to worry investors, and capital markets are not impervious to possible future
volatility. The structural problems of the industrialized countries, including the        In the opinion of the Board of Directors and management, Desjardins Group has
U.S., are likely to continue to be a drag on worldwide economic growth in 2011.           the vision and is fully equipped to achieve its various strategic objectives in 2011
                                                                                          and ensure the continuity of its operations.




52   management’s discussion and analysis
2.0   review
      Of financial
      results
      hIGhLIGhTs
      Desjardins Group results
      • Combined surplus earnings before member dividends of $1,437 million,
        a 33.8% increase
      • Total income up $1,015 million or 9.5%
      • A $364-million or 10.3% increase in net interest income
      • Net premium growth of $121 million or 2.8%
      • A $530-million or 18.3% increase in other income
      • Claims, benefits, annuities and changes in insurance provisions totalled
        $4,168 million as at December 31, 2010, up from $3,758 million in 2009
      • Non-interest expense up $254 million, or 4.9%, to $5,403 million
        as at December 31, 2010
      • Productivity index at 71.9% compared to 74.5% in 2009,
        a 2.6 point improvement




      sEcTIon 2.1
      Analysis of
      2010 results
      Surplus earnings before member dividends
      (in millions of $)



      1,800




                                                                1,437
      1,600
      1,400                                          1,074
                             1,101




      1,200
                  988




      1,000
        800
        600
        400
        200
                                        89




          0
                 2006(1)   2007(1)     2008(1, 2)   2009(1)    2010
      (1) Certain data have been restated. See “Allowance for credit losses”
          in section 4.6, “Critical accounting policies and estimates”.
      (2) 2008 surplus earnings were affected by the financial crisis.




      sURPLUs EARnInGs
      At the end of fiscal 2010, Desjardins Group, the leading cooperative financial
      group in Canada, announced surplus earnings before member dividends of
      $1,437 million, a $363-million or 33.8% increase over the previous year. Return
      on equity amounted to 11.6%, compared to 10.2% at the end of fiscal 2009.




                                                                        management’s discussion and analysis   53
Segment contribution to surplus earnings                                               Total income
before member dividends in 2010                                                        (in millions of $)
(in millions of $ and as a %)

                                                                                       12,000
         $215




                                                                                                                                                  3,431
         14.9%




                                                                                                                                         2,901
                                                                                       10,000




                                                                                                                                824
                                                                                                                  3,824 2,602
                                                                                                    3,688 2,650
                                                                                       8,000




                                                                                                                                                  4,368
$103




                                                                                                                                         4,247
                                                                                                                                4,131
7.2%
                                                                                       6,000

                                                                                       4,000




                                                                                                                                                  3,886
                                                                                                                                         3,522
                                                                                                                                3,418
                                                                                                                  3,245
                                                                                                    3,081
                                                 $840                                  2,000
 $279                                            58.5%
 19.4%                                                                                      0
                                                                                                   2006           2007          2008    2009     2010
                                                                                            net interest income
     personal services and business and institutional services                              net premiums
     Wealth management and life and health insurance                                        other income
     property and casualty insurance
     other (including the impact of eliminations)




These results reflect the major contribution made by the Personal Services and         Net interest income
Business and Institutional Services segment, of $840 million or 58.5%. This            Net interest income is the difference between interest income earned on assets,
contribution was the result, among other things, of an increase in personal and        such as loans and securities, and the interest expense related to liabilities, such
business loans outstanding in the caisse network, as well as growth in credit card     as deposits, borrowings and subordinated bonds. It is affected by interest rate
and point-of-sale financing activities. The Wealth Management and Life and             fluctuations and fund procurement strategies, as well as by the composition of
Health Insurance segment and the Property and Casualty Insurance segment               interest-bearing or non-interest-bearing financial instruments.
made contributions of $279 million and $103 million, respectively, representing
19.4% and 7.2%. The impact of the Other category was $215 million, or 14.9%.           For analysis purposes, Table 03 on the following page shows changes in net
                                                                                       interest income for the main asset and liability classes, while Table 04, also on
In a context of conservative management and considering, among other things,           the following page, details how net interest income was affected by changes in
the impact of the adoption of the new International Financial Reporting Standards      the volume and interest rates of assets and liabilities.
(IFRS) on financial institutions’ capital ratios, the amount provisioned for member
dividends for the current year, calculated on the basis of the surplus earnings        For 2010, the Combined Financial Statements of Desjardins Group present
of the caisse network, totalled $305 million compared to $282 million in 2009.         net interest income of $3,886 million, an increase of $364 million or 10.3%.
An additional amount of $80 million was returned to the community in the form          Expressed as a percentage of average assets, this net margin was up 8 basis points.
of sponsorships, donations and bursaries. In all, $385 million was returned            Thus, the change in interest rates and its effect on the credit, investment and
to members and their communities.                                                      savings products and maturities selected by members shaved 14 basis points off the
                                                                                       average return on loans, while the 31-basis-point decrease in the average cost of
ToTAL IncoME                                                                           deposits was enough to offset the loss in return on assets.
Total income, comprised of net interest income, net premiums and other income,
amounted to $11,685 million, an increase of $1,015 million, or 9.5%, compared          The $364 million, or 10.3%, increase in net interest income is explained in
to the previous year. Net interest income was $3,886 million, up $364 million,         Table 04 on the following page by the sharp increase in average credit volume,
or 10.3%, over 2009. This increase stems primarily from the caisses’ dynamic           which, at $6.4 billion, translates into growth of 6.2%. Interest income amounted
efforts in the mortgage and business loan markets. More specifically, mortgage         to $5,682 million as at December 31, 2010, which is an increase of $176 million,
loans outstanding rose a substantial $5.2 billion during 2010. Vigorous housing        or 3.2%, over the previous year. Overall, the $9.7 billion, or 8.3%, growth in the
starts and a buoyant home resale market, the average price of properties and a         average volume of total interest-bearing assets boosted interest income by
continuing favourable rate environment for buyers helped fuel this performance.        $424 million, while the 23-basis-point decline in the average return on these
In addition, consumer spending led to growth in credit card and point-of-sale          assets caused interest income to decrease by $248 million.
financing activities and contributed to the increase in net interest income. In a
context of fierce competition among insurers, net premiums, comprised of life
and health insurance premiums, property and casualty insurance premiums
and annuity premiums, rose by $121 million, or 2.8%, to total $4,368 million
as at December 31, 2010.

Other income amounted to $3,431 million, for growth of $530 million, or 18.3%,
resulting in particular from increased trading income and income from available-
for-sale securities as well as a rise in income from brokerage, investment fund
and trust services. This increase was largely offset by higher actuarial liabilities
related to insurance company operations.




54     management’s discussion and analysis
Table 03 – Net interest income on average assets and liabilities
Years ended December 31
(in millions of $ and as a %)

                                                                                                                                            2010                                                           2009
                                                                                                                                                                                                          restated(1)

                                                                                              average balance              interest    average rate   average balance               interest         average rate
Assets
Interest-bearing assets
  Securities, cash and deposits with financial institutions                                       $ 16,290             $   446               2.74 %      $ 13,045               $      438                  3.36 %
  Loans                                                                                            109,900               5,236               4.76          103,464                   5,068                  4.90
Total interest-bearing assets                                                                      126,190               5,682               4.50          116,509                   5,506                  4.73
Other assets                                                                                         5,856                   —                  —            6,576                       —                     —
Total assets                                                                                      $132,046             $ 5,682               4.30 %      $ 123,085              $    5,506                  4.47 %
Liabilities and equity
Interest-bearing liabilities
  Deposits                                                                                        $ 110,462            $ 1,691               1.53 %      $ 104,584              $    1,920                  1.84 %
  Borrowings and subordinated bonds                                                                   1,922                105               5.46            1,103                      64                  5.80
Total interest-bearing liabilities                                                                 112,384               1,796               1.60          105,687                   1,984                  1.88
Other liabilities                                                                                     9,534                  —                  —            8,661                       —                     —
Equity                                                                                               10,128                  —                  —            8,737                       —                     —
Total liabilities and equity                                                                      $132,046             $ 1,796               1.36 %      $ 123,085              $    1,984                  1.61 %
Net interest income                                                                                                    $ 3,886                                                  $    3,522
As a percentage of average assets                                                                                                            2.94 %                                                         2.86 %

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.




Table 04 – Impact of changes in balances and rates on net interest income
Years ended December 31
(in millions of $ and as a %)

                                                                                                                                                       2010-2009                      IncREAsE (DEcREAsE)
                                                                                                                                                             restated(1)

                                                                                                                         change in        change in
                                                                                                                    average volume     average rate          interest        average volume          average rate
Assets
Securities, cash and deposits with financial institutions                                                              $    3,245           (0.62)%      $        8             $      109            $     (101)
Loans                                                                                                                       6,436           (0.14)              168                    315                  (147)
Change in interest income                                                                                                                                       176                    424                  (248)
Liabilities
Deposits                                                                                                                    5,878           (0.31)             (229)                   108                  (337)
Borrowings and subordinated bonds                                                                                             819           (0.34)               41                     48                    (7)
Change in interest expense                                                                                                                                     (188)                   156                  (344)
Change in net interest income                                                                                                                            $      364             $      268            $       96

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.




                                                                                                                                                                           management’s discussion and analysis     55
Net premiums(1)
(in millions of $)



4,000




                                                    3,024
                                    2,973
                2,868




3,500
3,000
2,500

                                                            1,524
                                        1,443




2,000
                     1,426




1,500
1,000
  500
     0
                2008                 2009            2010
     life and health insurance
     property and casualty insurance

(1) The difference between total results and total business segment
    results pertains to intersegment transactions.




Interest expense stood at $1,796 million, down $188 million, or 9.5%, from 2009.           Net premiums
The $6.7 billion, or 6.3%, increase in Desjardins Group’s average capital supply           Net premiums, comprising premiums on life and health insurance, property and
from deposits, borrowings and subordinated bonds added $156 million in interest            casualty insurance and annuity premiums, rose $121 million, or 2.8%, to total
charges, while the 28-basis-point decrease in the average cost of these funding            $4,368 million as at December 31, 2010.
sources pushed interest expense down by $344 million.
                                                                                           Wealth Insurance and Life and Health Insurance segment
During 2010, credit demand from individuals and businesses remained fairly                 The overall insurance activities of the Wealth Management and Life and Health
sustained, which favoured business development. Desjardins Group loans                     Insurance segment posted income from net insurance and annuity premiums
outstanding, net of the allowance for credit losses, increased by 5.7%, or $6.3 billion,   of $3,024 million, compared to $2,973 million as at December 31, 2009, for
over year-end 2009, to stand at $116.6 billion as at December 31, 2010. Desjardins         an increase of 1.7%. Net insurance premiums were up 5.5% over 2009 to total
Group continued to stand out in mortgage financing, especially in Québec where             $2,745 million.
it remains a leading player. Although residential market activity started to show
signs of slowing in the second half of the year, demand for home mortgages from            Premium volume for individual insurance was $467 million, a $30-million
the caisses did not weaken. As at December 31, 2010, mortgage loans outstanding            advance over 2009. Premium volume from the network of financial security
reached a volume of $72.8 billion, up 7.6%, or $5.2 billion, annually, compared            advisors assigned to Desjardins caisses increased by 15.8% over the previous
with an increase of $4.4 billion, or 7.0%, recorded in 2009. In addition, in               year. After remarkable sales growth from the distribution networks in recent
consumer financing, credit cards and other personal loans, the increase was                years, premiums cashed increased by 3.4% compared to 2009, up $12.1 million.
3.5%, or $589 million, since the end of 2009, for outstandings of $17.5 billion            Furthermore, premium volume for products marketed via direct distribution
as at December 31, 2010, compared to growth of 5.8%, or $933 million, observed             posted 15.1% growth to stand at $76 million.
a year earlier.
                                                                                           Premiums for group insurance written by Desjardins Group members increased
Desjardins Group also plays a very active role with business and government.               by 6.4% and premiums for insurance from other client segments were up 4.7%.
Its loans outstanding to this client segment grew by 2.0%, or $518 million, over           In terms of geographic distribution, premiums increased by 5.1% in Québec and
the same period to total $26.8 billion, versus an increase of 0.7%, or $173 million,       5.3% elsewhere.
at the end of 2009.
                                                                                           Property and Casualty Insurance segment
                                                                                           The activities of the Property and Casualty Insurance segment generated
                                                                                           net premiums of $1,524 million, compared to $1,443 as at December 31, 2009,
                                                                                           for a 5.6% increase. This increase stems from a rise in premiums written by
                                                                                           Desjardins caisse members and partner groups, growth in business related to
                                                                                           distribution efforts for products in Ontario and the partnership with a Canadian
                                                                                           financial institution.




56       management’s discussion and analysis
Table 05 – Other income
Years ended December 31
(in millions of $ and as a %)

                                                                                                                                 2010                2009                 2008
Deposit and payment service charges                                                                                          $     535          $      513            $    497
Lending fees and credit card service revenues                                                                                      470                 444                 410
Brokerage, investment fund and trust services                                                                                      656                 581                 617
Trading income (loss)(1)                                                                                                         1,013                 666              (1,001)
Income (loss) from available-for-sale securities(1)                                                                                152                  79                (405)
Other investment income                                                                                                            283                 275                 239
Other                                                                                                                              322                 343                 467
Total other income(1)                                                                                                        $   3,431          $    2,901            $    824
Increase (decrease) in other income                                                                                               18.3 %             252.1 %             (68.3)%
Other income as a percentage of total income                                                                                      29.4                27.2                  9.8

(1) Data for 2008 were affected by the financial crisis.




Other income                                                                          PRoVIsIon foR cREDIT LossEs
Other income stood at $3,431 million in 2010, up $530 million, or 18.3%, over 2009.   Desjardins Group’s loan portfolio continued to be of excellent quality. The provision
The ratio of other income to total income was 29.4% for 2010, compared to 27.2%       for credit losses expense was $197 million for 2010, which is down $63 million
for 2009.                                                                             from the corresponding period of 2009.

Other income grew as a result of the $347-million increase in trading income and      As mentioned in Note 06, “Loans and allowance for credit losses”, to the Combined
$73 million in income from available-for-sale securities. The total increase in       Financial Statements, in 2010, Desjardins Group modified the valuation method
trading income was generated by the activities of the life and health insurance       used for its general allowance. The new method considers new risk parameters for
subsidiary and was offset by a $346-million increase in claims, benefits, annuities   the various loan portfolios, notably by integrating credit risk models developed by
and changes in insurance provisions.                                                  Desjardins Group. Taking these new parameters into account had the net effect of
                                                                                      reducing the provisions for credit losses by approximately $36 million in 2010.
Income derived from deposit and payment service charges was positively affected
by volume growth, moving ahead by $22 million or 4.3%. Income from lending            As at December 31, 2010, gross impaired loans outstanding were $512 million,
fees and credit card service revenues, consisting mainly of income from payment       a year-over-year increase of $3 million. The gross impaired loans ratio, as a
solutions offered by Desjardins Card Services, totalled $470 million in 2010,         percentage of the total gross loan portfolio, was 0.44% as at December 31, 2010,
up by 5.9%, or $26 million, over 2009.                                                or roughly the same ratio as a year earlier. Desjardins Group has one of the best
                                                                                      ratios in this regard in the Canadian banking industry.
Income derived from brokerage, investment fund and trust services rose by
$75 million, or 12.9%, over 2009. The main reason for this increase was growth
in investment funds outstanding and the rally in brokerage activities.

Income in the Other item decreased by $21 million, or 6.1%, from 2009, totalling
$322 million. The decrease stemmed largely from the write-down of certain assets.




                                                                                                                                           management’s discussion and analysis   57
Table 06 – Non-interest expense
Years ended December 31
(in millions of $ and as a %)

                                                                                                                                                                      2010                    2009              2008
                                                                                                                                                                                             restated(1)       restated(1)
Salaries and fringe benefits
  Salaries                                                                                                                                                       $ 2,182                 $    2,113        $ 1,911
  Fringe benefits                                                                                                                                                    434                        310            339
                                                                                                                                                                   2,616                      2,423          2,250
Premises, equipment and furniture, including amortization                                                                                                            400                        415            393
Outsourcing of processing services                                                                                                                                   363                        371            322
Communications                                                                                                                                                       258                        237            252
Restructuring expenses                                                                                                                                                83                        101              —
Other                                                                                                                                                              1,683                      1,602          1,588
Total non-interest expense                                                                                                                                       $ 5,403                 $    5,149        $ 4,805
Productivity index(2)                                                                                                                                               71.9 %                     74.5 %         91.9 %

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2) See section 4.5, “Non-GAAP measures”.




Claims, benefits, annuities and changes                                                                         Non-interest expense
in insurance provisions(1)                                                                                      (in millions of $ and as a %)
(in millions of $ and as a %)



5,000                                                                 23                                        5,750                                                               12
                  (0.9)




                                                                                                                                 (0.4)




                                                                                                                                                   7.2
                                                        4,168 10.9




                                                                                                                                                                       4.9
                                      19.5




                                                                      19                                        5,500
4,000
                                                                                                                                                                                    8




                                                                                                                                                                       5,403
                                                                      15                                        5,250
                                      3,758




3,000

                                                                                                                                                   5,149
                                                                      11                                        5,000
                  3,144




                                                                                                                                                                                    4
2,000                                                                 7                                         4,750
                                                                                                                                 4,805




                                                                     3                                          4,500                                                               0
1,000
                                                                     -1                                         4,250
     0                                                               -5                                         4,000                                                              -4
                2008                 2009              2010                                                                    2008(1)            2009(1)             2010
     in millions of $                                                                                               in millions of $
     groWth as a %                                                                                                  groWth as a %

(1) The difference between total results and total business segment                                             (1) Certain data have been restated. See “Allowance for credit losses”
    results pertains to intersegment transactions.                                                                  in section 4.6, “Critical accounting policies and estimates”.




cLAIMs, BEnEfITs, AnnUITIEs AnD chAnGEs In InsURAncE PRoVIsIons                                                 non-InTEREsT ExPEnsE
In life and health insurance, Desjardins Financial Security, in the Wealth                                      Non-interest expense totalled $5,403 million versus $5,149 million in 2009,
Management and Life and Health Insurance segment, had expenses of                                               up $254 million, or 4.9%, primarily because of the increase in salaries and fringe
$3,113 million as a result of insurance benefits and annuities, other payments to                               benefits due to the annual indexing of salaries and to pension plan expenses,
insured persons and changes in actuarial liabilities, compared to $2,767 million                                among other things. Donations, sponsorships and bursaries totalled $80 million,
in 2009, an increase of $346 million. This 12.5% rise is largely due to higher                                  for a $7-million or 9.6% increase over 2009.
actuarial liabilities because of the increase in the fair value of their matching
investments. In addition, business growth, mainly in disability insurance,                                      Productivity index
pushed up the benefit expense.                                                                                  Thanks to income growth and efforts to increase productivity across Desjardins
                                                                                                                Group, the productivity index showed a 2.6-point improvement in 2010 at 71.9%,
Desjardins General Insurance Group, in the Property and Casualty Insurance                                      compared to 74.5% as at December 31, 2009.
segment, posted expenses of $1,056 million compared to $992 million in 2009,
representing a loss ratio of 69.3% versus 68.8% in 2009. This 0.5-point increase                                Salaries and fringe benefits
was due to an increase in automobile insurance settlement costs in the Ontario                                  Expenses incurred for salaries and fringe benefits rose $193 million, or 8.0%, to
market during the second half of the year. The higher costs were mitigated by                                   $2,616 million as at December 31, 2010. This increase is mainly attributable to the
mild weather conditions that winter.                                                                            annual indexing of salaries, pension plan expenses and the pay equity agreements
                                                                                                                reached. This expense item represents 48.4% of Desjardins Group’s total non-
                                                                                                                interest expense, compared to 47.1% in 2009. For 2010, base compensation was
                                                                                                                $2,182 million, up 3.3% from $2,113 million in 2009.




58       management’s discussion and analysis
                                                                                           sEcTIon 2.2
                                                                                           Analysis of business
                                                                                           segment results
The ratio of fringe benefits to total base compensation went from 14.7% in 2009            Since the beginning of 2010, Desjardins Group has been reporting its financial
to 19.9% in 2010. This rise is attributable to the increase in future benefit expense      results for its business segments as follows, or under the Other category:
that resulted when certain actuarial assumptions were updated. In this regard,
                                                                                           • Personal Services and Business and Institutional Services
Note 24 “Employee future benefit plans” to the Combined Financial Statements
mentions that the costs associated with the defined benefit pension plans rose             • Wealth Management and Life and Health Insurance
by approximately $122 million to $225 million in 2010. Other plans recorded                • Property and Casualty Insurance
a $2-million increase over 2009, with an expense of $22 million.
                                                                                           Personal Services and Business and Institutional Services
Other expenses                                                                             The Personal Services and Business and Institutional Services segment offers
At the end of 2010, expenses related to premises, equipment and furniture (including       Desjardins Group members and clients a comprehensive range of regular financial
amortization) stood at $400 million, compared to $415 million in 2009, which               products and services, which are mainly distributed by the caisse network.
is down $15 million or 3.6%. Fees associated with the outsourcing of processing            It also makes its products available via complementary networks.
services decreased by $8 million, or 2.2%, from 2009, to total $363 million as
at December 31, 2010. Communications expenses, which include the cost of                   Wealth Management and Life and Health Insurance
telephony, advertising, courier service and stationery, rose $21 million, or 8.9%,         The Wealth Management and Life and Health Insurance segment offers
from the previous year to $258 million in 2010. These slight fluctuations reflect          Desjardins members and clients a full range of asset management and financial
Desjardins Group’s strict cost management.                                                 security products and advisory services designed to meet the changing needs
                                                                                           of individuals. These products and services are distributed by the caisse network
Restructuring expenses, which were generated by the implementation of the                  and complementary networks.
new organizational structure that began in 2009, totalled $83 million as at
December 31, 2010, an $18-million reduction from the $101 million recorded                 Property and Casualty Insurance
in 2009.                                                                                   The Property and Casualty Insurance segment provides a line of automobile
                                                                                           and home insurance products directly to members and clients of Desjardins,
The other expense categories stood at $1,683 million, for an increase of $81 million,      individuals and businesses alike. In addition to being available through the caisse
or 5.1%, compared to 2009. In this item, commissions were $319 million, up                 network, these products are also available via several Client Care Centres across
$22 million, or 7.4%, from the previous year. This increase is attributable, among         Canada, the Internet and, for some products, by smartphone.
other things, to higher sales of funds and securities. Furthermore, in this same
item, donations and sponsorships totalled $80 million, a $7 million or 9.6%                Other
advance from 2009.
                                                                                           The Other category includes financial information pertaining to activities that
                                                                                           do not fall under one of the above-mentioned business segments. It consists
Income taxes and indirect taxes
                                                                                           mainly of treasury activities. The category also includes all the asset-backed
Income taxes on surplus earnings include income taxes on the activities                    term notes (ABTN) held by Desjardins Group and consolidation adjustments
of Desjardins Group’s entities.                                                            for all its components.

Desjardins Group is a decentralized cooperative financial group in which each              Intersegment transactions are carried out in the normal course of business
entity that is a financial services cooperative—primarily the caisses, Caisse              and are measured at the exchange amount, which corresponds to the amount
centrale Desjardins, the Fédération des caisses Desjardins du Québec and the               of consideration established and agreed to by each of the legal entities and
federation in Ontario—is considered a private and independent company. This                business units.
distinguishes Desjardins Group from most other financial institutions, which are
large public corporations. Each caisse is therefore subject to the tax regulations         Some of the business segments’ products and services are also available outside
applicable to private companies. Legislation has made these regulations adaptable          Québec and Ontario through the caisse networks of the Fédération des caisses
to enable the caisses to accumulate a sufficient general reserve to serve as a base        populaires acadiennes and Caisse Populaire Groupe Financier Ltée, auxiliary
for the protection of members’ deposits. When the general reserve reaches the              members of the Fédération des caisses Desjardins du Québec. These auxiliary
level specified in the legislation, the caisse is subject to the same tax rates as large   members are, however, subject to a separate set of laws and regulations and
corporations. Furthermore, the caisses are subject to a tax on capital, based on           are not included on Desjardins Group’s Combined Balance Sheets. The main
a formula for cooperative financial organizations.                                         financial results of these auxiliary members, which are not included in the
                                                                                           financial results, are presented on page 184 of this Annual Report.
The Desjardins entities that are not financial services cooperatives are subject
to the tax regulations that apply to large corporations.

Indirect taxes consist of income taxes and taxes on capital, property and business
taxes, taxes on payroll and fringe benefits, the goods and services tax (GST) and
sales taxes. Indirect taxes are included in non-interest expense.

In 2010, the entities of Desjardins Group paid $760 million in direct and
indirect taxes.




                                                                                                                                              management’s discussion and analysis   59
sEcTIon 2.2.1
PERsonAL sERVIcEs AnD BUsInEss
AnD InsTITUTIonAL sERVIcEs

PERsonAL sERVIcEs                                                                    Financing activities include the following:
Profile                                                                              • Residential mortgage loans: for the purchase of new or existing homes
The Personal Services offer to members and clients includes products, services,        and for renovations
and advice for regular and convenience transactions, variable and term savings,      • Consumer loans: such as loans for the purchase of durable goods, advances to
financing and payment and credit cards via the caisse network.                         credit card holders, personal lines of credit and student loans

It also makes its products and services available through complementary              The activities of Desjardins Card Services include card payment services for
distribution networks, by phone, online, by mobile device, as well as at ATMs.       individuals and businesses, merchant payment services and financing solutions
                                                                                     (Accord D).
Activities
Regular, convenience and savings activities include transactions carried             Through AccèsD Services, Desjardins Group offers and develops easily accessible
out at the caisse counter, requests for information and various specialty services   products and services by using channels that enable people to make their financial
(drafts, safety deposit boxes, etc.). They also include variable savings (chequing   transactions at any time of the day or night, from anywhere in the world, using
accounts, regular savings, etc.) and term savings.                                   a telephone, the Internet or a mobile device.




WE consoLIDATED oUR PosITIon As A LEADER In QUéBEc ThRoUGh oUR InnoVATIon AnD InITIATIVEs AnD ThRoUGh ThE cAIssEs’ EnThUsIAsM
In MEETInG MEMBER nEEDs, As InDIcATED By ThE IncREAsE In oUR oUTsTAnDInG LoAn PoRTfoLIo. ThE PoPULARITy of oUR PAyMEnT soLUTIons,
As WELL As hEIGhTEnED TRAffIc on AccèsD, PRoVE ThAT WE ARE sUccEssfULLy REsPonDInG To ThE nEEDs of MEMBERs AnD cLIEnTs.
normand desautels
Senior Vice-President and General Manager
Personal Services
Desjardins Group




60    management’s discussion and analysis
2010 hIGhLIGhTs                                                                      Growth and innovation
                                                                                     • Signed a business partnership agreement with Groupe Promutuel, which
Québec’s leader in residential mortgages and consumer loans, including                 enabled us to acquire their savings and loan portfolios in excess of $160 million
point-of-sale financing, with market shares of 38% and 22.8% respectively              and $220 million respectively
Québec’s pioneer and leader in online services. Desjardins.com is the most           • An increase in consumer credit approximating $6 billion, which increased
visited financial site in Québec and one of the most visited in Canada                 our market share in Québec by 0.3% (34.3%), mainly as a result of business
                                                                                       development in the caisses
First place in Québec as credit and debit card issuer. More than four million
credit card holders and five million debit card holders across Canada
                                                                                     Profitability and financial stability
Continued rollout of chip card technology to merchants and credit and debit          • Optimized our risk management systems for payment and credit cards
card holders                                                                         • Developed a new risk management index
Desjardins Card Services obtained a MasterCard acquirer licence, which               • Launched several campaigns to promote direct deposit for provincial- and
makes it possible for Desjardins to provide merchants direct access to the             federal-government issued cheques and registration for online statements
MasterCard network for processing payments                                             among caisse members and VISA cardholders
Signed a partnership agreement on July 1, 2010, with Groupe Promutuel,
                                                                                     2011 strategy and priorities
becoming the exclusive distributor of savings and loan products for members
                                                                                     The sector intends to make Desjardins Group known as the best Canadian
of Groupe Promutuel’s property and casualty insurance mutuals
                                                                                     financial institution serving the mass market. It plans to strengthen Desjardins
                                                                                     Group’s leading position in financing and transaction services and achieve
                                                                                     profitable growth of its market shares in Québec and elsewhere in Canada.
                                                                                     To achieve these priorities, it will rely mainly on quality, innovation and
Industry                                                                             profitability in its range of products and services with respect to financing,
The Canadian banking services industry is highly concentrated and fiercely           regular transactions, convenience and card services, as well as its high level
competitive. This has resulted in market saturation, which is why one player’s       of accessibility.
market share gain is another’s loss.
                                                                                     To achieve this strategy, we will continue our efforts on the following:
In 2010, the card and payment solutions industry was marked by changes not only
                                                                                     • Develop new markets and new client groups
in the business environment for payment networks, but also in the regulatory
framework in Québec and Canada.                                                      • Make it simpler and easier for members and clients to do business with
                                                                                       Desjardins Group and have access to all its services according to their
2010 orientations and achievements                                                     expectations and needs and through their preferred channels
In 2010, we achieved several objectives in line with the sector’s 2010-2012          • Optimize physical and virtual distribution
strategic plan and Desjardins Group’s strategic orientations.                        • Enhance sales and administrative processes to improve the quality
                                                                                       of the member/client experience and enhance operational efficiency
Member/client experience
                                                                                     • Maintain our leadership position in mortgage financing
• Rolled out new solutions including Desjardins mobile services in September 2010,
  fixed-rate monthly plans for small merchants and several new features on           • Increase our financial literacy activities, particularly with respect
  AccèsD Internet, which led to a 10% increase in transactions on AccèsD and           to the responsible use of credit
  an 8% increase in the number of members using the service
• Launched the VISA Desjardins FOR STUDENTS ONLY card with personalized
  card design and ran a contest with questions that highlighted good personal
  finance management and using credit responsibly
• Boosted our visibility among newcomers to Canada and cultural communities




                                                                                                                                        management’s discussion and analysis   61
BUsInEss AnD InsTITUTIonAL sERVIcEs                                                   Activities targeting medium-sized businesses include Desjardins products
Profile                                                                               and services in the commercial and industrial sectors, commercial real estate,
                                                                                      the public sector, franchises and business mergers, acquisitions and divestitures.
The Business and Institutional Services offer to members and clients includes
a comprehensive, integrated line of products and services designed to meet
                                                                                      This segment also provides a full range of products and services to meet the specific
the needs of all sizes of businesses, as well as institutions, through the caisses
                                                                                      needs of businesses operating in the agricultural and agri-food industry.
in Québec and Ontario, their business centres and the Desjardins Mid-Market
Business Centre. The offer includes regular and convenience transactions, real
                                                                                      Specialized services for businesses include asset custody and business trust
estate investments, financing, specialized services, capital markets, development
                                                                                      services, payroll and HR solutions, international services, banking services
capital and advisory services.
                                                                                      and the Immigrant Investor Program.
It also makes its products and services available through complementary
                                                                                      The segment’s capital markets activities are designed to meet the financing
distribution networks, by phone, online, by mobile device, as well as at ATMs.
                                                                                      needs of large businesses and cooperatives in Canada operating in industries
For access to development capital, sales teams are present across Québec and
                                                                                      such as mining, metal and energy, and to provide advisory services on business
in certain major Canadian cities.
                                                                                      mergers and acquisitions, as well as intermediation and execution activities
                                                                                      on the stock and bond markets. These services are provided by seasoned sales
Activities
                                                                                      and trading teams who are supported by a research team renowned for its excellence.
In addition to regular, convenience and savings activities, this segment
supports businesses of all sizes through every stage of their growth in the Québec,   The segment’s development capital and business ownership transfer activities
Canadian and international markets.                                                   allow it to invest, directly or through funds, in Québec cooperatives and SMEs
                                                                                      with promising projects by guiding them through all the stages of their growth.




WE coMBInED sEVERAL AREAs of ExPERTIsE InTo A sInGLE sEcToR so ThAT WE coULD coMBInE oUR sTREnGThs AnD cREATE
A coMPREhEnsIVE, InTEGRATED offER foR BUsInEssEs AcRoss cAnADA DELIVERED ThRoUGh ThE nETWoRk of cAIssEs AnD
BUsInEss cEnTREs, ThE DEsJARDIns MID-MARkET BUsInEss cEnTRE AnD By ThE nEW sALEs foRcE TEAMs.
stéphane achard
Senior Vice-President and General Manager
Business and Institutional Services
Desjardins Group




62    management’s discussion and analysis
2010 hIGhLIGhTs                                                                    2010 orientations and achievements
                                                                                   In 2010, we achieved several objectives in line with the sector’s 2010-2012
Largest sales force in the Québec agricultural financing market,                   strategic plan and Desjardins Group’s strategic orientations.
with 250 agriculture account managers and specialists
27.9% market share in business loans, including 26.5% of the small                 Member/client experience
and medium-sized business market                                                   • Rolled out a computer application for large corporations used for client
                                                                                     relations management
42.7% market share in Québec agriculture financing and 0.4% in Ontario
Significant increase in overall satisfaction, which rose to 98%, with a 10%        Growth and innovation
increase in “very satisfied” clients, according to the yearly survey of our        • Set up an integrated capital markets team tasked with developing the
business members for the quality of service they receive from Desjardins             high-potential large business and institutional market outside Québec
Payroll and Human Resources Services                                                 by providing a comprehensive, value-added service offer

First financial institution to have signed a framework agreement with              • Signed a partnership agreement with Capital régional et coopératif Desjardins
the Chambre des notaires du Québec, which will enable the implementation             and the Caisse de dépôt et placement du Québec to support the development
of a program to support young notaries in acquiring an office, and for those         and growth of small and medium-sized businesses in Québec through $600
who are retiring in the coming years, to provide guidance with the sale and          million in investments over a three-year period
transfer of their office                                                           • Launched the Energy-Efficiency Loan, the first of its kind in Canada. This
                                                                                     financing product was created for businesses that are to tangibly reduce their
Agreement with the European Securities Network, a partnership                        greenhouse gas emissions by turning to less polluting energy sources
of brokerage firms active in 14 European countries. This network is one
of the largest equity distribution and research platforms in Europe. This          • Opened an office in Calgary to increase our presence in Western Canada
agreement will facilitate the development of cross-border partnerships
(Europe/Canada) and mergers and acquisitions                                       Profitability and financial stability
                                                                                   • Created the Fonds d’investissement pour la relève agricole (investment fund
                                                                                     for the future of agriculture) through a partnership with the FTQ Fonds de
                                                                                     solidarité, La Financière agricole du Québec and Capital régional et coopératif
                                                                                     Desjardins. This new $75-million fund is an innovative form of assistance
Industry                                                                             for the next generation of farmers
The Business and Institutional Services Executive Division operates in a           • Two new major institutional accounts
constantly changing and competitive environment. Activity on the Canadian
                                                                                   • Launched a mobile services solution for business clients
debt and equity market is dynamic and the vitality of our economy attracts
foreign investors. The development of our strategic industries—mining,             • Rolled out a new operations model for administrative activities in the business
metal and energy—have benefited from a surge in commodities (nearly 60%              centres in order to significantly improve agent efficiency and service quality
of Canadian exports).                                                                for business members

The public sector is marked by a low risk-return trade-off which can provide       2011 strategy and priorities
a sound diversification of risk and a significant source of deposits. Desjardins   The segment aims to make Desjardins Group known in the industry as a dynamic
Group holds a significant market share in all the institutional sub-sectors.       and successful leader that contributes to the sustainable economic growth of
                                                                                   the businesses and communities it serves. Its strategy is based on establishing
The asset custody industry is concentrated, with just five major players in        trusting relationships with clients and partners, and on a philosophy founded
Québec. Payroll and HR services face tight competition, particularly with          on sustainable development. The strategy is supported by strong foundations
regard to pricing. Desjardins Group still maintains top ranking in this market     in the regions and a close involvement with and commitment to the socio-
in Québec. The banking services sector is extremely competitive, which makes       economic environment.
the ability to adapt to constant change an absolute necessity, particularly with
regard to technological change. The competition is also strong for both the        In line with this strategy, our priorities for 2011 are to:
Immigrant Investor Program and the agricultural and agri-food industry.
                                                                                   • Create sustainable, considerate and distinctive business relationships with
                                                                                     our business members and clients
                                                                                   • Post the strongest mid-market growth in the industry and intensify our
                                                                                     development of the large business segment, while applying sound and prudent
                                                                                     risk management practices
                                                                                   • Improve the performance of Business and Institutional Services by generating
                                                                                     efficiency gains
                                                                                   • Maintain our leadership in the small business segments as well as in the
                                                                                     agricultural and institutional sectors




                                                                                                                                         management’s discussion and analysis   63
Table 07 – Personal Services And Business and Institutional Services – Segment results
Data for years ended December 31
(in millions of $ and as a %)

                                                                                                                                                           2010             2009         chAnGE
                                                                                                                                                                           restated(1)

Net interest income                                                                                                                                   $ 3,669          $ 3,183               15.3 %
Trading income                                                                                                                                             77              181              (57.5)
Income from available-for-sale securities                                                                                                                  35                4             775.0
Other investment income (loss)                                                                                                                             (3)             (12)              75.0
Other income                                                                                                                                            1,648            1,604                2.7
Total income                                                                                                                                          $ 5,426          $ 4,960                9.4 %
Provisions for credit losses                                                                                                                          $   198          $   259             (23.6)%
Non-interest expense                                                                                                                                    4,093            3,830                6.9
Surplus earnings before member dividends                                                                                                                  840              632               32.9

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.




AnALysIs of sEGMEnT fInAncIAL REsULTs                                                                           Other income was up $44 million, or 2.7%, compared to 2009, mainly as a result of
Comparison of 12-month periods in 2010 and 2009                                                                 growth in activities that generated additional income in service charges, lending
                                                                                                                fees and credit card service revenues.
The Personal Services and Business and Institutional Services segment recorded
$840 million in surplus earnings before member dividends at the end of 2010,
                                                                                                                Thanks to proactive management of risk related to the loan portfolio and credit card
up 32.9%, or $208 million, from the same period in 2009.
                                                                                                                and point-of-sale financing activities, the provisions for credit losses expense
                                                                                                                decreased by $61 million, or 23.6%, versus 2009. Moreover, the improvement
The segment’s total income was $5.4 billion, for an increase of $466 million, or
                                                                                                                in general portfolio quality, the shorter term of business loans and the positive
9.4%. These results include $486 million or 15.3% growth in net interest income.
                                                                                                                economic outlook prompted a reduction in the provision for credit losses
The caisse network made a substantial contribution to this growth with an
                                                                                                                pertaining to businesses. This reduction also includes the impact of the change
increase in mortgage loans and business loans outstanding. More specifically,
                                                                                                                Desjardins Group made to the valuation method used for its general allowance, as
mortgage loans outstanding grew by a remarkable $5.3 billion during 2010. This
                                                                                                                mentioned in Note 06, “Loans and allowance for credit losses”, to the Combined
performance was due to vigorous housing starts, a buoyant home resale market
                                                                                                                Financial Statements.
and the average price of properties, combined with an interest rate environment
that continued to be favourable for buyers. In addition, consumer spending had
                                                                                                                Non-interest expense was up $263 million, or 6.9%, chiefly because of the
a positive effect on credit card and point-of-sale financing activities and thereby
                                                                                                                increase in salaries and fringe benefits due in particular to the annual indexing
helped to increase net interest income.
                                                                                                                of salaries and to pension plan expenses.
Investment income amounted to $109 million overall, down $64 million from 2009,
which was an exceptional year for investments.




64     management’s discussion and analysis
sEcTIon 2.2.2
WEALTh MAnAGEMEnT AnD LIfE
AnD hEALTh InsURAncE

Profile                                                                                Our comprehensive range of savings products and services for individuals
The Wealth Management and Life and Health Insurance segment offers a                   and businesspeople help clients with projects such as preparing for retirement,
wide range of products and services tailored to the changing asset management          planning trips and financing children’s education.
and financial security needs of individuals, groups, businesses, caisse network
members and clients of complementary distribution channels. This service offer         In the area of specialized savings, which includes specialized investment products,
meets consumer needs in terms of products and advisory services, life and health       we offer mutual funds and other investment solutions, including market-linked
insurance, group insurance plans, savings plans, brokerage, as well as securities      guaranteed investments, to meet the needs of caisse members and clients of various
and real estate investments. Members and clients have access to these products         complementary networks.
and services all over Québec, in much of Ontario, and in major cities across Canada,
including Vancouver, Calgary, Winnipeg, Toronto, Ottawa, Montréal, Québec              The segment’s group retirement savings offer is geared to the needs of business
City, Halifax and St. John’s.                                                          members and other clients in the area of employee retirement savings plans.

Some of our products and services can also be purchased by telephone, over the         Our brokerage and private management services offer our members and clients
Internet and via mobile devices.                                                       full-service and online brokerage, private management and business wealth
                                                                                       management.
Activities
The segment’s insurance products and services for individuals and                      The securities and real estate investments team provides effective and
businesspeople help these clients protect their quality of life, their health,         transparent asset management services in line with the objectives of members’
their families and their loved ones, and also face life’s unforeseen events.           and clients’ portfolios and our investment policies.

In the area of group insurance plans, we meet the needs of businesses and
organizations of all sizes with solutions that are tailored to their specifications
by our group plan implementation and administration experts.




WE hAVE conTInUED PRoGREssInG, ThAnks To ThE cAIssE nETWoRk In QUéBEc AnD onTARIo AnD oUR PARTnER nETWoRks AcRoss cAnADA.
oUR InTEGRATED soLUTIons ARE ADAPTED To ThE chAnGInG nEEDs of oUR MEMBERs AnD cLIEnTs, As WE offER ThEM A coMPREhEnsIVE
RAnGE of PRoDUcTs AnD sERVIcEs ThAT EnhAncE ThE QUALITy of ThE MEMBER/cLIEnT ExPERIEncE.
denis berthiaume
Senior Vice-President and General Manager
Wealth Management and Life and Health Insurance
Desjardins Group




                                                                                                                                         management’s discussion and analysis   65
2010 hIGhLIGhTs                                                                        2010 orientations and achievements
                                                                                       In 2010, we achieved several objectives in line with the sector’s 2010-2012
AssurFinance for Individuals insurance sales were up by 13%, and                       strategic plan and Desjardins Group’s strategic orientations.
outside Quebec individual insurance sales were up by 26.5% over 2009
Group retirement savings recorded sustained sales growth, with sales                   Member/client experience
of accumulation plans up 34.1% over 2009                                               • Implementation of a client relationship management tool in individual
                                                                                         insurance to help grow partner networks
In individual savings, our share of the guaranteed investment funds
market grew by 1%                                                                      • Optimization of the sales force’s high net worth and mass affluent client
                                                                                         approach and service offer
                                                                                       • Greater specialization of advisors and a higher number of advisors assigned
                                                                                         to the high net worth and mass affluent markets
Industry                                                                               • Improvement of the group retirement savings statement for pension plan
                                                                                         participants and launch of an online version
In 2009, the Canadian life and health insurance industry represented $79.1 billion
in premium income; $475 billion in assets; a wide range of products supporting         • Optimization of IT solutions to provide a new secure site to group plan
the financial security of over 26 million insureds in Canada; the equivalent of          administrators
$3.5 trillion in life insurance across the entire country; and close to $59 billion    • Creation of a new online Travel Insurance transactional site
in paid benefits. The three top Canadian life and health insurers held 60% of the      • Launch of a mobile site from which members and clients can access their
market. In Canada, Desjardins Financial Security holds fourth place in the industry.     Disnat account, view market prices and trade securities

The big banks distribute the entire range of wealth management products through        Growth and innovation
their exclusive network and stay ahead of third-party competitors by closing           • Enhancement of Chorus portfolio tax-efficiency, in particular through
ranks. They also have extensive IT platforms that they continue to develop. We           the introduction of corporate funds, offering greater flexibility
can expect bank distribution channels to evolve over the next ten years, with
                                                                                       • Enhancement of the market-linked guaranteed funds offer with Desjardins
branches and electronic services focusing more on advice and on convergence.
                                                                                         Funds growth products and member dividend eligibility
Branches still have an important role to play as advisory service providers and
will remain the primary channel for sales. Mobile banking services are a new           • Updating of the Helios product and implementation of a dynamic hedging
channel for simple transactions and will eventually overtake online services,            program for segregated funds to better manage the risks associated with
ATMs and phone services in popularity.                                                   this product
                                                                                       • Development of the Desjardins Funds family
Because of the consolidation of the Canadian credit cooperative market, some           • Launch of the Desjardins Securities Progressive Solutions service
credit unions can now offer wealth management products. The ten biggest
                                                                                       • Roll-out of the Multi Family Office concept to support the transfer of businesses
cooperatives are reporting asset growth. Exchange-traded funds are still
experiencing strong growth in Canada and are the privileged domain of certain          • Development of several products and services, including the Desjardins Group
major institutions. This market is expected to triple within the next eight years.       Retirement Savings Solutions product, which offers a broader array of services
                                                                                         with five additional types of retirement plans for business members and clients
In terms of trends, we are seeing an increase in life and health insurers partnering
with major financial institutions for their infrastructure, while reserving the        Profitability and financial stability
right to choose the financial products. Banks are now offering their life and          • Roll-out of a savings and investment compliance program for the implementation
health insurance on the Web and also developing partnerships with insurers to            of new savings and investment product regulations
provide advisors with an expanded range of products and services. E-commerce           • Implementation of a one-stop discretionary portfolio management service in
continues to gain ground. Clients are more savvy and more active on the Web.             order to quickly select the offer that best meets the needs of high net worth and
The banks are also starting to develop the group retirement savings market.              mass affluent members and clients




66   management’s discussion and analysis
Table 08 – Wealth Management and Life and Health insurance – Segment results
Data for years ended December 31
(in millions of $ and as a %)

                                                                                                                            2010              2009             chAnGE
Net interest income                                                                                                    $     4           $        3                  33.3 %
Net premiums                                                                                                             3,024                2,973                   1.7
Trading income                                                                                                             793                  446                  77.8
Income from available-for-sale securities                                                                                   49                   40                  22.5
Other investment income                                                                                                    303                  303                    —
Other income                                                                                                               785                  661                  18.8
Total income                                                                                                           $ 4,958           $    4,426                  12.0 %
Claims, benefits, annuities and changes in insurance provisions                                                        $ 3,113           $    2,767                  12.5 %
Non-interest expense                                                                                                     1,491                1,352                  10.3
Surplus earnings before member dividends                                                                                   279                  235                  18.7



Table 09 – Expenses attributable to policyholders
Data for years ended December 31
(in millions of $ and as a %)

                                                                                                                            2010              2009             chAnGE
Insurance and annuity benefits                                                                                         $ 2,227           $    2,175                   2.4 %
Changes in actuarial liabilities                                                                                           776                  467                  66.2
Interests of policyholders, refunds and other                                                                              110                  125                 (12.0)
Total                                                                                                                  $ 3,113           $    2,767                  12.5 %



2011 strategy and priorities                                                     AnALysIs of sEGMEnT fInAncIAL REsULTs
The Wealth Management and Life and Health Insurance segment wants Desjardins     Comparison of 12-month periods in 2010 and 2009
Group to be recognized as one of the top wealth managers and a national player   This segment’s surplus earnings before member dividends at the end of 2010
in the life and health insurance industry, by offering members and clients an    were $279 million, compared to $235 million, up 18.7% over 2009. This growth
integrated service offer geared to their changing needs.                         was mainly the result of the good claims experience in insurance and annuity
                                                                                 business and the increase in assets under management.
In line with this strategy, our priorities for 2011 are to
• Develop a strong and distinctive wealth management brand image and maintain    Total income for the segment amounted to $4,958 million, a $532-million or 12.0%
  leadership in life and health insurance                                        increase compared to the same period in 2009. This growth was derived chiefly
• Continue to make our mark on the Canadian life and health insurance market     from the $347-million rise in trading income, which was however largely offset by
                                                                                 a change in actuarial liabilities, included in the item “Claims, benefits, annuities
• Enhance e-commerce activities by developing virtual offers to complement       and changes in insurance provisions”. Moreover, the increase in other income
  and support the physical networks                                              from asset management fees, savings product distribution, brokerage and private
• Increase Desjardins Group’s market shares in specialized savings products      management totalled $124 million.
  and services, such as mutual funds, securities, guaranteed capital funds,
  and in life and health insurance products                                      In individual insurance, total sales, in particular through the financial security
• Meet client needs while keeping our offer and costs competitive                advisors assigned to Desjardins caisses, the SFL network and Desjardins Financial
                                                                                 Security Independent Network financial centres, totalled $55 million, versus
                                                                                 $49 million in 2009, a 12.2% increase.




                                                                                                                                    management’s discussion and analysis   67
Group insurance premiums                                                                    Personal insurance premiums
by distribution network                                                                     by distribution network
(in millions of $)                                                                          (in millions of $)



2,500                                                                                       500




                                                                                                                                    294
                                                1,673




                                                                                                                             287
2,000                                                                                       400
                                      1,597
                 1,601




                                                                                                          281
1,500                                                                                       300

1,000                                                                                       200




                                                                                                                                    173
                                                                                                                             150
                                                                                                          134
  500                                                                                       100
                                                595
                                      559
                 537




     0                                                                                        0
                2008                 2009       2010                                                     2008                2009   2010
     desjardins group members                                                                     desjardins group members
     other clienteles                                                                             other clienteles




Sales of group retirement savings products reached $372 million, while sales to             Premium volume for individual insurance was $467 million, a $30-million advance
individuals reached $959 million. Investment fund sales amounted to $477 million,           over 2009. Premium volume from the network of financial security advisors
up 51.7% over 2009.                                                                         assigned to Desjardins caisses increased by 15.8% over the previous year. After
                                                                                            remarkable sales growth from the various distribution networks in recent
The expenses associated with claims, benefits, annuities and changes in insurance           years, premiums cashed increased by 3.4% compared to 2009, up $12.1 million.
provisions rose by $346 million, or 12.5%, to $3,113 million. This rise was mainly          Furthermore, premium volume for products marketed via direct distribution
due to higher actuarial liabilities on account of the increase in the fair value of their   totalled $76 million, a $10-million increase.
matching investments, as shown in Table 09 on page 67.

Non-interest expense was up $139 million, or 10.3%. This increase was basically
due to growth in commissions on sales of savings products, fees paid to the caisses
and salaries and fringe benefits.

Premiums for group insurance written by Desjardins Group members were
up $36 million, or 6.4%, to reach $595 million as at December 31, 2010, and
premiums for insurance from other clienteles were up $76 million, or 4.7%, to
total $1,673 million as at December 31, 2010. In terms of geographic distribution,
premiums increased by 5.1% in Québec and 5.3% elsewhere.




68       management’s discussion and analysis
sEcTIon 2.2.3
PRoPERTy AnD
cAsUALTy InsURAncE

Profile                                                                          Activities
The Property and Casualty (P&C) Insurance segment offers a line of home          Our made-to-measure automobile insurance solutions, including motorcycle
and automobile insurance products directly to the general public, to members     and recreational vehicle insurance, are tailored to our clients’ specific needs and
of partner groups across Canada and to businesses in the Québec market.          the value of their vehicle. In provinces not covered by a public plan, insurance
This segment is also active on the white label market, in particular with        also includes financial compensation for bodily injury.
a well-established Canadian financial institution.
                                                                                 Property insurance is available for principal and secondary residences to
Products are distributed through P&C insurance agents in the caisse network      protect the physical assets of members and clients. By combining all-risk
and in Client Care Centres, on the Internet and, for certain products, through   insurance and optional coverage, clients can enjoy comprehensive protection
smartphone technology.                                                           tailored to their needs.

On the individual market, more than one million people are insured under         We offer business insurance in Québec for small and medium-sized businesses
the Desjardins General Insurance brand, which now covers all of Canada.          operating in the following sectors: commercial vehicles, service firms, retailers
                                                                                 and wholesalers, condominium buildings, apartment buildings, garages, home-
On the group market, products are distributed under The Personal banner          based businesses, general or specialized contractors, and restaurants.
to members of professional associations, employers and unions. The Personal
ranked second nationwide for group policies.




oUR sEGMEnT PosTED ExcELLEnT fInAncIAL REsULTs In 2010 By DRAWInG on oUR PARTnERshIP WITh ThE cAIssE nETWoRk
AnD sETTInG MAny InITIATIVEs In MoTIon To BEnEfIT MEMBERs AnD cLIEnTs. ThIs WAs MADE PossIBLE By EMPLoyEEs
AnD MAnAGEMEnT Who EMBRAcE DEsJARDIns GRoUP’s VALUEs.
sylvie paQuette
Senior Vice-President and General Manager
Property and Casualty Insurance
Desjardins Group




                                                                                                                                    management’s discussion and analysis   69
2010 hIGhLIGhTs                                                                        Growth and innovation
                                                                                       • Attraction of target client segments in Greater Montréal for
Strong increases in personal and commercial lines in Québec, Ontario,                    automobile insurance
the Atlantic provinces and Western Canada:
                                                                                       • Major group insurance agreements with clients outside Québec
• 9.9% growth in gross premiums written, compared to 2.7% in 2009                      • Launch of a new advertising platform in Ontario that highlights the
• 4.5% growth in policies in force over 0.7% in 2009                                     advantages of the Desjardins direct business model and a new major
                                                                                         mass market and direct marketing advertising campaign
Solid increases in personal lines in Québec, Ontario, the Atlantic provinces
and Western Canada:                                                                    • New sales team for high net worth and mass affluent clients
                                                                                       • Optimized ratemaking
• 13.9% growth in policies in force in Ontario, the Atlantic provinces
  and Western Canada over 0.8% in 2009                                                 • Expansion of our commercial lines
                                                                                       • Launch of a discount for fuel-efficient vehicles and increase in discount
Solid increases in commercial lines insurance in Québec:
                                                                                         for hybrid vehicles
• 7.9% growth in policies in force in 2010
                                                                                       Profitability and financial stability
69.3% loss ratio, compared to 68.8% in 2009
                                                                                       • Delivery of various productivity improvement initiatives in claims
Increase in the client satisfaction rate (very satisfied) from 2009 and loyalty        • Revision of the recovery process and large-scale loss process in Québec
index up from last year
                                                                                       • Creation of a Canada-wide quality assurance team in claims
In personal lines insurance, Desjardins General Insurance Group                        • Revision of our practices to reflect auto insurance reforms in Ontario
maintained its rank as first in Québec and seventh in Canada
                                                                                       2011 strategy and priorities
                                                                                       The P&C Insurance sector intends to confirm its position as the leading insurer in
                                                                                       Québec and position Desjardins as an insurer of choice in Ontario’s mass market
Industry                                                                               through strong premium growth. It is focusing on a model and strategy that are
The Canadian P&C insurance market is mature and cyclical, with an average              in tune with market dynamics in Québec and Ontario and with its skills in risk
return of 10%. There is moderate growth in the industry, influenced by premium         assessment, direct distribution and claims management. For Québec, the segment
growth that varies greatly from year to year as a result of the automobile loss        intends to achieve above-market growth by fully leveraging its partnership with
ratio, particularly in Ontario, the biggest market in the country. Direct writers,     the caisse network and building on its culture of growth, while continuing to report
which are stronger in Québec than elsewhere, continue to grow faster than              healthy profitability.
brokerage firms.
                                                                                       In line with this strategy, our priorities for 2011 are to
The recent drop in growth and profitability, after the strong performance of           • Develop new offers and improve existing offers to better meet clients’
recent years, pointed to a hardening market, which was confirmed in 2010. The            needs and target certain client segments
hard market cycle can lead to important growth opportunities for insurers on the
                                                                                       • Carry on with efforts to penetrate the Greater Montréal market
Ontario market, but it can also result in a drop in average profitability. Following
the soft market conditions that had prevailed since 2004, Canadian consumers           • Bolster synergies and partnerships throughout Desjardins Group
saw the market tighten in 2010, with significant automobile insurance premium          • Adjust business practices and the business model in Ontario to reflect
hikes and more restrictive coverage, especially in Ontario. Consequently, the            changing regulations and claims costs for new business
current hard market conditions should be of short duration. Reforms announced          • Ensure sound profitability by strengthening claims performance and by
by the Ontario government took effect on September 1, 2010, to address rising            carrying out a project to structure sales activities in Québec with a view
claims costs and improve the settlement process to better meet insureds’ needs.          to improve its business processes and the client experience
                                                                                       • Continue growing commercial lines business
2010 orientations and achievements
In 2010, we achieved several objectives in line with the sector’s 2010-2012            • Bolster exposure among groups with which we already have agreements
strategic plan and Desjardins Group’s strategic orientations.                          • Upgrade and transform information systems to support business
                                                                                         development and operational efficiency
Member/client experience
• Creation of a team of sales agents dedicated to English-speaking clients
  to improve the quality of service for this target group
• New call processing and forwarding structure for sales teams by specialty
• More flexible underwriting policies to facilitate access to insurance
• Introduction of an automobile insurance quick quote, also available
  on smartphones




70   management’s discussion and analysis
Table 10 – Property and Casualty Insurance – Segment results
Data for years ended December 31
(in millions of $ and as a %)

                                                                                                                                             2010              2009             chAnGE
Net premiums                                                                                                                           $ 1,524            $ 1,443                      5.6 %
Trading income                                                                                                                              41                 40                      2.5
Income from available-for-sale securities                                                                                                   45                 30                     50.0
Other investment income (loss)                                                                                                               —                  (1)                  100.0
Other income (loss)                                                                                                                         (4)                 (3)                  (33.3)
Total income                                                                                                                           $ 1,606            $ 1,509                      6.4 %
Claims, benefits, annuities and changes in insurance provisions                                                                        $ 1,056            $   992                      6.5 %
Non-interest expense                                                                                                                       386                370                      4.3
Surplus earnings before non-controlling interests and member dividends                                                                     115                104                     10.6
Surplus earnings before member dividends                                                                                                   103                 94                      9.6
Return on shareholders’ equity                                                                                                            16.2 %              17.5 %                  (1.3)%



Gross premiums written                                                                   Combined ratio
(in millions of $)                                                                       (as a % of net premiums earned)



1,200                                                                                    120




                                                                                                        74.1 23.7 97.8




                                                                                                                           25.6 94.4




                                                                                                                                         25.4 94.7
                                           931




1,000                                                                                    100
                               830
              801




                                                 715




 800                                                                                     80
                                   669
                     659




                                                                                                                                         69.3
                                                                                                                           68.8
 600                                                                                     60

 400                                                                                     40

 200                                                                                     20

    0                                                                                     0
              2008             2009         2010                                                      2008               2009           2010
     individual market                                                                         loss ratio
     group market                                                                              expenses




AnALysIs of sEGMEnT fInAncIAL REsULTs                                                    In the personal insurance market, the increase was due to growth initiatives
Comparison of 12-month periods in 2010 and 2009                                          launched in the Greater Montréal Area and in Ontario (advertising campaign
                                                                                         under the Desjardins General Insurance brand) and the results of a white-label
At the end of 2010, surplus earnings before member dividends in this segment
                                                                                         partnership agreement signed in 2009 with a Canadian financial institution.
had risen $9 million to total $103 million, an increase of 9.6% compared to the
same period in 2009, due to growth in net premiums and other income. This
                                                                                         In group insurance, the presence of new partners as well as renewals helped the
change was partially offset by an increase in the automobile insurance loss ratio
                                                                                         segment to post 6.9% growth. In business insurance in Québec, gross premiums
related to bodily injury in Ontario. Although weather conditions were mild
                                                                                         written were up 10.5% compared to the corresponding period in 2009.
during the first half of 2010, the rise in the automobile insurance loss ratio related
to bodily injury in Ontario outweighed the positive effect of the temperature.
                                                                                         The combined ratio, which corresponds to claims and operating expenses divided
                                                                                         by net premiums earned, was 94.7%, up 0.3 point over 2009. The particularly mild
The segment’s total income amounted to $1,606 million, up $97 million, or 6.4%,
                                                                                         weather conditions in winter 2010 led to a small number of claims in the first
compared to the same period in 2009, because of growth in premiums and in
                                                                                         half of 2010, both in home and automobile insurance. However, the automobile
other income. The increase in all investment income and other income was
                                                                                         insurance loss ratio in Ontario, related to bodily injury (especially in the Greater
the result of gains from the fixed income portfolio and the performance of the
                                                                                         Toronto Area), deteriorated during the second half of 2010, which led to a significant
stock markets.
                                                                                         increase in provisions for claims.
The larger number of policies issued raised gross premiums written by 9.8%, or
                                                                                         The rise in non-interest expense can traced to higher salaries as a result of an
$147 million, over the previous year. The caisse network contributed $26 million
                                                                                         increase in personnel and in advertising expenses, both initiatives aimed at
to this growth, by offering property and casualty insurance to its members and
                                                                                         supporting business growth.
clients during the 12-month period ended December 31, 2010, more than the
amount recorded a year earlier.




                                                                                                                                                     management’s discussion and analysis   71
sEcTIon 2.2.4
oThER


Table 11 – Other – Results
Data for years ended December 31
(in millions of $ and as a %)

                                                                                                                                 2010            2009         chAnGE
Net interest income                                                                                                         $     664        $    680             (2.4)%
Trading income (loss)                                                                                                            (345)           (426)            19.0
Income from available-for-sale securities                                                                                          24               6            300.0
Other investment income                                                                                                            11              12             (8.3)
Other income                                                                                                                      254             235              8.1
Total income                                                                                                                $     608        $    507             19.9 %
Non-interest expense                                                                                                        $     337        $    328              2.7 %
Surplus earnings before member dividends(1)                                                                                       215             113             90.3

(1) Includes the impact of eliminations on surplus earnings before member dividends.




The Other category includes the results of activities that do not belong to a          Treasury activities posted an $88-million contribution to net surplus earnings as
specific business segment. It mainly comprises treasury activities, all ABTN           at December 31, 2010. This was a $20-million decrease from the corresponding
held by Desjardins Group and the consolidation adjustments attributable to all         period of 2009, when market conditions were particularly favourable.
its components. The activities of Capital Desjardins inc. and Fonds de sécurité
Desjardins are also included in this heading.                                          Finally, the combined results of Desjardins Group also take into account various
                                                                                       consolidation adjustments, including the adjustment related to employee future
Treasury activities carried out during the year are presented under section 3.4,       benefits expense, which was down by $12 million from 2009.
“Cash position and sources of financing”.

The Other category posted combined surplus earnings of $215 million as at
December 31, 2010, a $102 million or 90.3% increase over the same period
in 2009. The increase can be partially attributed to a $64-million net gain in
elements related to the restructured ABTN, including the setting up of hedges,
and to changes in the fair value of derivatives and the application of hedge
accounting, for an increase of $41 million after income taxes compared to the
same period in 2009.




72    management’s discussion and analysis
sEcTIon 2.3
Analysis of
fourth quarter results
Table 12 – Quarterly results for the previous eight quarters
(unaudited, in millions of $ and as a %)

                                                                                                                                                 2010                                                               2009
                                                                                                                                                                                                                   restated(1)

                                                                                                  Q4              Q3(1)            Q2(1)             Q1(1)             Q4              Q3               Q2                  Q1
Total income                                                                            $ 2,669          $ 3,275          $ 2,943          $     2,798       $     2,583      $     3,070      $     2,772      $ 2,245
Provisions for credit losses                                                                 41               51               39                   66                57               71               70           62
Claims, benefits, annuities and changes
  in insurance provisions                                                                     915            1,320           1,040                 893               773            1,216              980            789
Non-interest expense                                                                        1,499            1,281           1,309               1,314             1,424            1,225            1,275          1,225
Surplus earnings before member dividends                                                      181              466             411                 379               267              381              319            107
Provision for member dividends, net of income taxes                                            65               49              51                  53                50               95               29             39
Surplus earnings for the period, after member dividends                                       116              417             360                 326               217              286              290             68
Total assets                                                                              172,275          175,749         173,742             165,809           157,442          163,431          160,077        159,963
Return on equity                                                                               5.5 %          14.4 %          13.5 %              13.3 %              9.5 %          14.3 %           12.5 %           4.3 %
Tier 1 capital ratio                                                                          17.7            17.8            16.8                16.0              15.8             14.9             14.7           13.7
Total capital ratio                                                                          18.7             18.1            17.3                16.0              15.8             14.9             14.7           13.7

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.




foURTh QUARTER REsULTs                                                                                          Personal Services and Business and Institutional Services
For the fourth quarter of 2010, Desjardins Group posted surplus earnings before                                 The Personal Services and Business and Institutional Services segment ended
member dividends of $181 million compared to $267 million a year earlier, for a                                 the fourth quarter of 2010 with surplus earnings before member dividends of
32.2% decrease from the corresponding quarter of 2009. The decrease can be                                      $152 million, an 11.1% or $19-million decrease compared to the same period in
traced, among other things, to a $142-million rise in claims, benefits, annuities                               2009. The reduction is chiefly due to the fact that trading income and income
and changes in insurance provisions, the write-off of certain assets and an                                     from available-for-sale securities in this segment were higher in fourth quarter
increase in provisions for supplier agreements and the investment portfolio.                                    2009 than in fourth quarter 2010.

Return on equity for the quarter was 5.5%, versus 9.5% in fourth quarter 2009.                                  The segment’s total income for fourth quarter 2010 was $1,366 million, an
The Tier 1 capital ratio stood at 17.7% versus 15.8% as at December 31, 2009.                                   increase of 4.4%, or $57 million, over the same quarter in 2009. Other income
                                                                                                                was down 4.4%, or $19 million, compared to the same quarter one year earlier.
Non-interest expense rose $75 million, or 5.3%, basically because of adjustments
in salaries and fringe benefits.                                                                                Wealth Management and Life and Health Insurance
                                                                                                                For the fourth quarter, the Wealth Management and Life and Health Insurance
Total income                                                                                                    segment recorded surplus earnings before member dividends of $43 million,
Desjardins Group’s total income amounted to $2,669 million for the fourth                                       down $15 million, or 25.9%, compared to the corresponding period in 2009. The
quarter of 2010, up $86 million, or 3.3%, over the corresponding quarter of 2009.                               difference was largely the result of the reversal of a temporary gain from interest
Net interest income advanced by $38 million, or 4.0%, to total $979 million,                                    rate risk management for the market-linked guaranteed investment program,
mainly because of growth in consumer loans outstanding and credit card and                                      for a net amount of approximately $11 million.
point-of-sale financing activities in the Personal Services and Business and
Institutional Services segment.                                                                                 The segment’s total income amounted to $1,026 million, an increase of
                                                                                                                $59 million, or 6.1%, over the same period in 2009, attributable mainly to life
Other income decreased by $53 million, or 9.5%, in the fourth quarter to total                                  and health insurance activities, in which net premiums rose by $67 million.
$507 million, compared to $560 million in the corresponding quarter of 2009,
which had been particularly favourable. The difference is also due to a drop                                    Property and Casualty Insurance
in trading income.                                                                                              The Property and Casualty Insurance segment’s contribution to the combined
                                                                                                                surplus earnings of Desjardins Group in the fourth quarter was $10 million, or
Non-interest expense                                                                                            $17 million less than in the corresponding quarter of 2009. Growth in premium
Non-interest expense totalled $1,499 million, up $75 million, or 5.3%, compared                                 income and investment income in the fourth quarter of 2010 was more than offset
to the fourth quarter of 2009, mainly because of an increase in salaries and                                    by the deterioration in the loss ratio, which is why the segment’s contribution was
fringe benefits following the annual indexing. Provisions for credit losses                                     lower than in the comparative period in 2009.
amounted to $41 million in the fourth quarter of 2010, down $16 million from
the corresponding period of 2009. The difference is largely due to the good return                              Other
on the credit portfolio of Desjardins Card Services, the improvement in portfolio                               The Other category recorded a $24-million deficit before member dividends in
quality and the shorter term of business loans at Caisse centrale Desjardins. As                                the fourth quarter, which is down $35 million from the same quarter in 2009.
mentioned earlier, expenses related to claims, benefits, annuities and changes                                  The drop is due to the write-off of certain assets, the increase in provisions for
in insurance provisions were $915 million, an increase of $142 million, or 18.4%,                               supplier agreements and the investment portfolio and to the adjustment of the
over the corresponding quarter of 2009.                                                                         pension expense.




                                                                                                                                                                                     management’s discussion and analysis        73
                                            3.0   review
                                                  Of financial
                                                  pOsitiOn
                                                  hIGhLIGhTs
                                                  Balance sheet management
                                                  • Expansion at a sustained annual pace, as demonstrated by a $14.8 billion
                                                    or 9.4% increase in total assets
                                                  • A 7.6% increase in residential mortgages outstanding and 34.9% in loans
                                                    to government outstanding
                                                  • Increase of $6.8 billion in deposits, reflecting the dynamism of the
                                                    caisse network

                                                  Credit quality
                                                  • Loan portfolios continue to be of good quality; there was a $32-million
                                                    reduction in provisions for credit losses

                                                  Capital management and credit ratings
                                                  • Updating of Desjardins Group’s integrated capital management framework
                                                    and capitalization plan
                                                  • Desjardins Group maintained excellent credit ratings due in particular
                                                    to its strong capital base and its excellent levels of liquidity. Furthermore,
                                                    in December 2010, for the first time, Fitch Ratings assigned ratings to
                                                    Caisse centrale Desjardins, being AA- for its long-term instruments and
                                                    F1+ for its short-term instruments
                                                  • At 17.7%, Desjardins Group’s Tier 1 capital ratio is one of the highest in the
                                                    Canadian banking industry

                                                  Cash position and sources of financing
                                                  • An integrated funding plan was set up for Desjardins Group
                                                  • Permanent shares sold to members for a total of $506 million
                                                  • Securities issued on the Canadian, European and U.S. markets for a total
                                                    of $5.8 billion:
                                                    - Issuances by Caisse centrale Desjardins of medium-term deposit notes
                                                      for a total of $1.5 billion
                                                    - Issuances of senior notes by Capital Desjardins for a total of $1.6 billion
                                                    - Issuances of debt securities by Caisse centrale Desjardins for $1.7 billion
                                                      in Europe and US$1 billion in the U.S.

                                                  Off-balance sheet items
                                                  • Increase of 18.0% in the value of assets under administration by Desjardins
                                                    Group in 2010, to total $281.9 billion as at December 31, 2010

                                                  Risk management
                                                  • Updating of the integrated risk management framework and a specific
                                                    policy on risk appetite and risk tolerance, with indicators
                                                  • Reinforcement of measures for performing risk analysis on new products
                                                    and projects with a high financial impact for Desjardins Group
                                                  • Revision of the main credit authorization processes, leading to increased
                                                    efficiency, greater accountability on the part of authorities and credit
                                                    professionals, and greater involvement on the part of Desjardins Group
                                                    management in more important decisions




74   management’s discussion and analysis
sEcTIon 3.1
Balance sheet
management
Table 13 – Condensed balance sheet
As at December 31
(in millions of $ and as a %)

                                                                                                                                 2010                                      2009                                        2008
                                                                                                                                                                          restated(1)                                 restated(1)
Assets
Cash and deposits with financial institutions                                                     $    1,610                      0.9 %           $     1,086                 0.7 %          $    1,489                   1.0 %
Securities                                                                                            37,605                     21.8                  31,431                20.0                29,103                  19.1
Securities borrowed or purchased
  under reverse repurchase agreements                                                                 7,034                    4.1                    5,055                  3.2                 6,130                    4.0
Loans                                                                                               116,611                   67.7                 110,300                  70.0               104,756                   68.7
Other assets                                                                                          9,415                    5.5                    9,570                  6.1                11,054                    7.2
Total assets                                                                                      $ 172,275                  100.0 %              $ 157,442                100.0 %           $ 152,532                  100.0 %
Liabilities and equity
Deposits                                                                                          $112,944                    65.6 %              $ 106,161                 67.5 %           $ 101,436                   66.5 %
Other liabilities                                                                                    43,086                   25.0                   38,261                 24.3                39,503                   25.9
Subordinated bonds                                                                                    2,805                    1.6                    1,294                  0.8                   748                    0.5
Non-controlling interests                                                                               377                    0.2                      380                  0.2                   816                    0.5
Equity                                                                                               13,063                    7.6                   11,346                  7.2                10,029                    6.6
Total liabilities and equity                                                                      $ 172,275                  100.0 %              $ 157,442                100.0 %           $ 152,532                  100.0 %

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.




Total assets                                                                                                    Asset growth
(in billions of $)                                                                                              (as a %)



220                                                                                                             14

                                                                                                                                         11,6
                                                                                                                12
                                                         172




                                                                                                                           9,4




                                                                                                                                                                            9,4
180                                                                                                             10
                                             157
                                 153
                       144




                                                                                                                8
           129




140                                                                                                                                                    5,9
                                                                                                                6

                                                                                                                                                                 3,2
100                                                                                                             4
                                                                                                                2
 60                                                                                                             0
         2006(1)     2007(1)    2008(1)     2009(1)     2010                                                           2006(1)          2007(1)       2008(1)   2009(1)    2010
(1) Certain data have been restated. See “Allowance for credit losses”                                          (1) Certain data have been restated. See “Allowance for credit losses”
    in section 4.6, “Critical accounting policies and estimates”.                                                   in section 4.6, “Critical accounting policies and estimates”.




ToTAL AssETs                                                                                                    businesses and the implementation of government infrastructure programs
As at December 31, 2010, Desjardins Group’s total assets stood at $172.3 billion,                               helped to maintain economic expansion in Québec and Ontario, with estimated
up $14.8 billion, or 9.4%, from the end of 2009, compared with an increase of                                   real GDP growth of approximately 2.7% and 3.3%, respectively, for 2010.
$4.9 billion or 3.2% in 2009. Desjardins Group’s growth rate therefore picked up
in 2010 because of improved economic conditions. It was able to capitalize on                                   Increased consumer confidence was definitely a factor in the robust spending.
the economic recovery, which translated in particular into increased consumer                                   The buoyant labour market in 2010 also made an important contribution to this
spending and business investment, especially in Québec and Ontario. Because                                     improved picture, particularly in Québec, which regained by spring all the jobs it
of Desjardins Group’s extensive involvement in financing economic activity, its                                 had lost during the recession. For instance, the number of workers was up 122,800
credit offer posted strong results.                                                                             since the low point in summer 2009, which more than offset the recorded loss of
                                                                                                                about 62,700. The province’s unemployment rate therefore fell to 8.0% from 8.5%.
After the 2009 recession, which resulted in a 2.5% decline in real gross domestic                               In Ontario, however, job creation was not quite so vigorous: it still had a shortfall
product (GDP) in Canada, a more serious drop of 3.6% in Ontario, but of only                                    of some 32,400 workers at year-end 2010. Nonetheless, the results for the final
1.7% in Québec, the Canadian economy staged a vigorous comeback in the early                                    months of the year suggest that it will not be long before the gap is closed. The
months of 2010. However, this strong resurgence gave way to moderate growth                                     unemployment rate barely budged, though, standing at 8.8% versus 9.0% in 2009.
in the second half of the year. This loss of momentum was due mainly to lower
exports because of major problems in the United States, while domestic demand
continued to be relatively sustained. Vigorous spending by individuals and




                                                                                                                                                                                        management’s discussion and analysis    75
Table 14 – Deposits
As at December 31
(in millions of $ and as a %)

                                                                                                                                                2010                       2009
                                                                                      payable on      payable     payable on
                                                                                         demand    upon notice   a fixed date       total        total         total        total
Individuals                                                                       $ 25,741         $ 3,781       $ 49,229       $ 78,751         69.7 %   $ 75,420          71.0 %
Business and government                                                             12,931             318         10,172         23,421         20.7        21,876         20.6
Deposit-taking and other institutions                                                   79               —         10,693         10,772          9.6         8,865          8.4
Total deposits                                                                    $ 38,751         $ 4,099       $ 70,094       $112,944        100.0 %   $ 106,161        100.0 %



The good performance of the labour market, which led to a rapid increase in                sAVInGs REcRUITMEnT AcTIVITIEs
personal income, combined with very advantageous credit conditions, had a                  As at December 31, 2010, Desjardins Group’s deposits outstanding reached a
positive impact on household consumer spending in 2010. Business investment                volume of $112.9 billion, up $6.8 billion, or 6.4%, for the year, after an increase of
also rose in both Québec and Ontario. As a result, credit demand from individuals          $4.7 billion, or 4.7%, in 2009. Deposit growth therefore accelerated considerably,
and businesses firmed up and Desjardins Group, which plays a leading role                  as a result of a sustained rise in the three main categories of savings in its portfolio,
in financing in Québec, gave a good account of itself, especially in residential           namely deposits by individuals, deposits by business and by government, and
mortgages and business loans.                                                              deposits by deposit-taking and other institutions. In this regard, the composition
                                                                                           of Desjardins Group’s deposit portfolio did not change significantly in 2010.
Desjardins Group also did very well in the personal and business savings market            The savings entrusted to it by its members and clients—individuals, businesses
in 2010. While the Canadian stock market grew at only half the pace as in 2009             and governments—still make up the main source of financing to support its
(the S&P/TSX index was up 14.4%, compared to 30.7%), Desjardins trust and                  development. It forms a solid base that alone accounted for 90.4% of Desjardins
wealth management activities continued to grow, albeit at a more moderate pace             Group’s deposit liabilities at the end of 2010, versus 91.6% a year earlier. The
than in the previous year. More specifically, it is worth noting that deposits are         savings entrusted to Desjardins by its members and clients—individuals, businesses
the largest source of financing to fuel Desjardins Group’s expansion, and deposits         and governments—posted an increase of $4.9 billion, or 5.0%, to total $102.2 billion
increased more than in 2009.                                                               as at December 31, 2010, versus a year-earlier gain of $3.8 billion or 4.1%.

In terms of market share, Desjardins Group had a very enviable balance sheet               Even if individuals are the largest category of depositors, deposits by business
in 2010. Thanks to the quality of its products and services, it was able to make           and government are also an important component of Desjardins Group’s portfolio.
headway in sectors where the competition is very fierce and where it is already            They increased by $1.5 billion, or 7.1%, during the year to total $23.4 billion as at
a leader, notably in Québec. The progress it has made is a clear vote of confidence        December 31, 2010, compared with an increase of $364 million, or 1.7%, observed
from its members and clients.                                                              in 2009. They therefore accounted for 20.7% of Desjardins Group’s deposit
                                                                                           liabilities, about the same as a year earlier, when they were 20.6%.

Composition of the deposit portfolio                                                       To round out its main sources of financing, other types of deposits, such as deposits
As at December 31, 2010                                                                    by deposit-taking and other institutions, which refers, among other things, to
                                                                                           securities issuances on capital markets, represented only 9.6% of Desjardins
                   9.6%                                                                    Group’s deposit liabilities at the end of fiscal 2010, versus 8.4% one year earlier in
                                                                                           2009. These issuances, which are carried out in order to capitalize in particular
                                                                                           on the various business opportunities available on the markets, also contribute
                                                                                           to Desjardins Group’s expansion. These deposits were up $1.9 billion, or 21.5%,
20.7%                                                                                      over the year to total $10.8 billion as at December 31, after recording growth of
                                                                                           $899 million, or 11.3%, in 2009. Additional information about Desjardins Group’s
                                                                                           cash position and sources of financing can be found on page 87, and on Desjardins
                                                                                           Group’s liquidity risk management policy on page 96.



                                             69.7%


     individuals
     business and government
     deposit-taking and other institutions




76     management’s discussion and analysis
Québec market share
Personal savings activities
(as a %)



50

40

30

20

10

 0
       2006        2007         2008   2009   2010
     on-balance sheet savings
     securities
     investments funds




PERsonAL sAVInGs REPREsEnTED 69.7% of DEsJARDIns GRoUP’s                              Of the three broad categories of deposits offered by Desjardins Group, savings
                                                                                      payable on a fixed date is the largest component of its personal savings portfolio.
DEPosIT LIABILITIEs                                                                   It increased $694 million, or 1.4%, over the year to total $49.2 billion as at
                                                                                      December 31, 2010, versus a decrease of $1.8 billion, or 3.5%, recorded in 2009.
Personal savings                                                                      At year-end, it represented 62.5% of all savings entrusted to Desjardins Group
To support Desjardins Group’s growth, personal savings has always been a              by its individual members and clients over the years, while savings payable
preferred source of financing, accounting for 69.7% of deposit liabilities as at      on demand and upon notice represented 37.5%.
December 31, 2010, or slightly below the level in 2009. Desjardins Group’s special
focus on personal savings is due among other things to its more stable nature and     In spite of keen competition, Desjardins Group carved out an enviable place for
the large number and heterogeneous profile of savers (age, sex, income, and place     itself in this market, holding 43.4% of aggregate personal savings in Québec as at
of residence). Also, it is generally less costly than other types of funding, which   December 31, 2010.
makes it a much sought-after development tool for financial institutions, which
compete fiercely in this market.                                                      Off-balance sheet savings in 2010
                                                                                      In spite of some turbulence during 2010 because of fears over the strength of the
As at December 31, 2010, personal savings outstanding amounted to $78.8 billion,      global economic recovery and debt problems in certain European countries, the
a $3.3-billion or 4.4% increase over the year, compared with a $3.5-billion or 4.8%   Canadian stock market was up again. The Toronto Stock Exchange’s S&P/TSX
advance in 2009. Desjardins Group’s growth in this regard slowed somewhat,            posted a 14.4% increase for the year, compared with a 30.7% jump in 2009.
mainly because of historically low interest rates, the popularity of off-balance
sheet savings products such as investment funds and other securities that benefited   This growth favoured the sale of off-balance sheet products, such as investment
from the stock market recovery, and the drop in the personal savings rate, which      funds and other securities. These products regained popularity with investors
was eroded by the increase in household consumer spending.                            and took advantage of a significant market effect. Desjardins Group was very
                                                                                      active in this area, as can be seen from the $6.1-billion or 14.4% increase in
                                                                                      investment funds and other securities outstanding during the year to reach
                                                                                      a total outstanding of $48.5 billion, compared with a jump of $8.6 billion,
                                                                                      or 27.2%, at the end of 2009.




                                                                                                                                          management’s discussion and analysis   77
Table 15 – Loans by category of borrower
As at December 31
(in millions of $ and as a %)

                                                                                                                                                                      2010                     2009
                                                                                                                                                                                              restated(1)

Residential mortgages                                                                                                                         $ 72,839                 62.2 %   $ 67,667        61.0 %
Consumer, credit card and other personal loans                                                                                                   17,504                14.9        16,915       15.3
Business                                                                                                                                         24,776                21.2        24,776       22.4
Government                                                                                                                                        2,001                 1.7         1,483        1.3
                                                                                                                                                117,120               100.0 %     110,841      100.0 %
Allowance for credit losses                                                                                                                        (509)                 —           (541)        —
Total loans by category of borrower                                                                                                           $ 116,611                  —      $ 110,300         —
Loans secured by governments and other public
   and parapublic institutions included above                                                                                                 $ 32,435                   —      $ 29,140            —
Loans secured by governments and other public
   and parapublic institutions as a percentage of total gross loans                                                                                  27.7 %              —           26.3 %         —
Loans to individuals as a percentage of total gross loans                                                                                            77.1                —           76.3           —

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.




fInAncInG AcTIVITIEs                                                                                            Québec market share
In 2010, Desjardins Group continued to play a crucial role in financing economic                                Financing activities
                                                                                                                (as a %)
activity in Québec, certain regions of Ontario and elsewhere in Canada. Its
determination to participate in the economic and social development of each
and every community where it is present, combined with a highly innovative                                      50
credit offer that reaches a broad clientele of both individuals and businesses, are
responsible for the remarkable results that Desjardins posted in 2010. It stood                                 45
out particularly in financing residential construction, household durable goods                                 40
purchases.
                                                                                                                35
As at December 31, 2010, the portfolio of outstanding loans, net of the allowance
for credit losses, stood at $116.6 billion, up $6.3 billion, or 5.7%, for the year, as                          30
compared to an increase of $5.5 billion, or 5.3%, recorded for 2009. This slightly
                                                                                                                25
faster growth was due to improved economic conditions across the country,
especially in Québec, where Desjardins Group is firmly rooted and where it was                                  20
able to respond efficiently to the financing needs of individuals.                                                     2006         2007         2008         2009    2010
                                                                                                                     farm loans
Table 15 above summarizes Desjardins Group’s credit activities by main borrower                                      residential mortgages
category. It shows that loans to individuals, comprising residential mortgage                                        consumer, credit card and other personal loans
loans, consumer loans, credit card advances and other personal loans, is the                                         business loans
largest category. As at December 31, 2010, it represented 77.1% of the total loan
portfolio, compared to a proportion of 76.3% in 2009. More specifically, loans
to individuals, which totalled $90.3 billion at the end of fiscal 2010, were up
$5.8 billion, or 6.8%, for 2010, while they posted an increase of $5.4 billion, or                              The management of risk, and especially credit risk, is a constant concern for
6.8%, in 2009. These excellent results are attributable, among other things, to                                 Desjardins Group, as it is for all large financial institutions worldwide. Its financing
the renewed vitality of the housing market, in both new construction and home                                   activities are guided by some of the most rigorous management practices, which
resales, as well as the rebound in consumer spending.                                                           are described in detail in section 3.6, “Risk management”, on pages 90 to 100.

Furthermore, Desjardins Group was also very active in business and government                                   Finally, the next two pages provide a brief analysis of Desjardins Group’s results
financing. Loans outstanding in this segment were $26.8 billion as at December 31,                              by main borrower category.
2010, an increase of $518 million, or 2.0%, for the year, compared to growth of only
$173 million, or 0.7%, recorded in 2009.




78     management’s discussion and analysis
 Residential mortgages in Québec                                                           Consumer loans in Québec
 (as a %)                                                                                  (as a %)



         16                                                   41                                   7                                                        28
         14                                                                                        6
                                                              40                                                                                            26
         12                                                                                        5
                                                              39                                                                                            24




                                                                   Market share




                                                                                                                                                                 Market share
         10
                                                                                                   4
Growth




                                                                                          Growth
         8                                                    38                                                                                            22
                                                                                                   3
         6
                                                              37                                                                                            20
         4                                                                                         2
                                                              36                                    1                                                       18
         2
         0                                                    35                                   0                                                        16
                2006        2007         2008   2009   2010                                               2006        2007         2008   2009   2010
         groWth in volume – desjardins group                                                       groWth in volume – desjardins group
         groWth in volume – market                                                                 groWth in volume – market
         market share                                                                              market share




 DEsJARDIns GRoUP, sTILL ThE QUéBEc LEADER In hoUsInG fInAncE                              A strong player in this market in Québec, Desjardins Group holds a place
                                                                                           coveted by its main competitors, with a market share estimated at 38.0%
                                                                                           as at December 31, 2010.
 Residential mortgages
 Québec’s housing market experienced a rebound in 2010, as did Ontario’s.
 Housing starts in Québec stood at 51,363 compared to 43,403 in 2009, up 18.3%.            DEsJARDIns GRoUP’s GRoWTh RATE DIPs sLIGhTLy In 2010
 All types of housing contributed to this upsurge, the largest increases being in
 semi-detached houses and condominiums. Ontario also recorded significant                  Consumer, credit card and other personal loans
 growth in housing construction during the same period. A total of 60,433 units            The labour market in Québec quickly made up for the jobs it had lost during the
 were built in 2010, compared to 50,384 in 2009, a 19.9% increase. Ontario                 last recession, and the unemployment rate dropped significantly, which gave
 households overwhelmingly opted for single-family homes and townhouses.                   consumer confidence a boost. The employment situation in Ontario is also looking
                                                                                           up. However, the province has not yet regained all the ground it lost during the
 The home resale sector benefited from the upturn as well in 2010, and in Québec           contraction of its economy, but it is on the right track. As with Québec consumers,
 almost regained its 2007 level of 80,647 transactions, with a total of 80,126 recorded    the confidence of Ontario households improved, which had a positive impact on
 by the Multiple Listing Service (MLS), compared to 79,290 transactions in 2009,           their spending. Purchases of durable goods (automobiles, furniture, electronics
 an increase of 1.1%. In Ontario, this market remained as buoyant as in 2009. In           and appliances) by Québecers and Ontarians were up 8.8% and 5.6%, respectively,
 2010, 195,591 homes were sold, compared to 195,840 in 2009, a dip of only 0.1%.           in 2010.
 Robust demand in this segment pushed up home values by 8.4% and 7.5% of the
 average selling price in Québec and Ontario, respectively.                                Desjardins Group was very active in this market in 2010. As at December 31,
                                                                                           2010, its consumer, credit card and other personal loans portfolio (excluding
 In light of this recovery in housing activity, it is not surprising that the volume of    the Versatile Line of Credit) totalled $17.5 billion, up $589 million, or 3.5%, from
 housing finance also registered vigorous growth at Desjardins Group. Its residential      the previous year, during which growth of $933 million, or 5.8%, was recorded
 mortgage portfolio, including the Versatile Line of Credit, increased $5.2 billion,       in 2009. Desjardins Group’s pace therefore slowed somewhat in this market
 or 7.6%, for the year, to total $72.8 billion as at December 31, 2010, compared           as a result of a number of factors, including the tendency of its members and
 with 2009 growth of $4.4 billion, or 7.0%. Desjardins Group was therefore able            clients to focus more on mortgage lines of credit like the Versatile Line of Credit
 to take advantage of very favourable conditions for business development. The             to finance their durable goods purchases. In addition, the strong comeback of
 considerable expertise it has gained over the years in this area, combined with           automobile leasing also led to a drop in the volume of new automobile loans.
 the quality and variety of its mortgage products, made it a leading provider in this
 market, especially in Québec. In spite of the fierce competition that characterizes       However, Desjardins Group’s market shares in Québec and Ontario did not fare
 the industry, Desjardins Group was able to help large numbers of its members              too badly considering the more difficult economic environment. In Québec,
 and clients buy a home in 2010. In addition, Desjardins Group continued with              relative market share was measured at 22.8% at the end of 2010, while in Ontario,
 its mortgage securitization program in 2010, which reduced the growth rate of             it stood at 1.2%.
 its residential mortgage portfolio since the mortgages securitized as NHA-MBS
 program mortgage-backed securities in the previous year were removed from
 its Combined Balance Sheets.




                                                                                                                                                        management’s discussion and analysis   79
 Business loans in Québec
 (as a %)



         16                                                        30
         13                                                        28
         10
                                                                   26




                                                                        Market share
         7
Growth




                                                                   24
         4
                                                                   22
          1
         -2                                                        20

         -5                                                        18
                  2006        2007         2008      2009   2010
         groWth in volume – desjardins group
         groWth in volume – market
         market share




 DEsJARDIns GRoUP AcQUIREs A MoRE soLID fooTInG                                         As at December 31, 2010, its business loan portfolio outstanding, which consists of
                                                                                        commercial and industrial credit and farm loans, totalled $24.8 billion, unchanged
 In BUsInEss fInAncInG                                                                  from the end of 2009. Desjardins Group’s growth in this area in recent years, which
                                                                                        was regulated by some of the strictest credit risk management practices in the
 Loans to businesses                                                                    industry, has propelled it into a leadership position in terms of market share in
 The global economy started growing again in 2010, after experiencing in 2009 its       Québec, with a relative weighting of close to 28.0%.
 first decline in real GDP since the end of World War II. This economic recovery
 was due in very large part to emerging countries, in particular China, India and       Desjardins Group also has a high profile in farm credit. In Québec, its presence
 Brazil, whose real GDP growth was measured at about 6.0%, while that of the            is felt in all the regions, while in Ontario, it is particularly active in Francophone
 industrialized countries was about 2.4%. Canada, for its part, stood out with          communities. Since this sector has experienced deep-seated changes over the
 an estimated 2.9% increase in production. Thanks to this improved economic             past 10 years, which have, among other things, exacerbated competition among
 climate, credit conditions have practically returned to their pre-recession levels.    lending institutions in this area, Desjardins Group can be proud to still be the
 Financial tensions reappeared, however, following the sovereign debt crisis of         leader in this fiercely competitive market, especially in Québec.
 some European countries.
                                                                                        As at December 31, 2010, Desjardins Group’s portfolio of farm loans outstanding
 Québec was among the provinces least affected by the 2009 recession, and when          stood at $5.2 billion, down $125 million, or 2.3%, from the previous year, during
 the economy recovered in 2010, it did very well. Apart from consumer spending,         which an increase of $148 million, or 2.9%, was recorded. The drop of a little more
 which was a key driver in this recovery, the upsurge in business investment            than 50% in the number of milk quota sales transactions in Québec, and even in
 also played a significant role in the Québec economy’s strong growth. In fact,         Ontario, created a less favourable climate for business development in this area,
 after the numerous investment projects abandoned and postponed in 2009,                despite the upsurge in financing in the horticulture sector. Desjardins Group’s
 business spending soared in 2010. For example, preliminary data suggest annual         market share in the farm sector in Québec reached nearly 43.0% by the end of 2010.
 growth of more than 9.0% in this market in Québec, largely due to purchases of
 machinery and equipment. In this regard, the strength of the loonie was beneficial     LoAns oUTsTAnDInG of $2.0 BILLIon
 for companies wanting to modernize their facilities because these purchases are
 very often made south of the border. Moreover, it is noteworthy that Ontario also      To DIffEREnT LEVELs of GoVERnMEnT
 experienced a rather significant recovery in business investment during the same
 period. It is therefore not surprising to see that the financing needs in Ontario      Loans to government
 also rose substantially in 2010.                                                       As at December 31, 2010, Desjardins Group’s loan portfolio outstanding to
                                                                                        government, notably municipalities, stood at $2.0 billion, up $518 million, or
 Desjardins Group has an extensive distribution network to meet the needs of            34.9%, from 2009, during which a $104 million or 7.5% increase was recorded.
 its members and clients in business financing, including the caisses and their         It should be noted that the financing granted by Desjardins Group in this area
 business centres, as well as Caisse centrale Desjardins. Through its range of          is largely in the form of lines of credit, and that the outstandings for this type
 products and services, Desjardins Group can effectively meet the needs of the          of loan fluctuate considerably.
 vast majority of businesspeople, regardless of the size of their business operations
 or their industry. Moreover, as a result of the highly competitive expansion
 strategy Desjardins Group has developed over the years, it has indisputably
 become a major player in this market, particularly in Québec and in several
 regions in Ontario.




 80           management’s discussion and analysis
sEcTIon 3.2
Credit quality

Gross impaired loans
(in millions of $ and as a %)



800                                                    1.2
            0.39


                         0.41




                                               0.44
                                        0.46
                                0.40                   1.0
600

                                        509


                                               512
                                                       0.8
                                422
                         391
            350




400                                                    0.6

                                                       0.4
200
                                                       0.2

  0                                                    0.0
          2006         2007     2008   2009    2010
      in millions of $
      as a % of gross loans




ALLoWAncE foR cREDIT LossEs                                                             As at December 31, 2010, the general allowance stood at $350 million, down from
Based on management’s opinion and its assessment of economic conditions, the            $398 million in 2009. This decline was due to adjustments to reflect the improved
allowance for credit losses on the Combined Balance Sheets is sufficient to cover       economic climate for businesses during the year and the impact of the change
potential loan portfolio risks. This allowance is decreased by actual write-offs,       made by Desjardins Group in the valuation of the provision.
net of recoveries, and increased by the provisions for credit losses, which are
recorded in the Combined Statements of Income. The allowance for credit losses,         The general allowance is sufficient to reflect management’s best estimate
which comprises specific allowances and a general allowance, is deducted from           of provisions for credit losses on loans not yet identified as impaired on an
the appropriate asset on the Combined Balance Sheets.                                   individual basis.

Specific allowances                                                                     IMPAIRED LoAns
If a loan is considered to be impaired, its carrying value is adjusted to reflect its   A loan is considered impaired and the related interest is no longer recorded when
estimated realizable value in order to determine whether a specific allowance           (a) there is reason to believe that a portion of the principal or the interest cannot
should be established for this loan.                                                    be collected; or (b) the interest or principal repayment is contractually 90 days
                                                                                        or more past due, unless the loan is fully secured or in the process of collection;
At the end of fiscal 2010, specific allowances totalled $159 million, versus            or (c) the loan is more than 180 days in arrears.
$143 million in 2009. This balance represents 31.1% of the gross impaired loans
portfolio, as compared to 28.1% as at December 31, 2009. This increase was              Impaired loans increased from $509 million in 2009 to $512 million in December
attributable to the improved coverage ratio for consumer and business loans,            2010, trailing, however, the growth of the overall portfolio. Stability characterized
which more than offset the reduced coverage for residential loans.                      all portfolios. There was a slight decline in new impaired loans and in settlements.
                                                                                        Given the speed and severity of the economic downturn in 2008, these results
General allowance                                                                       confirm the solid performance of Desjardins Group’s portfolio as a whole. This
To determine the required level of the general allowance, Desjardins Group uses         performance was attributable to the rapid economic recovery, the favourable
an internal model to estimate the potential losses in the loan portfolio, excluding     interest rate environment, the soundness of the housing market and, finally, the
impaired loans. This model provides a risk estimate for each loan category, taking      overall satisfactory financial performance of businesses.
into account changes in the portfolio over time and the impact of the business
cycle on credit risk.                                                                   The net impaired loan balance, equal to gross exposures less the specific allowance
                                                                                        for these loans, declined by $13 million from $366 million at the end of 2009 to
During 2010, Desjardins Group made important changes to the method used                 $353 million in December 2010. As Table 16 on page 82 shows, net impaired loans
for its general allowance. The new method more accurately considers the                 outstanding now account for 0.30% of the gross loan portfolio, down from 0.33%
risk parameters of the various loan portfolios, notably by integrating credit           in 2009. This improvement was attributable to the enhanced coverage ratio of
risk models developed by Desjardins Group. These models take into account               impaired loans by specific allowances.
parameters such as probabilities of default, loss given default, and gross exposures
at default. The new method also applies to off-balance sheet portfolios and no
longer includes the concept of a threshold.




                                                                                                                                            management’s discussion and analysis   81
Table 16 – Impaired loans by borrower category
As at December 31
(in millions of $ and as a %)

                                                                                                                                                                                          2010           2009           2008
                                                                                                                                                                   specific
                                                                                                                                                               alloWances
                                                                                                                                                                 for credit        net impaired    net impaired     net impaired
                                                                                                          gross loans                  gross impaired loans         losses               loans           loans            loans
Residential mortgages                                                                                     $ 72,839           $        140            0.19 %    $            12     $      128      $       124      $       96
Consumer, credit card and other personal loans                                                               17,504                    85            0.49                   36              49               50             52
Business and government                                                                                      26,777                   287            1.07                  111             176             192            144
Total                                                                                                     $ 117,120          $        512               —      $           159     $      353      $       366      $     292
As a percentage of gross loans                                                                                    —                     —            0.44 %                  —            0.30 %           0.33 %         0.28 %



Table 17 – Specific coverage ratio(1)
As at December 31
(as a %)

                                                                                                                                                                                 2010              2009                 2008
Residential mortgages                                                                                                                                                             8.6 %                 9.5 %             10.3 %
Consumer, credit card and other personal loans                                                                                                                                   42.4                  39.8               38.1
Business and government                                                                                                                                                          38.7                  33.6               37.7
Coverage ratio of impaired loans                                                                                                                                                 31.1                  28.1               30.8

(1) The specific coverage ratio is equal to total specific allowances divided by total gross impaired loans.




PRoVIsIons foR cREDIT LossEs                                                                                    Provisions for credit losses
                                                                                                                (in millions of $ and as a %)
The fears expressed at the beginning of the year concerning further potential
deterioration in the portfolio did not materialize. As a result of the economy’s
quick recovery after two tough years in 2008 and 2009, credit quality was able                                  400                                                                        0.30
                                                                                                                                            0.21




                                                                                                                                                                    0.24


                                                                                                                                                                                  0.17
                                                                                                                                                       0.22
                                                                                                                              0.16




to be stabilized and there was even improvement in a few portfolios.
                                                                                                                350                                                                        0.25
In 2010, Desjardins Group recorded $197 million in provisions for credit losses,                                300
                                                                                                                                                                    260

                                                                                                                                                                                           0.20
down $63 million from $260 million recorded a year earlier. This represents
                                                                                                                                                       223




                                                                                                                250
0.17% of average gross loans, versus 0.24% in 2009. The improvement mainly
                                                                                                                                            197




                                                                                                                                                                                  197
                                                                                                                                                                                           0.15
results from lower losses recorded in credit card portfolios and a decline in the                               200
                                                                                                                              139




general allowance for corporate loans, which largely offset the increase in specific                                                                                                       0.10
                                                                                                                 150
allowances for loans to small and medium-sized businesses compared to the
                                                                                                                 100                                                                       0.05
previous year. In addition, this decrease factored in the impact of the change
made to the method used by Desjardins Group to measure the general allowance,                                    50                                                                        0.00
as mentioned in Note 06, “Loans and allowance for credit losses”, to the Combined                                           2006(1)      2007(1)     2008(1)       2009(1)       2010
Financial Statements. As a result, the provisions for credit losses expense was                                         in millions of $
down by approximately $36 million was down from the corresponding period                                                as a % of gross loans
in 2009.
                                                                                                                (1) Certain data have been restated. See “Allowance for credit losses”
                                                                                                                    in section 4.6, “Critical accounting policies and estimates”.
oUTLook foR 2011
Moderate expectations for economic growth, some stability or a limited increase
in projected interest rates, but also the vigorous Canadian dollar will generally
                                                                                                                As for residential mortgage financing activities, there should not be any major
help to maintain the quality of the aggregate portfolio in 2011.
                                                                                                                changes in this area given the stabilization of the real estate market.
In consumer lending, given the brisk labour market and the absence of any
                                                                                                                As for the business portfolio, the risk of deterioration still persists for a few
significant hike in interest rates, there should be no adverse effect on the financial
                                                                                                                business segments, but the economic climate in 2011 should not lead to any
health of most households, and the quality of the portfolio should be stable. Since
                                                                                                                significant decline.
uncertainties continue to persist in this area, however, households’ financial
capacity will be the focus of special attention.




82     management’s discussion and analysis
sEcTIon 3.3
Capital management
and credit ratings
Tier 1 capital ratio
(as a % )



25

20




                                                        17.7
                                             15.8
            14.2


                     14.2


                                13.6


15

10

 5

 0
        2006(1)    2007(1)     2008(1)     2009(1)     2010
(1) Certain data have been restated. See “Allowance for credit losses”
    in section 4.6, “Critical accounting policies and estimates”.




Capital management is crucial to Desjardins Group’s financial management, taking         In general, the capital management framework provides for the policies and
into account its regulatory obligations, the economic and financial environment,         processes required to set Desjardins Group’s target capitalization, to assign them
its risk profile, its cooperative difference and its cooperative objectives.             to its components, to establish strategies to ensure that the target is met, to make
                                                                                         it possible to quickly mobilize capital, to ensure that the various components’
Desjardins Group advocates prudent management of its capital. Its purpose                performance is adequately measured, and to optimize the procedure to circulate
is to maintain higher regulatory capital ratios than those of the Canadian               and use capital internally.
banking industry and regulatory requirements. In 2010, this vision translated
into issuances of $1.6 billion in subordinated bonds, which qualify as Tier 2            PoLIcIEs
regulatory capital, and $0.5 billion in permanent shares, which qualify as Tier 1        Capital management is the responsibility of Desjardins Group’s Board of Directors.
capital. These issuances, combined with the strong improvement in the overall            For assistance with this task, the Finance and Risk Management Committee and
profitability of operations and prudent balance sheet management, helped to              its Asset/Liability Committee were given a mandate to ensure that Desjardins Group
bring the Tier 1 capital ratio to 17.7%, and the total capital ratio to 18.7% as at      has a sufficient and reliable capital base. The Finance and Treasury Executive
December 31, 2010. The Tier 1 capital and total capital ratios both stood at 15.8%       Division and Office of the CFO is responsible for preparing, on an annual basis
as at December 31, 2009. Desjardins Group’s prudent management is further                and with the help of Desjardins Group’s components, a capitalization plan that
reflected in the excellent credit ratings granted by the various rating agencies.        sets and updates capital objectives and targets for all components.

The 2008–2009 global financial crisis has prompted the industry to place more            The current strategic situation and the forecast for the duration of the Strategic
emphasis on capitalization. Now more than ever, the rating agencies and the market       Plan show that Desjardins Group has an excellent capital base overall and, therefore,
favour the best-capitalized institutions. These factors argue in favour of a general     ample latitude to pursue development objectives.
increase in the level and quality of capital issued by financial institutions. It was
against this backdrop that Desjardins Group raised its minimum target for Tier 1
                                                                                         BAsEL II
capital to 15% over the 2010–2012 horizon.
                                                                                         Desjardins Group’s regulatory capital ratios are calculated according to the
DEsJARDIns GRoUP’s InTEGRATED cAPITAL MAnAGEMEnT fRAMEWoRk                               guideline issued by the AMF on adequacy of capital base standards applicable
                                                                                         to financial services cooperatives. Since fiscal 2009, this regulatory framework
Capital management aims to ensure that the capital structure and level of                has been largely based on the revised framework for international convergence
Desjardins Group and its components are adequate in terms of rating agencies’            of capital measurement and capital standards (Basel II) issued by the Bank for
expectations, the risks taken by the organization, regulators’ requirements,             International Settlements (BIS). In this regard, the AMF has allowed Desjardins
profitability targets and growth objectives. Moreover, it must optimize capital          Group to use the advanced internal ratings based approach, subject to certain
distribution as well as the procedures for circulating capital internally, in addition   conditions, for credit risk related to retail loan portfolios (Personal). Other credit
to sustaining growth and development, and balance sheet risk management.                 exposures and market risk are assessed according to a standardized approach,
                                                                                         while operational risk is calculated using the basic indicator approach.
Given the rapidly evolving internal and external environment at Desjardins
Group, and in particular the reinforcement of regulations and the growing
importance of capitalization, an update to the integrated capital management
framework was approved by the Board of Directors during the year.




                                                                                                                                              management’s discussion and analysis   83
BAsEL III                                                                                 cAPITAL MAnAGEMEnT AcTIVITIEs
On December 16, 2010, BIS issued new requirements (Basel III) for the global              During the year, the Desjardins caisse network issued permanent shares in an
regulation of capital standards. Since 2009, various consultative proposals               amount of $506 million, which qualify as Tier 1 capital for regulatory purposes.
have been submitted to the banking industry as a whole to build a more secure
financial system that is resilient to periods of stress. The new rules, which             On May 5, 2010, Capital Desjardins inc. issued Series G subordinated bonds
will be implemented progressively over the next few years, increase capital               maturing in May 2020 for a consideration of $900 million. On November 23, 2010,
requirements (minimum thresholds to be met), but also risk management                     a new issuance of Series H subordinated bonds maturing in November 2020
requirements. The new system, combined with global liquidity standards,                   was completed for a consideration of $700 million. These transactions therefore
forms an essential element of the global financial reform program. Following              resulted in a $1.6 billion net increase in subordinated bonds, which qualify as
the publication of the new Basel III standards, national regulators will in turn          Tier 2 capital for regulatory purposes.
incorporate these requirements into their guidelines. For Desjardins Group,
which is already well capitalized in relation to its peers, the impact will be limited.   AnALysIs of REsULTs
                                                                                          Desjardins Group is one of the best capitalized financial institutions in Canada:
The key points of the new regulatory capital standards set out in Basel lll are           its Tier 1 and total capital ratios, evaluated under the Basel II regulatory framework,
as follows:                                                                               stood at 17.7% and 18.7%, respectively, as at December 31, 2010. Both ratios stood
1) Improvement in the quality of financial institutions’ capital:                         at 15.8% as at December 31, 2009. Desjardins Group therefore still has excellent
     • new definition of components of capital categories                                 capitalization, with a Tier 1 capital ratio above its 15% objective and at a level that
                                                                                          is close to 450 basis points higher than the median of the major Canadian banks.
     • a greater focus on best Tier 1 capital component to absorb losses
       (Common Equity Tier 1)                                                             The initial impact of adopting IFRS on the calculation of capital base adequacy
2) Increase in minimum capital requirements:                                              requirements will be deferred and amortized on a straight-line basis over the
     • Common Equity Tier 1 capital ratio of 4.5%                                         period from January 1, 2011, to December 31, 2012, following Desjardins Group’s
                                                                                          election to use the transitional provision provided for this purpose by the AMF.
     • Tier 1 capital ratio of 6.0%                                                       The implications of this choice on the available capital are described in section 4.7
     • Addition of a capital conservation buffer of 2.5% applied to Common Equity         “Transition to International Financial Reporting Standards (IFRS)”, on pages
       Tier 1 capital in order to cope with periods of stress, so that in normal          110 to 115.
       conditions, the minimum requirement for Common Equity Tier 1 capital
       will be 7.0%                                                                       MInIMUM RATIos
     • Addition of a minimum leverage ratio to prevent the build-up of excessive          The minimum total capital ratio, recommended to institutions for compliance
       leverage, a requirement to which Desjardins Group is already subject by its        with BIS regulatory requirements, to be considered sufficiently capitalized is 8%.
       regulatory authority                                                               In addition, the Tier 1 capital ratio must represent at least half of the total capital
3) Reduction in systematic risk:                                                          ratio. With the coming into force of the Basel II regulatory framework, the AMF
                                                                                          revised its minimum total capital ratio to 11.5%. As part of the development of
     • Strong incentive to have a countercyclical capital buffer, calibrated in a range
                                                                                          the 2010–2012 Strategic Plan, Desjardins Group raised its financial objective for
       of 0% to 2.5%, in order to prevent risk from spreading throughout the entire
                                                                                          the total capital ratio, at its own initiative, to 15% (the same level as the target for
       financial system, a requirement left to the discretion of national regulators
                                                                                          the Tier 1 capital ratio), thus taking into account the prevailing global economic
4) Implementation of a reasonable timetable in order to allow financial institutions      context and the framework of the AMF’s guideline on adequacy of capital base
   to adjust to the new regime:                                                           standards. This target had been previously set at 13%.
     • New requirements to be phased in between 2013 and 2019
                                                                                          At 17.7% and 18.7%, respectively, Desjardins Group’s Tier 1 and total capital
Global minimum liquidity requirements have been added to the new regulatory               ratios exceed not only the minimum regulatory requirement but also Desjardins
capital standards: a “liquidity coverage ratio” to allow financial institutions to deal   Group’s own financial objective. The high level of Tier 1 capital therefore
with potential liquidity disruptions, and a “net stable funding ratio” to address         demonstrates the financial strength of Desjardins Group, even in a more
mismatches between assets and funding sources.                                            challenging economic environment.




84     management’s discussion and analysis
Table 18 – Regulatory capital
As at December 31
(in millions of $ and as a %)

                                                                                                                                                                                       2010                 2009
                                                                                                                                                                                                           restated(1)

Tier 1 capital
  Eligible capital stock                                                                                                                                                          $ 2,137              $    1,607
  Reserves                                                                                                                                                                          9,198                   8,343
  Undistributed surplus earnings                                                                                                                                                    1,102                     792
  Non-controlling interests                                                                                                                                                            50                      42
  Goodwill                                                                                                                                                                           (109)                   (109)
  Other deductions(2)                                                                                                                                                                (345)                   (474)
Total Tier 1 capital                                                                                                                                                               12,033                  10,201
Tier 2 capital
  Subordinated bonds                                                                                                                                                                 2, 818               1,300
  Eligible general allowance                                                                                                                                                            230                 262
  Other eligible securities                                                                                                                                                              71                  77
  Unrealized cumulative gains on available-for-sale securities (net of taxes)                                                                                                             2                   5
  Other deductions(2)                                                                                                                                                               (2,448)              (1,644)
Total Tier 2 capital                                                                                                                                                                    673                   —
Total regulatory capital                                                                                                                                                          $ 12,706             $ 10,201
Capital ratios
Tier 1 capital                                                                                                                                                                          17.7 %                15.8 %
Total capital                                                                                                                                                                           18.7                  15.8

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2) Mainly includes the provision deficit related to the internal ratings based approach ($305 million), unrated securitization exposures ($97 million) and investments in components deconsolidated for regulatory
    capital purposes (Desjardins Financial Security and Desjardins General Insurance Group) ($2,306 million) as well as in affiliated companies ($80 million).




In addition to the minimum Tier 1 capital and total capital ratios set, the AMF                             This capital takes into consideration investments made in other components
requires Desjardins Group to maintain a regulatory asset/capital ratio under                                within Desjardins Group. Some of Desjardins Group’s components are subject
20 times. This measure allows overall capital adequacy to be determined against                             to separate requirements with respect to regulatory capital, liquidities and
the entity’s total assets, including certain off-balance sheet items. With a ratio                          financing, which are set by organizations that regulate banking and securities.
of 12.1 times as at December 31, 2010, Desjardins Group is well below the limit                             Their requirements may be subject to amendments to the regulations and
set by the AMF.                                                                                             change by activity. The liquidity of Desjardins Group’s main subsidiaries is
                                                                                                            assessed on an ongoing basis, given the regulatory restrictions imposed by local
The overall heightened profitability of operations during the year, combined                                administrations and the operational, tax, economic and other constraints on the
with the issuances of permanent shares, have enabled Desjardins Group to                                    movement of funds between components. In this way, Desjardins Group is able to
substantially increase its Tier 1 capital.                                                                  manage and minimize blocked liquidities. It monitors and manages liquidity and
                                                                                                            capital requirements in these entities in order to ensure an efficient use of capital
coMPLIAncE WITh REQUIREMEnTs                                                                                and continuous compliance, by each of these entities, with regional regulations.
With regard to regulatory capital, the capital composition and adequacy of                                  Additional details on the guideline issued by the AMF and on the regulatory
Desjardins Group as a whole are evaluated according to the guideline issued                                 framework governing the capitalization of each Desjardins entity are presented
by the AMF on standards governing the adequacy of base capital. The AMF                                     in Note 28, “Capital management”, to the Combined Financial Statements.
requires that a minimum amount of capital be maintained on a combined basis
by all components and, in particular, the caisses, the FCDQ (unconsolidated),                               All Desjardins Group entities subject to minimum regulatory capital requirements
Caisse centrale Desjardins, Fonds de sécurité Desjardins, Capital Desjardins inc.,                          were in compliance with these requirements as at December 31, 2010, as they
Desjardins Securities and Desjardins Trust.                                                                 were in 2009.




                                                                                                                                                                            management’s discussion and analysis     85
Table 19 – Risk-weighted assets
As at December 31, 2010
(unaudited, in millions of $ and as a %)

                                                                                             InTERnAL RATInGs                     sTAnDARDIzED                                                  ToTAL           ToTAL
                                                                                              BAsED APPRoAch                         APPRoAch                                                    2010            2009
                                                                                                                                                                                                                restated(1)

                                                                                                                                                                                                  average
                                                                                                           risk-Weighted                   risk-Weighted                    risk-Weighted   risk-Weighted   risk-Weighted
                                                                                             exposure(2)         assets      exposure(2)         assets       exposure(2)         assets             rate         assets
Sovereign borrowers                                                                      $      —          $      —        $ 13,218        $      —        $ 13,218         $      —                   —%   $      —
Financial institutions                                                                          —                 —           8,428           1,682            8,428           1,682                  20       1,680
Businesses                                                                                      —                 —          34,521          24,998           34,521          24,998                  72      22,904
Mortgages                                                                                  44,467             4,340             957             173           45,424           4,513                  10       4,863
Revolving exposures for eligible retail clients                                            25,072             7,345               —               —           25,072           7,345                  29       5,877
Other retail client exposures                                                              30,791             3,267           4,073           2,376           34,864           5,643                  16       6,838
Securitization                                                                                  —                 —           1,379             651            1,379             651                  47         711
Equities                                                                                        —                 —              75              75               75              75                 100         228
Trading portfolio                                                                               —                 —           1,740             445            1,740             445                  26         348
Other assets(3)                                                                                 —                 —               —               —           10,563           3,869                  37       2,780
Scaling factor(4)                                                                               —               897               —               —                —             897                   —         855
Total credit risk                                                                         100,330            15,849          64,391          30,400          175,284          50,118                   —      47,084
Market risk                                                                                     —                 —               —           1,937                —           1,937                   —       2,251
Operational risk(5)                                                                             —                 —               —               —                —          10,271                   —       9,793
Transitional adjustment for floor(6)                                                            —                 —               —               —                —           5,523                   —       5,410
Total risk-weighted assets                                                               $100,330          $ 15,849        $ 64,391        $ 32,337        $ 175,284        $ 67,849                   —    $ 64,538

(1)   Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2)   Net exposure, after credit risk mitigation (net of specific allowances under the standardized approach but not under the advanced approach in accordance with the AMF guideline).
(3)   The other assets are measured using a method other than the standardized approach or the internal ratings based approach.
(4)   The scaling factor is equal to a calibration of 6% of high-risk assets assessed using the advanced approach for credit exposures, in accordance with Section 1.3 of the AMF guideline.
(5)   The Basic Indicator approach was used for operational risk.
(6)   As prescribed in Section 1.6 of the AMF guideline.




Table 20 – Credit ratings
Desjardins Group’s financial strength is reflected in the excellent credit ratings of Caisse centrale Desjardins.

                                                                                                                                                                sTAnDARD
                                                                                                                                                   DBRs          & PooR’s               MooDy’s                 fITch
Short-term debt                                                                                                                             R-1 (high)                  A-1+                   P-1                 F1+
Medium-term and long-term senior debt                                                                                                              AA                   AA-                    Aa1                 AA-



Rating agencies                                                                                                    Throughout the past year, rating agencies maintained Desjardins Group’s credit
Caisse centrale Desjardins, a reporting issuer, and Capital Desjardins inc., a venture                             ratings and once again recognized its very strong capitalization, the stability of its
issuer, boast excellent credit ratings from rating agencies. In fact, their ratings are                            operating surplus earnings, its leading role in the local market and the quality of
among the best of the major banking institutions in Canada.                                                        its assets. On December 23, 2010, for the first time, Fitch Ratings assigned ratings
                                                                                                                   to Caisse centrale Desjardins, being AA- for its long-term instruments F1+ for its
The reports of the rating agencies deal primarily with Desjardins Group on a                                       short-term instruments. Caisse centrale Desjardins was not rated by Fitch as at
combined basis, since the credit ratings of Caisse centrale Desjardins and Capital                                 December 31, 2009.
Desjardins inc. are based on the strength of Desjardins Group’s balance sheets.
                                                                                                                   The high credit ratings reflect the financial strength of Desjardins Group and its
                                                                                                                   caisse network, and ensure its credibility and recognition among institutional
                                                                                                                   investors. The borrowing programs set up by Caisse centrale Desjardins provide
                                                                                                                   access to a diverse range of funding sources, by clientele, market, maturity,
                                                                                                                   currency and region.




86      management’s discussion and analysis
sEcTIon 3.4
Cash position and
sources of financing
Deposits by individuals as a percentage                                                  Cash and securities as a percentage
of total deposits                                                                        of total assets
(as a %)                                                                                 (as a %)



90                                                                                       28




                                                                                                               22.9




                                                                                                                                                22.7
                                         70.9
                           69.3




                                                       71.0


                                                                     69.7




                                                                                                     21.9
             71.1




                                                                                         24




                                                                                                                                     20.7
75




                                                                                                                         20.1
                                                                                         20
60
                                                                                         16
45
                                                                                         12
                                                25.3


                                                              26.1
                    20.4
      21.4




                                  21.4




30
                                                                                          8
15                                                                                        4
 0                                                                                        0
       2006         2007          2008          2009          2010                                  2006(1)   2007(1)   2008(1)    2009(1)     2010
     deposits by individuals payable on demand and upon notice                           (1) Certain data have been restated. See “Allowance for credit losses”
                                                                                             in section 4.6, “Critical accounting policies and estimates”.
     total deposits by individuals




Considerable uncertainty, especially within industrialized countries, impeded            U.S. market with an issuance of fixed-rate, medium-term deposit notes of
the global economic recovery in 2010. The sovereign debt crisis in Europe, and           US$ 1 billion in September 2010. Not only was Desjardins Group very well received
the U.S. economy’s disappointing performance resulted in heightened volatility           on the U.S. market, it was also the first Canadian cooperative to complete an
on capital markets. In such an environment, most central banks kept their interest       issuance there. Desjardins Group’s presence on these various markets also helped
rates very low. In Canada, higher commodity prices benefited the loonie and              expand its pool of institutional investors. In fact, several new major industry
stock markets. The external sector was adversely affected, especially given the          players have become interested in our issuances.
lacklustre economies of our main trading partners. Despite domestic demand
being relatively strong, the Bank of Canada stopped in September the upward              In May and November 2010, Capital Desjardins inc. made two issuances of senior
trend in key interest rates initiated in June. With growth forecasts of under 2.5%       notes for $900 million and $700 million, respectively. It should be noted that
in 2011 for most industrialized countries, any tightening of monetary policy             increasing the average duration of institutional funding is a beneficial strategy
is highly unlikely. Canada will possibly be the only G-7 country to take such            that allows Desjardins to maintain its objectives, even through periods of economic
measures, but not before mid-year.                                                       and financial instability.

In 2010, short-term and corporate financing spreads were affected by the turmoil         In 2010, the Desjardins caisse network issued $506 million in permanent shares,
from the sovereign debt crisis of certain European Union countries. However,             bringing the total amount for issued shares to $2 billion.
the volatility observed in 2010 was nothing compared to that experienced during
the 2008 and 2009 financial crisis. Moreover, the interest rates in G-7 countries        As at December 31, 2010, Desjardins Group’s deposit liabilities totalled $112.9 billion,
remained at historically low levels because of a rather weak global economic recovery.   up $6.8 billion, or 6.4%, from the previous year, as compared to growth of $4.7 billion,
                                                                                         or 4.7%, in 2009. More specifically, in deposits by individuals, Desjardins Group’s
Desjardins Group’s integration of treasury activities in recent years has                results were down somewhat. For example, personal savings grew by $3.3 billion,
demonstrated the benefits in terms of synergy to build strong leadership and             or 4.4%, to $78.8 billion as at December 31, 2010, as opposed to an increase of
greater prosperity. Despite the precarious economic situation, Caisse centrale           $3.5 billion, or 4.8%, the previous year. It should be noted that this savings category
Desjardins managed to maintain sufficient liquidities to meet all Desjardins             has always been favoured by Desjardins Group; it accounted for 69.7% of Desjardins
Group’s needs through its rigorous treasury policy, solid institutional funding          Group’s deposit liabilities as at December 31, 2010, slightly down from its 2009 level.
and the contribution made by the caisse network. The rigour of Caisse centrale
Desjardins’s treasury policy also allowed Caisse centrale Desjardins to strengthen       Caisse centrale Desjardins continued to be present in the securitization market
its foundations and confidently address a period of global financial stabilization.      for mortgage loans guaranteed by the federal government under the Canada
                                                                                         Housing Trust Program. In fact, it was active in the securitization of mortgage
The Combined Balance Sheets for the caisses maintained a neutral matching                loans insured by the Canada Mortgage and Housing Corporation (CMHC),
target in 2010. Net interest income remained relatively stable despite weak              and it participated in new issues under the program in 2010 in the amount of
medium-term interest rates. This balance sheet positioning makes it possible             $733 million, in addition to revising the entire process during the year. The
to ensure adequate intermediation margins on the majority of products.                   program’s objective is to obtain a source of long-term financing at the lowest
                                                                                         price on the market.
Caisse centrale Desjardins, in line with its strategy of increasing the duration
of its institutional funding and as part of its mission as Desjardins Group’s            As at December 31, 2010, cash and securities amounted to $39.2 billion, or
treasurer, issued debt securities on various markets in fiscal 2010. It was present      $6.7 billion, more than at the end of 2009. The ratio of cash and securities to total
on the Canadian market, where it completed issuances of medium-term deposit              assets therefore stood at 22.7%, compared to 20.7% at the end of December 2009.
notes totalling $400 million in February, $500 million in June and $600 million          This ratio largely exceeds regulatory requirements. Liquidities are determined by
in October. In 2010, it also issued debt securities of approximately $1.7 billion        the aggregate of securities, cash and deposits with financial institutions. Securities
on the European market, which were again very well received by European                  were made up mainly of securities issued by governments and public bodies.
investors. For the first time, Caisse centrale Desjardins made inroads on the




                                                                                                                                                         management’s discussion and analysis   87
sEcTIon 3.5
Off-balance
sheet items
Table 21 – Assets under administration and assets under management
As at December 31
(in millions of $ and as a %)

                                                                                                                                                                     2010          2009     chAnGE
Assets under administration
  Individual and institutional trust and custodial services                                                                                                    $ 246,975       $ 208,305        18.6 %
  Investment funds(1)                                                                                                                                             34,947          30,645        14.0
Total assets under administration                                                                                                                              $ 281,922       $ 238,950        18.0 %
Assets under management
  Institutions and individuals                                                                                                                                 $ 6,251         $  5,720          9.3 %
  Investment funds(1)                                                                                                                                            34,728          29,820         16.5
Total assets under management                                                                                                                                  $ 40,979        $ 35,540         15.3 %

(1) Including $13.2 billion in Desjardins Funds, $4.6 billion in Northwest & Ethical Investments, and $4.8 billion in segregated funds at Desjardins Financial Security.




Table 22 – Credit instruments by term to maturity
As at December 31
(in millions of $)

                                                                                                                                                                                   2010         2009
                                                                                              less than 1 year      from 1 to 3 years   over 3 to 5 years       over 5 years        total        total
Guarantees and standby letters of credit                                                        $    621               $       125         $          —        $     —         $    746     $    591
Securities lending                                                                                   985                         —                    —              —              985        1,084
Credit commitments                                                                                53,868                     2,617                    —          1,229           57,714       52,231
Total credit instruments                                                                        $ 55,474               $     2,742         $          —        $ 1,229         $ 59,445     $ 53,906



In the normal course of its operations, Desjardins Group makes various off-balance                               The calculation of the risk-weighted balance related to these off-balance sheet
sheet commitments.                                                                                               items, presented in Table 19 on page 86, is consistent with the guideline on capital
                                                                                                                 adequacy requirements issued by the AMF.
This includes assets under administration and under management on behalf of its
members and clients, credit instruments, derivative financial instruments, and                                   Note 25, “Derivative financial instruments and hedging activities”, to the Combined
contractual commitments.                                                                                         Financial Statements of Desjardins Group explains the accounting policy used
                                                                                                                 to account for derivative financial instruments, which are all recognized at
AssETs UnDER ADMInIsTRATIon AnD AssETs UnDER MAnAGEMEnT                                                          fair value. In addition, Note 25, “Derivative financial instruments and hedging
As at December 31, 2010, Desjardins Group had assets totalling $281.9 billion under                              activities”, and Note 26, “Commitments, guarantees and contingencies”, provide
administration and under management for its members and clients, representing                                    detailed information on derivative financial instruments and commitments,
an increase of $43.0 billion, or 18.0%, over volume of $239.0 billion at the end                                 respectively.
of 2009. In terms solely of wealth management, the financial assets entrusted
to Desjardins Group amounted to $41.0 billion as at December 31, 2010, up                                        Credit instruments
$5.4 billion, or 15.3%, from the previous year primarily as a result of the transfer                             In order to meet its members’ and clients’ financing needs, Desjardins Group
from investment funds to assets under management.                                                                makes credit instruments available to them. Credit instruments include
                                                                                                                 guarantees and standby letters of credit, securities lending and credit
Despite a slightly less favourable environment, Desjardins Group, one of Canada’s                                commitments representing authorized amounts that have not been used
leading trustees and wealth managers, fared very well. Increased stock market                                    by members and clients.
volatility in 2010 resulted in much more moderate stock market growth in Canada
than in 2009. At the close of the Toronto Stock Exchange in December 2010, the                                   These instruments expose Desjardins Group to credit and liquidity risks.
S&P/TSX index had advanced 14.4% for the year, while it had soared 30.7% at                                      The management of these risks is described on pages 90 to 100 of the MD&A.
the same date a year earlier. Desjardins Group distinguished itself in off-balance                               Table 22 above presents the contractual amounts of the credit instruments by
sheet savings products, which make up some of the assets that Desjardins Group                                   term to maturity. Since many of these credit instruments expire or terminate
administers for others. For example, the investment funds outstanding administered                               without being funded, the contractual amounts do not represent actual future
by Desjardins Group totalled $34.9 billion as at December 31, 2010, up $4.3 billion,                             cash requirements.
or 14.0%, since the previous year.
                                                                                                                 Derivative financial instruments
Assets under administration and management are composed chiefly of financial                                     Desjardins Group uses derivative financial instruments mainly for asset and
assets in the form of investment funds, securities held in custody, and accrued                                  liability management purposes. Derivative financial instruments are contracts
pension fund assets. As a result, they do not belong to Desjardins Group, but to                                 whose value is notably based on an underlying asset, such as interest rates or
its members and clients. For this reason, they are not recorded on its Combined                                  exchange rates. The derivative financial instruments used include a broad
Balance Sheets.                                                                                                  range of financial contracts, particularly interest rate swaps, foreign exchange
                                                                                                                 swaps, credit swaps, futures and options. These instruments are important risk
cREDIT InsTRUMEnTs AnD DERIVATIVE fInAncIAL InsTRUMEnTs                                                          management tools, mainly to mitigate the risks associated with fluctuations in
                                                                                                                 interest and exchange rates and other market risks. Most contracts are traded
The risks related to these off-balance sheet items are managed using the same
                                                                                                                 over the counter.
strict rules as those applied to on-balance sheet items. In management’s opinion,
these off-balance sheet items result in no unusual risk.




88     management’s discussion and analysis
Desjardins Group recognizes all its stand-alone derivative financial instruments       sEcURITIzATIon
on the Combined Balance Sheets in accordance with the financial instrument             As part of its liquidity and capital management strategy, Desjardins Group
accounting standards of the Canadian Institute of Chartered Accountants                conducts mortgage securitization transactions in the normal course of operations.
(CICA). Under these standards, derivative financial instruments are recognized         These transactions involve the use of off-balance sheet arrangements with
on the Combined Balance Sheets at fair value, including derivatives designated         special purpose entities (SPEs). The SPE used by Desjardins Group is the Canada
as hedging items. According to Section 3865, “Hedges”, issued by the CICA,             Housing Trust, which was developed by Canada Mortgage and Housing
derivative financial instruments may be designated in a fair value or cash             Corporation (CMHC) under the Canada Mortgage Bonds Program.
flow hedging relationship. This section covers the eligibility criteria for hedge
accounting, as well as the recognition of fair value and cash flow hedging             In this type of transaction, Desjardins Group transforms CMHC-guaranteed
relationships. Note 25, “Derivative financial instruments and hedging activities”,     residential mortgages into mortgage-backed securities, transfers them to the SPE
to the Combined Financial Statements presented on pages 165 to 169 provides            in return for monetary consideration, and then the SPE finances these purchases
details on the accounting policies relating to derivative financial instruments and    by issuing bonds to investors. The terms of the Canada Mortgage Bonds Program
the effect of these standards on the Combined Statements of Income for the year.       require that swap agreements be made between the Canada Housing Trust and
                                                                                       Desjardins Group in order to receive the total cash flows related to the mortgages
These derivative financial instruments result primarily in credit and market risk      underlying the mortgage-backed securities on a monthly basis and for Desjardins
exposure for Desjardins Group. The management of these risks is described on           Group to pay quarterly interest to the Canada Housing Trust on the Canada
pages 92 to 98 of the MD&A.                                                            Mortgage Bonds series, as well as the principal at maturity. Securitization operations
                                                                                       are accounted for as sales of assets only when Desjardins Group is deemed to
The credit risk associated with derivative financial instruments refers to the         have surrendered control of the assets and when it receives a consideration
risk that a counterparty will fail to honour its contractual obligations toward        other than the beneficial interests in these assets. At the time of sale of the assets,
Desjardins Group at a time when the fair value of the instrument is positive for       Desjardins Group retains certain interests regarding excess interest margins,
Desjardins. The credit risk associated with derivative financial instruments           which constitute retained interests, and assumes responsibility for managing
normally corresponds to a small fraction of the notional amount. The replacement       the transferred mortgages.
cost and the credit risk equivalent are two measurements used to measure this
risk. The replacement cost refers to the current replacement cost of all contracts     No loss is expected on the mortgages because they are guaranteed by CMHC.
that have a positive fair value. The credit risk equivalent is equal to the sum        Desjardins Group periodically reviews the value of these interests and records
of this replacement cost and the future credit exposure, which is an estimate          in income any other-than-temporary declines in value, if applicable. In 2010,
of the possible increase in the replacement cost over the remaining term of the        the securitized mortgage loans outstanding totalled $4,861 million, compared
contracts, calculated according to a formula established by the AMF.                   to $4,521 million in 2009. As at December 31, 2010, $117 million was recorded
                                                                                       in the Combined Balance Sheets as retained interests, versus $123 million as
Desjardins Group limits the credit risk associated with derivative financial           at December 31, 2009, and $21 million was recorded as servicing liabilities,
instruments by doing business with counterparties that have a high credit rating.      as opposed to $23 million as at December 31, 2009. Note 07, “Securitization
One of the tables in Note 25, “Derivative financial instruments and hedging            of mortgage loans”, to the Combined Financial Statements provides detailed
activities”, to the Combined Financial Statements presents derivative financial        information regarding these entities.
instruments according to credit risk rating and the type of counterparty.
According to the replacement cost, the table shows that virtually all counterparties
                                                                                       conTRAcTUAL coMMITMEnTs
have a credit rating ranging from AAA to A. Desjardins Group also limits credit
risk with certain counterparties by entering into master netting agreements            Desjardins Group has contractual commitments to make future payments on
which allow, in the event that a counterparty becomes insolvent, for the net           borrowings, subordinated bonds and leases. Borrowings and subordinated bonds
settlement of all positions with this counterparty. Credit support annexes (CSA)       are presented in Desjardins Group’s Combined Balance Sheets, but leases are not.
are also used. Under these CSAs, Desjardins has the right to demand that the           Note 13, “Other liabilities – Other”, Note 14, “Subordinated bonds”, and Note 26,
counterparty pay or provide security for the current market value of the positions     “Commitments, guarantees and contingencies”, to the Combined Financial
once this value exceeds a certain threshold.                                           Statements contain information on these contractual commitments.

The market risk associated with derivative financial instruments refers to the         Desjardins Group has undertaken to provide a Margin Funding Facility (MFF)
risk of variation in the fair value of these instruments resulting from fluctuations   with respect to ABCP holdings (ABTN). Desjardins Group’s share in this credit
in the parameters affecting this value, notably interest and exchange rates. One       commitment, totalling $1,193 million under the December 24, 2008 restructuring
of the tables in Note 25, “Derivative financial instruments and hedging activities”,   plan, ranks equal with other MFF participants and expires in July 2017 or earlier
to the Combined Financial Statements presents the maturities of the total notional     if all credit default swap transactions have already been settled.
amounts of the derivative financial instruments.
                                                                                       fInAncIAL AssETs REcEIVED As coLLATERAL
As a general rule, the market risk associated with derivative financial instruments    Desjardins Group receives financial assets as collateral after trading securities
with short-term maturities is less than that associated with derivative financial      borrowed or purchased under reverse repurchase agreements. Such trading is
instruments with longer maturities. As at December 31, 2010, based on the notional     carried out under normal conditions for these types of transactions. Note 26,
amounts, 33.2% of derivative financial instruments had maturities of less than         “Commitments, guarantees and contingencies”, to Desjardins Group’s Combined
one year.                                                                              Financial Statements provides more information about financial assets received
                                                                                       as collateral.
The risk-weighted balance for all Desjardins Group’s derivative financial
instruments as at December 31, 2010, amounted to $221 million once all master
netting agreements were accounted for ($160 million in 2009). As at December 31,
2010, the amount of security that Desjardins Group would have to provide in the
event of a downgrade is marginal because the replacement cost is positive for the
majority of the contracts.




                                                                                                                                            management’s discussion and analysis   89
sEcTIon 3.6
Risk management

Desjardins Group is exposed to different types of risk in the normal course of                       In 2010, Desjardins Group updated its integrated risk management framework,
operations, including credit risk, liquidity risk, market risk, operational risk,                    whose mission it is to provide reasonable assurance to the organization concerning
insurance risk, strategic risk and reputation risk. Strict and effective management                  the understanding and management of the complete spectrum of major risks
of these risks is a priority for Desjardins Group, its purpose being to support its                  to which Desjardins Group is exposed. As an integral part of our framework,
major orientations, particularly regarding financial stability and sustained and                     risk appetite and tolerance determine the risk type and level that Desjardins is
profitable growth.                                                                                   prepared to assume to achieve its business and strategic objectives. They provide
                                                                                                     a basis for integrated risk management by promoting a better understanding of
InTEGRATED RIsk MAnAGEMEnT fRAMEWoRk                                                                 risk and its impact on the risk profile.
Desjardins Group’s objective in risk management is to optimize the risk-return
                                                                                                     The integrated risk management framework also includes the overall operational
trade-off, within set limits, by applying integrated risk management and control
                                                                                                     infrastructure and the risk management governance structure, which are supported
strategies, policies and procedures to all its activities. It also aims at providing a
                                                                                                     by our risk management culture. This culture promotes exchanges between its
prudent and appropriate management framework that complies with accepted
                                                                                                     risk management function and its business segments and regulated entities.
accountability and independence principles.



                                                                                  GoVERnAncE
                                   MARkET AnD REGULAToRy                   DEsJARDIns GRoUP’s                        InTERnAL AnD ExTERnAL
                                       ExPEcTATIons                        MIssIon AnD VIsIon                             EnVIRonMEnT


                                                                                - ToLERAncE +
                                                                                   APPETITE



                                                                               DEsJARDIns GRoUP
                                                                                  RIsk PRofILE


                                                                                   nt policies and p
                                                                               geme
            RIsk InhEREnT In                                        m   a na                        rac
                                                                                                          tic                                            sUPPoRT foR
                                                                isk                                             es
      DEsJARDIns GRoUP’s AcTIVITEs                          R                                                                                            BUsInEss DEcIsIons
                                                                                                                                                         & sTRATEGIc
                                                                                    IDEnTIfy                                                             PLAnnInG
                        credit                                                                                                                          Board of Directors
                                                                                                                                                        and senior management
     market                             operational                                                                                                     Caisse network
                                                       REPoRT
                                                                             risk                               MEAsURE
                                                                                                                                                        Business Sectors
                      reputation
                                                                          manaGement                                                                    Regulated entities

     liQuidity                           insurance
                                                                           prOcess                          MonIToR
                                                                                                                                                        Desjardins Group
                                                                                                                                                        Support Functions
                                                       InTERVEnE                                           & MITIGATE
                      strategic


                                                                                   foLLoW UP
                                                             Ri                                                s
                                                                  sk m                                 t    ice
                                                                         a n ag                    rac
                                                                               ement policies and p



                                                                               InfRAsTRUcTUREs
                                                                                   AnD TooLs

                                                                      AccoUnTABILITy AnD
                                                                    MAnAGEMEnT InfoRMATIon

                                                                          InTERnAL conTRoL &
                                                                        REGULAToRy coMPLIAncE

                                                      MonIToRInG – DEsJARDIns GRoUP MonIToRInG offIcE



90      management’s discussion and analysis
Such a dialogue helps to improve risk transparency and to promote the                Two independent functional units complete Desjardins Group’s risk management
understanding of risks in terms of Desjardins Group’s operations for their           governance infrastructure. The Risk Management Executive Division is a
optimal management. Furthermore, to help strengthen this culture on an               strategic function charged primarily with being a partner in Desjardins Group’s
ongoing basis and to enhance risk management capabilities, risk management           development in identifying, measuring and managing risks while ensuring the
training sessions are held regularly for different audiences, in particular          longevity of Desjardins. The executive division thus aims to support business
for board members, management committee members of the FCDQ and its                  development by helping Desjardins to maintain its competitive position and
components, as well as for Desjardins caisse network general managers and            obtain an appropriate return based on its risk profile and objectives. It is up to
officers. Desjardins Group intends, with regard to such risk management              the Desjardins Group risk management function to recommend and establish
training, to continue to upgrade their knowledge through a professional              risk management policies and to set up the appropriate infrastructure, processes
development plan.                                                                    and practices targeting all major Desjardins-wide risks. The risk management
                                                                                     function also works to assess, quantify, monitor and disclose all major risks to
RIsk MAnAGEMEnT GUIDELInEs                                                           decision-making bodies. Furthermore, risk quantification is practised both in the
The integrated risk management framework is based on risk management                 current economic context as well as in hypothetical situations simulating crises
guidelines that provide, in particular, for the following:                           integrated within the entire organization. Lastly, it also ensures coordination
                                                                                     between the FCDQ and Desjardins Group’s business segments and regulated
• The accountability of Desjardins Group’s business segments and regulated           entities. This Desjardins-wide coordination is ensured by procedures fostering
  entities with regard to the inherent risks in their operations                     cohesion and organizational agility and allowing the regulated entities the
• Implementation at every level of the organization in order to obtain               required leverage to discharge their responsibilities.
  a comprehensive vision of risk exposure
• The independence of Desjardins Group’s risk management function in relation        The Desjardins Group Monitoring Office is an independent assurance and
  to business segments’ operations                                                   advisory organization. It assists Desjardins Group officers in carrying out
                                                                                     their governance duties and oversees and advises management with respect
• The existence of a process to determine the appropriate capital level based        to its responsibility to manage in a sound and prudent manner. In so doing,
  on the risks assumed                                                               it contributes to improving Desjardins Group’s overall performance and to
• Taking risk management into account when formulating strategic plans,              maintaining the confidence of members, the public and regulatory bodies
  business strategies and the resulting decisions                                    in Desjardins. Since June 2009, it has included the internal audit services of
• The performance of independent risk analyses when launching new products           Desjardins Group components as well as the monitoring of the caisse network.
  or introducing projects having a strong financial impact

RIsk MAnAGEMEnT GoVERnAncE
The integrated risk management framework is based on a solid governance
structure reflecting Desjardins Group’s organizational reality.

The FCDQ’s Board of Directors is responsible for guiding, planning, coordinating
and monitoring all activities of Desjardins Group. It participates actively in the
oversight of the major risks to which Desjardins is exposed. To discharge its
specific risk management responsibilities, the Board is supported by the Risk
Management Commission, the Audit and Inspection Commission and the Board
of Ethics and Professional Conduct. Further information about these bodies is
found on pages 185 to 200 of the Corporate Governance section.

The Desjardins Group Management Committee ensures that the organization
has an effective, appropriate and ongoing integrated risk management process.
It must make recommendations to the Board of Directors concerning risk
management policies and strategies and ensure that they are implemented
effectively and efficiently. To support the Management Committee in discharging
its risk management responsibilities, it has two committees: the Integrated
Risk Management Committee and the Finance and Risk Management
Committee, made up of the heads of Desjardins Group’s strategic functions
and Desjardins experts.




                                                                                                                                       management’s discussion and analysis   91
RIsk DIscLosURE                                                                        cREDIT RIsk
Risk disclosure is a key component of integrated risk management and aims              Credit risk is the risk of losses resulting from a borrower’s or counterparty’s
to enable Desjardins Group’s decision-making bodies, business segments                 failure to honour its contractual obligations, whether or not this obligation
and regulated entities to discharge their responsibilities with regard to risks.       appears on the Combined Balance Sheets.

A risk report containing the key indicators for all major risks is prepared            Desjardins Group is exposed to credit risk first through its direct personal,
periodically for the Integrated Risk Management Committee, the Desjardins              business and government loans (as at December 31, 2010, loans represented
Group Management Committee and the Risk Management Commission.                         68% of balance sheet assets) but also through its various other commitments,
Information about capital, particularly capital adequacy in relation to risk           including letters of credit, foreign exchange lines and transactions involving
profile, completes the report. Constantly being updated, the report includes           derivative financial instruments and securities.
the latest risk management developments so that decision-making bodies receive
timely information on major risks that is both practical and forward-looking.          Credit risk management
                                                                                       Desjardins Group upholds its goal of efficiently serving all its members and
BAsEL II cAPITAL AccoRD                                                                clients. To this end, it has developed robust distribution channels specialized
Basel II is an international capital adequacy tool designed to align regulatory        by product and clientele. The units and components that make up these channels
capital requirements more closely with risk exposure and to further the continuous     are considered centres of expertise and are accountable for their performance in
development of the risk assessment capabilities of financial institutions.             their respective markets, including credit risk. In this regard, they have latitude
                                                                                       regarding the framework they use and the approval given and are also equipped
The Basel II framework essentially rests on three pillars: the first pillar sets out   with the corresponding management and monitoring tools and structures.
the requirements for risk-weighted regulatory capital; the second pillar deals
with the supervisory review process; and the third pillar stipulates financial         In order to provide assistance in this area, Desjardins Group has set up centralized
disclosure requirements.                                                               structures and procedures to ensure that this risk management framework permits
                                                                                       effective management that is also sound and prudent.
Within the framework of the guideline on standards governing the adequacy of
base capital, which was adapted to reflect the provisions of Basel II, Desjardins      Accordingly, the Risk Management Commission ensures that risk management
Group uses the advanced internal ratings-based approach, subject to conditions,        activities are properly structured and monitored throughout Desjardins Group
for credit risk related to retail client loan portfolios. Other credit and market      by, among other things, examining the main credit policies and follow-up reports,
risk exposures are currently assessed using a standardized approach, while             including those produced by the independent supervisory units. The Integrated
operational risk is calculated using a basic indicator approach. This approach         Risk Management Committee supports the members of the Risk Management
is also used to calculate Desjardins Group’s capital ratios, which are still the       Commission in carrying out their responsibilities by analyzing the key elements
highest among the best capitalized financial institutions in Canada.                   involved in risk management, as well as the main reports on specific situations
                                                                                       and portfolio status.
As part of its investment activities, Desjardins Group uses four External Credit
Assessment Institutions (ECAIs) to determine credit ratings for calculating            Desjardins Group has set up a Risk Management Executive Division with four credit
capital requirements according to the standardized approach. All ECAIs meet            risk management divisions. Three of these units share responsibilities based on
the eligibility criteria of Basel II and are authorized by the AMF and the Office of   the main client segments, namely large corporations and capital markets, small
the Superintendent of Financial Institutions (OSFI). The application procedure         and medium-sized enterprises, and loans to retail clients. Through specialized
for credit ratings consists of considering credit ratings for similar issues from      teams and specific procedures, each unit is structured to cover the specific
each of the four credit rating agencies and to retain the worst rating.                characteristics of the products or client base, and is responsible for the credit risk
                                                                                       in these categories. These units are in turn supported by a division responsible
Again this year, numerous efforts were made throughout Desjardins Group to             for the main framework elements, and for risk measurement.
support the implementation of sound risk management practices. Desjardins
continues to build on its progress over the past few years in obtaining tools and      Credit risk framework
systems conforming to recognized standards in the core risk areas.                     A set of policies and standards govern credit risk management elements for
                                                                                       Desjardins. This framework defines the responsibilities and powers of the parties
With the adoption of these approaches, combined with the reorganization of             involved, the limits imposed by its risk tolerance, the rules governing credit
the strategic risk management function, it will be possible to better identify and     granting and file administration, and the rules for communicating Desjardins
measure risk, and to more closely link regulatory capital requirements to incurred     Group’s exposure to credit risks.
risk. Desjardins Group intends to constantly improve its risk assessment capability,
thus reaffirming its formal commitment to meeting the risk management targets
and expectations set forth by the AMF.




92   management’s discussion and analysis
Approval and credit risk management units in the three divisions previously             Probability of default (PD) is the likelihood of a borrower defaulting on its
mentioned assume responsibility for credit granting, management and monitoring          obligations within a one year time horizon, while loss given default (LGD) is
specific to their products and operations. These units establish their own policies     the magnitude of loss that may be incurred in the event a borrower defaults.
and practices based on their products and clients while complying with the general      Exposure at default is the amount likely to be engaged in the event of default.
policies that govern all credit activities.
                                                                                        The units responsible for the development process see to the implementation
Together, these monitoring activities, policies and practices set the guideline         of adequate controls to ensure the stability and performance of rating systems
with respect to risk management and control.                                            and internal models. These, in turn, are validated by an independent unit in the
                                                                                        development process to ensure that they are conceptually sound and properly
Credit granting                                                                         take into account all major risks. This validation is performed when the model
This responsibility is assumed by the various units grouped together in the             is initially set up and subsequently on an annual basis, as well as when major
three divisions, according to their respective client base.                             changes are made to it. A validation policy determines the events involving
                                                                                        validation by an independent unit, the approved rating systems and internal
The caisses, Desjardins business centres and other business centres in contact          models, and the scope and nature of the validation work.
with the client base are primarily responsible for approving files. For files in
which credit risk is greater, second-level approval can be obtained from Risk           Business loans
Management Executive Division professionals.                                            The granting of credit to businesses is based on an analysis of the various
                                                                                        parameters of each file, where each borrower is assigned a risk rating. These
These professionals are grouped together according to client type in the three          ratings are assigned individually following a detailed examination of the
previously mentioned divisions. Their qualifications, their approval level and the      financial, market and management characteristics of the business.
depth of the analysis required depend on the product, as well as the complexity
and scope of the transaction risk. Larger loans are approved by credit committees       For the main commercial portfolios, the scoring system used has 19 ratings,
that include senior executives. The Executive Committee or the Board of Directors       broken down into 12 levels, with each one representing a probability of default.
is involved in the approval of loans that exceed policy-defined limits.                 The characteristics of each borrower are analyzed using models based on internal
                                                                                        and external historical data, taking into account the specific features of the
Retail clients                                                                          borrower’s economic sector and the performance of comparable businesses. These
The retail client portfolios consist of residential mortgages, personal loans, credit   analyses are performed using systems that can make quantitative comparisons,
card loans for individuals and small business loans. To assess the risk of credit       and are supplemented by the professional judgment of the personnel involved
activities with individuals and smaller businesses, credit scoring systems based        with the file. Agricultural portfolio files are analyzed using different scoring
on proven statistics are used.                                                          methods adapted to the specific characteristics of their market.

These systems were developed using a history of behaviour among borrowers               The use of internal ratings and estimates has been expanded to other risk
with a profile or characteristics similar to those of the applicant and the             management and governance activities such as establishing analysis requirements
characteristics of the products used, including the type of collateral offered,         and file authorization levels, the different types of follow-up and the disclosure
to determine the transaction risk.                                                      of portfolio risk quality.

Such systems are used for obtaining initial approval as well as subsequently            File monitoring and management of higher risks
in cases where the portfolio risk is assessed on an ongoing basis through               Portfolios are monitored by business units using procedures that set out the
behavioural ratings calculated on the basis of member borrowers’ transactional          degree of thoroughness and frequency of review based on the quality and extent
data. A monthly update is obtained for our existing borrowers’ risk level for           of the risk exposure. Both portfolios and basic data on certain economic sectors
proactive management of a portfolio’s credit risk.                                      under watch are monitored for warning signs. Various reports are distributed to
                                                                                        all levels of the organization, including senior management, the Integrated Risk
The performance of these systems is continuously analyzed and adjustments               Management Committee and the Risk Management Commission.
are made regularly with a view to determining transaction and borrower risk
as accurately as possible.                                                              The management of higher-risk loans involves follow-up adapted to their particular
                                                                                        circumstances and is supported by specialized turnaround teams, who are available
Risk parameters are set for each exposure category analyzed and make it possible        to help manage more difficult files. Other specialized teams help settle files for
to determine probabilities of default, loss given default and gross exposures at        which the chances of improvement are slim in order to minimize losses.
default for groups with similar characteristics.




                                                                                                                                           management’s discussion and analysis   93
Loan distribution
by borrower category
As at December 31, 2010



                       1.7%

     21.2%




8.7%
                                              62.2%
     6.2%



     residential mortgages               business
     credit cards                        government
     consumer and other
     personal loans



Counterparty and issuer risk                                                             In its derivative financial instrument and securities lending transactions,
Over 78% of the securities in all the securities portfolios held by Desjardins are       Desjardins Group uses various techniques to reduce its counterparty credit risk.
issued or guaranteed by public or parapublic entities. The portfolios are mainly
with Canadian issuers and counterparties of extremely high quality.                      Most derivative financial instrument transactions are over the counter and are
                                                                                         governed by master agreements called International Swaps and Derivatives
The Risk Management Executive Division sets the maximum exposure for each                Association agreements (ISDA agreements), which define the terms and
counterparty and issuer based on quantitative and qualitative criteria. The amounts      conditions for the transactions. These agreements are legal contracts binding
are then allocated to various components based on their investment needs.                the counterparties. Most of Desjardins Group’s agreements provide for netting
                                                                                         to determine the net exposure in the event of default. In addition, a Credit
Mitigating credit risk                                                                   Support Annex can be added to the master agreement in order to request the
In its lending operations, Desjardins Group obtains collateral if deemed necessary       counterparties to pay or secure the current market value of the positions when
for a member’s or client’s borrowing facility following an assessment of their           such value exceeds a certain threshold.
creditworthiness. Collateral normally takes the form of assets such as capital
assets, receivables, inventory, cash, government securities or equities. For some        Securities lending transactions are regulated by participation agreements from
portfolios, programs offered by organizations such as CMHC or La Financière              the Investment Industry Regulatory Organization of Canada. Desjardins Group
agricole du Québec are used in addition to customary collateral.                         also uses netting agreements with its counterparties to mitigate credit risk and
                                                                                         requires a percentage of collateralization (a pledge) on the transaction equivalent
Policies and procedures, adapted to each product, contain the requirements               to industry best practices.
for appraising collateral, its legal validation and follow-up.
                                                                                         Desjardins Group accepts from its counterparties financial collateral that complies
Where required, Desjardins Group uses mechanisms to share risk with other                with the eligibility criteria set out in its policies. These eligibility criteria promote
financial institutions, such as loan syndication.                                        a quick realization, if necessary, of collateral in the event of default. The types of
                                                                                         collateral received by Desjardins Group are mainly cash and government securities.
Lending in Québec accounts for 94.8% of total loans, with 5% in the rest of Canada,
and 0.2% in the United States.                                                           Desjardins Group also enters into hedges through credit derivatives. With these
                                                                                         derivative financial instruments (credit default swaps and total return swaps),
The large number of borrowers, for the most part individuals, but also small and         Desjardins Group can transfer credit risk to a counterparty or hedge itself against
medium-sized businesses from most sectors of the economy, plays a role in the            different types of risks.
sound diversification of the financing portfolio.

The above chart presents the distribution of loans by borrower category. Over
half of the portfolio consists of residential mortgages, for which, statistically, the
loss experience is low. Additional information on changes in the loan portfolio
can be found on pages 78 to 80 of section 3.1 “Balance sheet management”.




94     management’s discussion and analysis
Table 23 – Risk exposure by asset class (exposure at default)
As at December 31
(in millions of $)

                                                                                                                                                                                      ExPosURE cATEGoRIEs
                                                                                                                        used                 unused         off-balance                     total                net
                                                                                                                    exposure               exposure       sheet exposure(1)                                 exposure(2)
Standardized approach
Sovereign borrowers                                                                                              $ 12,250              $      499           $    1,577               $ 14,326             $ 13,218
Financial institutions                                                                                              6,212                   1,810                4,070                 12,092                8,428
Business                                                                                                           32,118                   2,455                1,616                 36,189               34,521
Mortgages                                                                                                             946                      11                    —                    957                  957
Other retail client exposures                                                                                       4,099                     746                   32                  4,877                4,073
Securitization                                                                                                      1,379                       —                    —                  1,379                1,379
Equities                                                                                                               75                       —                    —                     75                   75
Trading portfolio                                                                                                       —                       —               18,955                 18,955                1,740
Internal ratings-based approach
Mortgages                                                                                                           39,382                5,085                    —                    44,467               44,467
Revolving retail client exposures                                                                                    9,095               15,968                    9                    25,072               25,072
Other retail client exposures                                                                                       24,087                6,703                    1                    30,791               30,791
Total                                                                                                            $ 129,643             $ 33,277             $ 26,260                 $ 189,180            $ 164,721

(1) Including transactions comparable to repurchase agreements, over-the-counter derivatives, and other off-balance sheet exposures.
(2) After credit risk mitigation (CRM) techniques, including the use of collateral, guarantees and credit derivatives.




Table 24 – Exposures by asset class and by risk tranche (standardized approach)(1)
As at December 31
(in millions of $)

                                                                                                                                                                                                    RIsk TRAnchEs
                                                                                            0%             20%             35%               50%             75%              100%              other          total
Sovereign borrowers                                                                 $ 14,326       $      —        $        —      $     —            $       —        $      —         $             —   $ 14,326
Financial institutions                                                                     —         12,092                 —            —                    —               —                       —     12,092
Business                                                                                   —          1,669                 —            —                    —          34,247                     360     36,276
Mortgages                                                                                  —              —               945            —                    —              15                       —        960
Other retail client exposures                                                              —              —                 —            —                4,810              29                      61      4,900
Securitization                                                                             —             19                 —        1,257                    —               —                     103      1,379
Equities                                                                                   —              —                 —            —                    —              75                       —         75
Trading portfolio                                                                        622         15,461                 —            4                    —           2,867                       —     18,954
Total                                                                               $ 14,948       $ 29,241        $      945      $ 1,261            $   4,810        $ 37,233         $           524   $ 88,962

(1) Exposures before specific allowances for credit losses and before CRM.




                                                                                                                                                                              management’s discussion and analysis     95
Table 25 – Interest rate sensitivity (before income taxes)
As at December 31
(in millions of $)

                                                                                                                                                  2010             2009
Impact on the economic value of equity of a 100-basis-point increase in interest rates                                                        $     (24)       $      2
Impact on the economic value of equity of a 100-basis-point decrease in interest rates                                                               24              17



LIQUIDITy RIsk                                                                         A securitization program for CMHC-insured mortgages is also in place.
Liquidity risk refers to Desjardins Group’s capacity to raise the necessary
funds (by increasing liabilities or converting assets) to meet a financial             The strategies implemented in the past few years to diversify and extend the
obligation, whether or not it appears on the Combined Balance Sheets,                  duration of sources of funding have proven to be effective in weathering the
on the date it is due or otherwise.                                                    recent capital market crisis. Desjardins Group is also eligible for the Bank of
                                                                                       Canada’s various intervention programs and the loan facilities for Emergency
Liquidity risk management                                                              Lending Assistance advances.
Desjardins Group manages liquidity risk in order to ensure that it has access, on
a timely basis and in a profitable manner, to the funds needed to meet its financial
                                                                                       MARkET RIsk
obligations as they become due, in both routine and crisis situations. Managing        Market risk refers to the risk of changes in the fair value of financial
this risk involves maintaining a minimum level of liquid securities, stable and        instruments resulting from fluctuations in the parameters affecting this
diversified sources of funding, and an action plan to implement in extraordinary       value: in particular, interest rates, exchange rates, credit spreads and
circumstances. Liquidity risk management is a key component in an overall risk         their volatility.
management strategy, because it is essential to preserving market and depositor
confidence. Thus, Desjardins Group and its components have established policies        Desjardins Group is exposed to market risk primarily through positions taken
describing the principles, limits and procedures that apply to liquidity risk          in the course of its traditional financing and savings recruitment activities. It
management. Desjardins Group has also developed a liquidity contingency plan           is also exposed to market risk through its trading activities. Desjardins Group
that includes, inter alia, setting up an internal crisis committee vested with         and the components have adopted policies that set out the principles, limits,
special decision-making powers to deal with crisis situations. This plan also lists    and procedures to use in managing market risk.
the sources of liquidity available in exceptional situations.
                                                                                       Interest rate risk management
The plan makes it possible to quickly and effectively intervene to minimize            Desjardins Group is exposed to interest rate risk, which represents the potential
disruptions caused by sudden changes in member and client behaviour and                impact of interest rate fluctuations on net interest income and the economic
potential disruptions in markets or economic conditions. Assets and funding            value of equity.
sources in the event of a crisis situation will be monitored weekly and a report
filed with the appropriate bodies so that the hedge ratio can be measured in           Sound and prudent management is applied to achieve the objective of optimizing
relation to hypothetical crisis scenarios.                                             net interest income while minimizing the negative impact of interest rate
                                                                                       movements. The established policies describe the principles, limits and
Desjardins Group’s liquidity management is consolidated so that limits can be          procedures that apply to interest rate risk management. Simulations are used
introduced for various liquidity risk indicators. Day-to-day decisions concerning      to measure the impact of different variables on changes in net interest income
short-term financing are based on the daily cumulative net cash position, which        and the economic value of equity. Assumptions used in the simulations are
is monitored through limits tied to liquidity ratios. A specific framework sets        based on an analysis of historical data and on the effects of different interest
out the minimum level of liquid securities that the caisse network, the FCDQ           rate conditions on changes in the data. These assumptions concern changes in
and Caisse centrale Desjardins must maintain. This liquidity level is centrally        the structure of the Combined Balance Sheets, including non-maturity deposit,
managed by the Desjardins Group Treasury and is monitored on a daily basis.            member behaviour and pricing modelling. The Desjardins Group Asset/Liability
Eligible securities must meet high security and negotiability standards. The           Committee is responsible for analyzing and approving the global matching
liquid securities portfolio comprises mostly securities issued by governments          strategy on a monthly basis while respecting the parameters defined in interest
and banks with credit ratings of A+ or better.                                         rate risk management policies.

The Desjardins Group Treasury ensures stable and diversified sources of funding        Table 25 above presents the potential impact on a non-trading portfolio of a sudden
by type, source and maturity. Desjardins Group can also issue securities and borrow    and sustained 100-basis-point increase or decrease in interest rates on the economic
on national and international markets to round out and diversify its funding.          value of equity. The amounts presented do not include the impact of a change in
                                                                                       interest rates on the financial assets of the life and health insurance subsidiary
                                                                                       that match actuarial liabilities.




96    management’s discussion and analysis
Table 26 – VaR by risk category (Trading portfolio)
(in millions of $)

                                                                                                                                                  2010                                                                2009
                                                                                                as at                                                               as at
                                                                                          december 31                      for the year ended december 31     december 31                       for the year ended december 31
                                                                                                            average               high              loW                         average                high              loW
Equities                                                                              $         0.5     $      0.4     $         1.1   $            0.1   $         0.7     $      0.8      $         1.7   $            0.4
Foreign exchange                                                                                0.1            0.1               0.4                 —              0.1            0.2                0.6                 —
Interest rates                                                                                  4.0            5.2               7.6                3.6             3.6            4.0                6.0                2.7
Diversification effect(1)                                                                      (0.6)          (0.5)             N/A(2)             N/A(2)          (0.7)          (1.1)              N/A(2)             N/A(2)
Aggregate VaR                                                                         $         4.0     $      5.2     $         7.4   $            3.6   $         3.7     $      3.9      $         5.4   $            2.7

N/A: Not applicable
(1) Risk reduction related to diversification, namely the difference between the sum of the VaR for various market risks and the aggregate VaR.
(2) Not applicable: The highs and lows of the various risk categories can refer to different dates.




Interest rate sensitivity is based on the earlier of the repricing or maturity date                           Management of market risk related to trading activities – Value at risk
of the assets, liabilities and derivative financial instruments used to manage                                The market risk of trading portfolios is managed daily within the framework
interest rate risk. The situation presented reflects the position on that date only                           of a specific policy for that purpose.
and can change significantly in subsequent years depending on the preferences
of members and clients, and the application of policies on interest rate risk                                 The main tool used to measure the market risk of trading portfolios is “Value-
management.                                                                                                   at-Risk” (VaR), which represents an estimate of the potential loss for a certain
                                                                                                              period of time at a given confidence level.
Some Combined Balance Sheet line items are considered non-rate-sensitive
instruments, such as equity investments, non-performing loans, non-interest-                                  A Monte Carlo VaR is calculated daily, using a 99% confidence level, on the trading
bearing deposits, non-maturity deposits with an interest rate not referenced                                  portfolios for a holding horizon of one day. It is therefore reasonable to expect a
to a specific rate such as the prime rate, and equity. Conservative assumptions                               loss exceeding the VaR figure once every 100 days. The calculation of VaR is based
are used regarding the maturity profile in our models in order to determine their                             on historical data for a one-year interval.
interest rate sensitivity.
                                                                                                              Table 26 above presents the aggregate VaR of the trading activities of Desjardins
Foreign exchange risk management                                                                              Group by risk category as well as the diversification effect, which represents
Foreign exchange risk arises when the actual or expected value of assets                                      the difference between aggregate VaR and the sum of VaR for the different risk
denominated in a foreign currency is higher or lower than that of liabilities                                 categories. Equity, interest rate and foreign exchange risks are the three risk
denominated in the same currency. Some components have adopted specific                                       categories to which Desjardins Group is exposed. The definition of a trading
policies to manage foreign exchange risk. However, Desjardins Group’s                                         portfolio meets the various criteria defined in the Basel II Accord.
exposure to this risk is limited because the majority of its transactions are
conducted in Canadian dollars.                                                                                As at December 31, 2010, the aggregate VaR was $4.0 million, the interest rate
                                                                                                              VaR being the largest component. This aggregate VaR was lower than its annual
                                                                                                              average of $5.2 million. The risk mitigation related to diversification amounted
                                                                                                              to $0.6 million as at December 31, 2010.




                                                                                                                                                                                  management’s discussion and analysis           97
VaR compared to trading income
(Desjardins Group)
(in millions of $)


8.0
6.0
 4.0
 2.0
0.0
-2.0
-4.0
-6.0
-8.0
       04 JAN. 10




                                                                                                                                                     18 OCT. 10




                                                                                                                                                                  16 NOV. 10




                                                                                                                                                                               14 DEC. 10
                           01 FEB. 10




                                           01 MAR. 10




                                                        29 MAR. 10




                                                                     27 APR. 10




                                                                                              23 JUNE 10




                                                                                                             22 JUL. 10




                                                                                                                          19 AUG. 10




                                                                                                                                       17 SEPT. 10
                                                                                  26 MAY 10


       hypothetical income
       monte carlo var 99%




Back testing                                                                                               oPERATIonAL RIsk
Back testing is conducted to validate the VaR model used by comparing the                                  Operational risk is defined as the risk of inadequacy or failure attributable
VaR daily with profits or losses (hereinafter referred to as “P&L”) of Desjardins                          to processes, people, internal systems or external events and resulting in
Group portfolios.                                                                                          losses, failure to achieve objectives or a negative impact on reputation.

Desjardins Group carries out back testing daily, applying a hypothetical P&L                               Operational risk is inherent to all business activity, whether performed in-house
to its trading portfolios. The hypothetical P&L is calculated by determining the                           or outsourced. Losses can mainly arise from fraud, damage to tangible assets,
difference in value resulting from changes in market conditions between two                                illegal acts, lawsuits, systems failure, or problems in transaction processing
consecutive days. The portfolio mix between these two days remains static.                                 or process management.

The above chart presents changes in VaR for trading activities as well as income                           The overriding objective is to keep operational risk at an acceptable level while
related to these activities. During the last quarter of 2010, the hypothetical                             ensuring organizational efficiency and quality service to members and clients
P&L was exceeded because bond market volatility was three to five times higher                             of Desjardins Group.
than normal.
                                                                                                           Governance
Stress testing                                                                                             A policy provides an official operational risk management framework, establishing
From time to time, certain events that are considered highly unlikely may                                  the practices and guidelines, as well as the related roles and responsibilities. This
happen and have a significant impact on Desjardins Group’s trading portfolios.                             management framework, which Desjardins Group is currently implementing,
These events are the result of extreme situations.                                                         is based on Desjardins-wide decentralized management where all managers
                                                                                                           assume management of operational risks.
The approach used to measure the risk related to events which are highly unlikely,
but plausible, is applied through a stress testing program (sensitivity tests, historical                  A centralized operational risk management team has been set up within Desjardins
scenarios and hypothetical scenarios) at regular intervals. Stress testing results                         Group’s integrated risk management team. In addition to developing policies
are analyzed together with the VaR calculations in order to detect Desjardins                              and plans for managing operational risk, this team is responsible for monitoring
Group’s vulnerability to such events. The stress testing program is reviewed                               the implementation and ongoing use of operational risk management principles
periodically to ensure that it is kept current.                                                            and practices.




98            management’s discussion and analysis
Risk measurement                                                                         Presentation of information
Major efforts have been made in the past few years to realize this management            Quarterly reports on Desjardins Group’s operational risk provide officers
framework. Changes will be made to this management framework on an ongoing               and directors with relevant information on operational risks.
basis over the next few years in order to achieve Desjardins Group’s vision of
operational risk management.                                                             Regulatory compliance
                                                                                         A regulatory compliance function was created at Desjardins Group in 2003.
Through these practices, Desjardins Group seeks to acquire an overview of the            As part of Desjardins Group’s organizational structure implemented in 2010, the
risk profile and exposure to operational risk in order to improve, if necessary,         Regulatory Compliance Administrative Department assumes the responsibilities
control management and the control environment.                                          of this function. In 2004, the FCDQ Board of Directors adopted a framework
                                                                                         policy specifically for regulatory compliance within Desjardins Group. Since
Risk and control self-assessment                                                         then, a program to monitor regulatory compliance management was developed
A program has been implemented to ensure that key activities undergo an operational      and is updated on a continuous basis within Desjardins Group. Various periodic
risk assessment. A unit’s own assessment of risks and controls helps identify and        reports are made on compliance activities and the disclosure and management
measure significant operational risks as well as the existing mitigation measures        of any non-compliant situations.
and how effective they are in managing such risks.
                                                                                         InsURAncE RIsk
Collecting loss data
                                                                                         Insurance risk includes risks tied to the design and pricing of insurance
Desjardins Group has a database that is used to collect information on the nature,
                                                                                         products as well as risk associated with underwriting and claims settlements.
frequency and seriousness of its operational losses. The information collated includes
the amount of the losses, the amounts recovered, relevant dates and the risk factors
                                                                                         The risk associated with designing and pricing products is the risk that the initial
and causes.
                                                                                         pricing is or will become insufficient. The risk associated with underwriting and
                                                                                         claims settlements pertains to risks arising from risk selection, claims settlement,
Operational risk indicators
                                                                                         and contractual clause management.
Desjardins Group has established operational risk indicators in order to be able
to measure and monitor changes in its major operational risks.
                                                                                         Insurance risk management
Risk control                                                                             Product design and pricing risk arises from potential errors in projections
                                                                                         concerning the many factors used to set premiums, including future returns on
Desjardins Group has implemented a number of initiatives and programs
                                                                                         investments, underwriting experience in terms of claims experience, mortality
to manage major operational risks as well as the transfer of such risks:
                                                                                         and morbidity, and administrative expenses. Strict pricing standards and policies
1. Fraud management: Prevention and intervention activities for internal                 are adopted, and the insurance components perform spot checks to compare the
   and external fraud                                                                    projections with actual results. Some product pricing may be adjusted depending
2. Business continuity: Organizing, planning, preparation and coordination               on the results obtained.
   of measures to deal with any business interruption or crisis that may affect
   the ability to deliver services to members and clients and to comply with             Desjardins Group limits potential losses through reinsurance treaties. Such
   regulatory requirements                                                               treaties do not, however, release the insurance components from their obligations
                                                                                         toward clients in the event that reinsurers experience financial difficulties.
3. Information security: Organizational activities and activities to manage risk,
                                                                                         Consequently, the components are also exposed to a credit risk related to the
   raise employee awareness and protect informational assets
                                                                                         reinsurers. To minimize this risk, the components sign reinsurance treaties
4. Regulatory compliance: Governance function of a financial institution                 with stable, financially solid, and duly accredited companies.
   whose role is to set up the framework required to ensure sound management
   of the compliance of activities with applicable legal, regulatory and                 The insurance subsidiaries comply with the standards for sound management
   normative requirements                                                                practices established by the regulatory bodies that govern them and are subject
5. Outsourcing relations management: Program aimed at providing                          to capital adequacy testing. Various pessimistic scenarios were tested during
   a Desjardins-wide framework for outsourcing management                                the year to measure their effect on the capitalization ratio; the capital proved
6. Internal audit: Independent opinions are given by the Desjardins Group                adequate in each case.
   Monitoring Office regarding internal processes and controls under the
   responsibility of business segments




                                                                                                                                            management’s discussion and analysis   99
                                                                                         sEcTIon 3.7
                                                                                         Additional information related
                                                                                         to exposure to certain risks
sTRATEGIc RIsk                                                                           Desjardins Group uses the best practices promoted and issued by the Financial
Strategic risk refers to a possible loss attributable to an inability to adapt           Stability Board (FSB) as a guideline. The FSB is an informal economic group
to a changing environment because of failure to act, an inappropriate choice             bringing together national financial authorities, international organizations and
of strategies or the inability to effectively implement strategies.                      standard-setting groups in the area of financial stability. Best practices include
                                                                                         enhanced disclosures, particularly regarding financial instruments, which
It is first up to senior management and the Board of Directors to address, define        markets consider to be higher risk. Some disclosures have already been included
and monitor developments in Desjardins Group’s strategic orientations according          in the following parts of the MD&A and the Combined Financial Statements:
to the consultation processes specific to Desjardins. The Strategy, Performance          • Section 3.5 “Off-balance sheet items”
and Development Corporate Executive Division sees to it that this is done and
                                                                                         • Section 3.6 “Risk management”
establishes links with the various Desjardins Group units.
                                                                                         • Note 04 , “Fair value of financial instruments”, to the Combined
Desjardins Group, with its front line of officers and senior management,                   Financial Statements
systematically and regularly follows up on unfolding events that could compromise
the achievement of strategic objectives and initiatives. For example, a risk analysis    ExPosURE To sUBPRIME REsIDEnTIAL AnD ALT-A MoRTGAGE LoAns
policy for new projects and projects having a strong financial impact is in place,       As part of its operations, Desjardins Group is exposed to credit risks related to
allowing significant risks related to Desjardins Group’s major strategic initiatives     subprime residential mortgage loans (defined as loans to borrowers with a high
to be detected so that risk management can be assumed.                                   credit risk profile) and Alt-A mortgage loans (defined as loans to borrowers with
                                                                                         non-standard income documentation). However, Desjardins Group’s exposure
A number of instruments are used to inform decision-making bodies of the                 to subprime residential mortgage loans was slightly more than $1 million as
follow-up done on the 2010–2012 Strategic Plan. Furthermore, a specific exercise         at December 31, 2010 (less than $2 million as at December 31, 2009). Only one
to keep the strategic plan current is performed on an annual basis. A report is          of these loans is currently in default. Its exposure to Alt-A mortgage loans was
then produced and submitted, for discussion and consideration, to the members            $49 million as at December 31, 2010 ($60 million as at December 31, 2009).
of Desjardins Group’s Management Committee and the Board of Directors.                   Subprime residential and Alt-A mortgage loans are recorded on the Combined
                                                                                         Balance Sheets as loans measured at amortized cost. As at December 31, 2010,
REPUTATIon RIsk                                                                          total subprime residential mortgage loans and Alt-A mortgage loans represented
Reputation risk arises from a deterioration of reputation with stakeholders              less than 0.1% (also less than 0.1% as at December 31, 2009) of Desjardins Group’s
such as members, clients, employees, the media, rating agencies and regulators.          total assets.

For a leading financial organization such as Desjardins Group, reputation is             LEVERAGED fInAncE LoAns
of critical importance and cannot be managed separately from other risks.                Exposure to leveraged finance loans (defined as loans to large corporations and
Consequently, managing reputation risk in all its spheres of activity is a constant      finance companies whose credit rating is between BB+ and D and whose level
concern for Desjardins Group.                                                            of debt is very high compared to other companies in the same industry) was
                                                                                         $79 million as at December 31, 2010, versus $111 million as at December 31, 2009.
Desjardins Group uses various means to ensure sound reputation risk management,          This exposure takes the form of disbursed and undisbursed commitments.
including its Code of Ethics and Professional Conduct, governance practices,             Leveraged finance loans are generally used to achieve specific objectives, such
awareness sessions, and a risk management framework. Officers and employees              as making an acquisition, or effecting a takeover or share buy-back. Leveraged
are required to perform their duties in accordance with these practices and              finance loans are presented on the Combined Balance Sheets as loans and
Desjardins Group’s permanent values.                                                     receivables and totalled less than 0.1% as at December 31, 2010 (also less than
                                                                                         0.1% as at December 31, 2009), of Desjardins Group’s total assets.
The Risk Management Corporate Division is responsible for disclosing reputation
risk. It provides the Risk Management Commission and the Integrated Risk                 coLLATERALIzED DEBT oBLIGATIons
Management Committee with a report containing information on reputation risk
                                                                                         The fair value and notional amount of collateralized debt obligations were less
and the key indicators for such risk. In addition, there is a review of the activities
                                                                                         than $1 million each as at December 31, 2010, as opposed to $135 million and
of Legal Affairs and Compliance, Cooperative Support and the Secretariat
                                                                                         $151 million, respectively, as at December 31, 2009. None of the securities held
General, and Public Relations and Communications.
                                                                                         is directly backed by subprime residential mortgage loans. They are presented
                                                                                         on the Combined Balance Sheets as available-for-sale securities and securities
                                                                                         held for trading.

                                                                                         coMMERcIAL MoRTGAGE-BAckED sEcURITIEs
                                                                                         The fair value and principal amount of commercial mortgage-backed securities
                                                                                         totalled $296 million and $287 million as at December 31, 2010, respectively,
                                                                                         versus $329 million and $343 million as at December 31, 2009. Desjardins Group
                                                                                         holds only Canadian securities, which are presented on the Combined Balance
                                                                                         Sheets as securities held for trading.




100   management’s discussion and analysis
Table 27 – Fair value of asset-backed securities by credit rating
As at December 31
(in millions of $)

                                                                                                                                 coMMERcIAL                               fInAncIAL
                                                                                               coLLATERALIzED                MoRTGAGE-BAckED                          AssET-BAckED
                                                                                              DEBT oBLIGATIons                     sEcURITIEs                            sEcURITIEs
Notional amount                                                                                       $      —                         $    287                                $       91
Fair value of securities by rating
AAA                                                                                                   $      —                         $    296                                $       39
AA                                                                                                           —                                —                                         3
A                                                                                                            —                                —                                        14
BBB                                                                                                          —                                —                                         —
Lower than BBB-                                                                                              —                                —                                        16
Not rated                                                                                                    —                                —                                         5
Total                                                                                                 $      —                         $    296                                $       77



Table 28 – Fair value of swaps by maturity
As at December 31
(in millions of $)

                                                                                                                                        cREDIT                                    ToTAL
                                                                                              fIRsT-To-DEfAULT                         DEfAULT                                  RETURn
                                                                                                        sWAPs                           sWAPs(1)                                 sWAPs(2)
Notional amount of swaps
Notional amount of swaps with a positive fair value                                                   $      —                         $    385                                $        8
Notional amount of swaps with a negative fair value                                                          —                               40                                        43
Total notional amount                                                                                 $      —                         $    425                                $       51
Fair value of swaps with a positive fair value by maturity
  Less than 1 year                                                                                    $      —                         $      —                                $           —
  From 1 to 3 years                                                                                          —                                —                                            —
  Over 3 to 5 years                                                                                          —                                3                                            1
  Over 5 years                                                                                               —                                —                                            —
Total fair value of swaps with a positive fair value                                                         —                                3                                            1
Fair value of swaps with a negative fair value, by maturity
  Less than 1 year                                                                                           —                                —                                            (7)
  From 1 to 3 years                                                                                          —                                (5)                                          —
  Over 3 to 5 years                                                                                          —                                (1)                                          —
  Over 5 years                                                                                               —                                —                                            —
Total fair value of swaps with a negative fair value                                                         —                                (6)                                          (7)
Total fair value                                                                                      $      —                         $      (3)                              $           (6)

(1) Only on collateralized debt obligations.
(2) Excluding total return swaps entered into in connection with securitization activities.




fInAncIAL AssET-BAckED sEcURITIEs                                                                and contingencies” to the Combined Financial Statements. As at December 31,
The fair value and notional amount of financial asset-backed securities were                     2010, the positive and negative fair values of these swaps totalled $3 million
$77 million and $91 million as at December 31, 2010, respectively, compared                      and $6 million, respectively, versus a negative fair value of $56 million as at
with $277 million and $310 million as at December 31, 2009. These securities                     December 31, 2009. The notional amount of these swaps was $425 million
are presented in the Combined Balance Sheets as available-for-sale securities                    ($126 million as at December 31, 2009). These swaps are presented on the
and securities held for trading.                                                                 Combined Balance Sheets as derivative financial instruments.

Table 27 above provides more details concerning exposure to asset-backed                         ToTAL RETURn sWAP PoRTfoLIo
securities.                                                                                      The positive and negative fair values of total return swaps, excluding those
                                                                                                 entered into in connection with securitization activities, were $1 million and
cREDIT DEfAULT sWAP PoRTfoLIo                                                                    $7 million as at December 31, 2010, respectively ($2 million and $9 million,
First-to-default credit default swaps and credit default swaps (collateralized                   respectively, as at December 31, 2009). As at December 31, 2010, the notional
debt obligations) were entered into with counterparties. Desjardins Group’s                      amount of these swaps was $51 million ($90 million as at December 31, 2009).
commitments and the nature of the underlying assets are presented under                          Total return swaps are presented on the Combined Balance Sheets as derivative
“Derivative financial instruments” in Note 26, “Commitments, guarantees                          financial instruments.




                                                                                                                                                    management’s discussion and analysis       101
Table 29 – Significant exposure to other special purpose entities (SPEs)
(in millions of $)

                                                                                                                                                               2010                                    2009
                                                                                                                                      desjardins                               desjardins
                                                                                                                                         group’s          total asset             group’s          total asset
                                                                                                                                        exposure              of spes(1)         exposure              of spes(1)
Unconsolidated SPEs
Trusts for Canadian non-bank asset-backed term notes (ABTN)(2)                                                                       $ 2,540             $ 16,360             $   2,445           $ 16,675
Other trusts for bank and non-bank asset-backed commercial paper                                                                           —                    —                   131              8,547
Private investment funds related to guaranteed-capital products and other activities(3)                                                  225                  621                   199                532
Consolidated SPEs
Private hedge funds related to guaranteed-capital products and other activities(3)                                                           18                  47                   47                 105
Desjardins Credit Union Inc.                                                                                                                 11               1,381                   49               1,423

(1) The total assets of the SPE disclosed correspond to the most recent data available to Desjardins Group. For investment funds and hedge funds related to guaranteed-capital structured products, the amount
    presented corresponds to the entity’s net assets.
(2) See the “Securities – Asset-backed commercial paper / Asset-backed term notes” section of Note 05, “Securities”, to the Combined Financial Statements. The amount in the column “Desjardins Group’s exposure”
    comprises the margin funding facility of $1,193 million ($1,193 million as at December 31, 2009) and the fair value of the new notes of $1,347 million ($1,252 million as at December 31, 2009).
(3) For presentation purposes, cross-investments between investment funds and hedge funds have not been eliminated.




AssETs UnDER ADMInIsTRATIon AnD AssETs UnDER MAnAGEMEnT                                                   The implementation of the ABCP Restructuring Plan under the Montréal Accord
Desjardins Group is one of the leading wealth managers and trustees in Canada.                            was completed on January 21, 2009. This restructuring plan led, among other
Assets under administration and assets under management are essentially made                              things, to the replacement of ABCP by long-term floating rate asset-backed term
up of financial assets in the form of investment funds, mainly from individuals,                          notes (ABTN) having a maturity similar to that of the underlying assets.
and securities in custody and assets accumulated by pension funds; they therefore
do not belong to Desjardins Group, but rather to its members and clients. These                           Details concerning significant exposure to special purpose entities are provided
assets are described in detail under section 3.5, “Off-balance sheet items”, and                          in Table 29 above.
in Table 21 “Assets under administration and assets under management”,
presented on page 88.                                                                                     July 2010 marked the end of the 18-month moratorium on additional collateral
                                                                                                          calls for the vast majority of underlying credit default swaps under the Montréal
                                                                                                          Accord on ABTN. The lifting of the moratorium had no impact on the market value
sEcURITIzATIon
                                                                                                          of the ABTN since the necessary triggers for the calculations leading to margin
Desjardins Group participates in the Mortgage-Backed Securities program                                   calls are very far from the current levels of the indices.
under the National Housing Act. These transactions involve the use of off-balance
sheet arrangements with special purpose entities (SPEs). The SPE used by                                  During 2010, Desjardins Group entered into several different types of transactions
Desjardins Group is the Canada Housing Trust, which was set up by CMHC                                    to minimize the risk associated with the ABTN portfolio, the margin funding
under the Canada Mortgage Bonds Program. These arrangements are described                                 facility related to the ABTN portfolio and other restructured securities. The
under section 3.5, “Off-balance sheet items”, in this MD&A and in Note 07,                                implementation of credit index hedges, the acquisition of a direct protection on a
“Securitization of mortgage loans”, to the Combined Financial Statements.                                 significant portion of the MAV 1 portfolio and the disposal of various restructured
                                                                                                          portfolios significantly reduced the risk related to these portfolios.
sPEcIAL PURPosE EnTITIEs
In the normal course of business, Desjardins Group enters into various financial                          As at December 31, 2010, the risk associated with the ABTN portfolio, the margin
transactions with special purpose entities. The entities are usually created                              funding facility related to the ABTN portfolio and other restructured securities
for a unique and distinct purpose they often have a limited life and are used to                          was reduced by 69.5% of total risk, up 58.2% from December 31, 2009. Substantially
legally isolate the financial assets they hold from the transferring organization                         all this reduction, or 56.0%, was achieved in the fourth quarter of 2010.
itself, which can be Desjardins Group or one of its clients. SPEs are not operating
entities and generally have no employees. Under generally accepted accounting
principles, the recognition of SPEs on the Combined Balance Sheets is optional.




102    management’s discussion and analysis
4.0   aDDitiOnal
      infOrmatiOn
      sEcTIon 4.1
      Regulatory context
      and caution
      REGULAToRy conTExT
      Desjardins Group’s operations are governed in particular by the Act respecting
      financial services cooperatives. The Autorité des marchés financiers (hereinafter
      referred to as the “AMF”) is the main government agency that supervises and
      oversees deposit-taking institutions (other than banks) that do business in Québec,
      including the caisses and the FCDQ. Other regulations may also apply to some
      activities of Desjardins Group entities, for example, in the area of insurance
      or securities brokerage.

      In addition, Desjardins Group complies with the AMF’s guideline on standards
      governing the adequacy of base capital, adapted to reflect the provisions of
      the Basel II Accord. While Desjardins Group is neither a reporting issuer nor
      a venture issuer under AMF Regulation 52-109 respecting Certification of
      Disclosure in Issuers’ Annual and Interim Filings, it is gradually implementing
      the financial information management practices outlined therein. Desjardins
      Group’s financial and corporate governance are discussed on page 106 of this
      MD&A and pages 185 to 200 of this Annual Report.

      Caution concerning forward-looking statements
      Desjardins Group’s public communications often contain either written or verbal
      forward-looking statements. This Management’s Discussion and Analysis is
      likely to contain forward-looking statements on Desjardins Group’s operations
      and strategies that may be included in other documents filed with Canadian
      regulatory bodies or in any other type of communication. Forward-looking
      statements may include observations on Desjardins Group’s objectives and
      priorities for fiscal 2011 and thereafter, as well as the strategies used to achieve
      these objectives, its future financial results (including those related to risk
      management) and forward-looking information on Desjardins Group’s operations
      and the Québec and Canadian economy. Among the forward-looking statements
      included in this document, the 2010 Desjardins Group Management’s Discussion
      and Analysis (MD&A), are sections 1.2 “Monitoring of priority financial objectives”,
      1.3 “The economy, industry and outlook” and 2.2 “Analysis of business segment
      results”. These statements are typically identified by the words “believe”, “predict”,
      “expect”, “intend to”, “estimate”, “anticipate” and “may”, words and expressions
      of similar import, and verbs conjugated in the future and conditional tenses.




                                                          management’s discussion and analysis   103
                                                                                         sEcTIon 4.2
                                                                                         Material changes subsequent
                                                                                         to December 31, 2010
By their very nature, forward-looking statements involve assumptions,                    sEnIoR MAnAGEMEnT APPoInTMEnTs
uncertainties and risks, both general and specific; it is therefore possible that,
                                                                                         In the interest of fully realizing the potential of the new structure implemented
due to a variety of factors, these predictions, projections or other forward-looking
                                                                                         almost two years ago, continuing to pursue Desjardins Group’s strategic and
statements may not materialize or may prove inaccurate, and that actual results
                                                                                         cooperative development, and strengthening its market position, Desjardins Group,
may vary significantly. Various factors beyond our control may affect the accuracy
                                                                                         has made changes and appointments to several senior management positions.
of the forward-looking statements in this MD&A, including those factors listed
in section 3.6, “Risk management”, such as credit risk, liquidity risk, market risk,
                                                                                         As Monique F. Leroux wants to focus more on the promotion of cooperation
operational risk, insurance risk, strategic risk and reputation risk. Legislative
                                                                                         within Desjardins and the community, organizational strategy and development,
and regulatory developments in Québec, Canada and internationally may also
                                                                                         governance and the engagement of Desjardins Group’s elected officers and
impact the accuracy of such statements, particularly with respect to changes
                                                                                         employees. To this end, Marc Laplante, the current Senior Executive Vice-
in monetary and fiscal policies, new guidelines for presenting information and
                                                                                         President of Strategy, Performance and Development for Desjardins Group,
changes to regulations on liquidity requirements or to the interpretation of such
                                                                                         will take on an expanded role and operational responsibilities, having been
requirements, as well as changes to risk-based capital guidelines. Additional
                                                                                         appointed Senior Executive Vice-President of Desjardins Group. He will manage
influential factors are tied to changes in the Québec, Canadian and global
                                                                                         operational and functional initiatives for Desjardins Group and the FCDQ.
economy, including the unemployment rate; fluctuations in interest rates and
                                                                                         He will also coordinate Desjardins Group’s main strategic and organization-
foreign currencies; trade between Québec and the United States; third parties’
                                                                                         wide projects, as well as Desjardins Group’s various senior management
ability to meet their obligations to Desjardins Group; consumer spending;
                                                                                         support committees.
demand for credit; the effects of increased competition in a market open to
globalization; new and existing competitors; fraud, in particular fraud committed
                                                                                         Réal Bellemare, currently Vice-President of Corporate Banking and Capital
against Desjardins Group or its members and clients via unprecedented uses of
                                                                                         Market Risk and Special Assignments, has been promoted to the position of
new technology; legal or regulatory procedures and lawsuits; consumer savings
                                                                                         Executive Vice-President, Risk Management, and will report to Mr. Laplante.
habits; the effect of possible international conflicts, including terrorism, or
                                                                                         He will sit on the Desjardins Group Management Committee.
natural disasters; and new developments.
                                                                                         Desjardins Group also announced the appointment of Louis-Daniel Gauvin,
Lastly, there are also operational risk factors, including the inherent limits of risk
                                                                                         currently Senior Vice-President and Chief Risk Officer, to the position of Senior
management models; changes to technology; the ability to design new products
                                                                                         Vice-President and General Manager, Caisse centrale Desjardins and Capital
and services and bring them to market in a timely fashion; the ability to collect
                                                                                         Desjardins inc. Mr. Gauvin will be responsible for investor relations at a time
complete and accurate information on our clients and their counterparties; the
                                                                                         when Desjardins Group plans to grow its presence in national and international
ability to perform and integrate strategic acquisitions and alliances; changes
                                                                                         financial markets. He will also be responsible for Desjardins Group’s compliance
to the accounting policies and methods Desjardins Group uses to present its
                                                                                         activities and regulatory relations. Mr. Gauvin will continue to sit on the Desjardins
financial position and operating results, including the uncertainties involving
                                                                                         Group Management Committee.
main accounting assumptions and estimates, including changes to estimates
for provisions; the impact of future accounting changes; the ability to recruit
                                                                                         Finally, Desjardins Group announced the retirement of Bruno Morin, General
and retain key officers; and management’s ability to foresee and manage the risks
                                                                                         Manager of Caisse centrale Desjardins and Capital Desjardins inc. Mr. Morin will
stemming from the preceding factors.
                                                                                         continue as General Manager of Capital régional et coopérative Desjardins (CRCD)
                                                                                         and will remain on the boards of some of Desjardins Group’s components.
It is important to note that the above-mentioned list of factors that could
potentially influence future results is not exhaustive. Other factors could have
                                                                                         These appointments take effect on February 25, 2011.
an adverse effect on results. Although Desjardins Group believes that the
expectations expressed in these forward-looking statements are reasonable,
it can give no assurance or guarantee that these expectations will prove to be
                                                                                         fILInG of An offER To AcQUIRE WEsTERn fInAncIAL GRoUP Inc. In ALBERTA
correct. Desjardins Group cautions readers against placing undue reliance                Desjardins Group made a take-over bid to the shareholders of Western Financial
on forward-looking statements when making decisions.                                     Group Inc. on January 21, 2011, following the announcement in December 2010
                                                                                         that it intended to buy all the shares of this Canadian financial group, which
The forward-looking statements in the MD&A represent the point of view of                specializes in insurance products and other financial services. The transaction,
management only as at the date of this report and are provided to help members           for a total value of $443 million, would enable Desjardins Group to expand its
and analysts understand Desjardins Group’s financial position as at the dates            market and grow its service and product offer, among other things, as well as take
indicated or for the periods ended on such dates as well as its strategic priorities     advantage of a brokerage network that is well established in Western Canada.
and objectives, and may not be appropriate for other purposes. Desjardins Group          Western Financial Group Inc. would become a subsidiary of Desjardins Financial
does not undertake to update any forward-looking statements, whether verbal              Corporation Inc. but would keep its name because it is well known and has an
or written, that could be made from time to time by or on behalf of Desjardins           excellent reputation in this market.
Group, except as required under applicable securities legislation.
                                                                                         See Note 31, “Subsequent events”, to the Combined Financial Statements
                                                                                         for additional information about this event.




104   management’s discussion and analysis
sEcTIon 4.3
Financial framework
and financial governance
fRAMEWoRk                                                                             The mandate of the Asset/Liability Committee is to support the Desjardins
The FCDQ’s Board of Directors, with the support of the Desjardins Group               Group Finance and Risk Management Committee and the Finance and Treasury
Management Committee, oversees Desjardins Group’s strategic management.               Executive Division and Office of the CFO with certain key aspects of Desjardins
As such, it is responsible for directing, planning and overseeing all of Desjardins   Group’s financial management, such as comprehensive management strategies
Group’s financial activities. The Board of Directors, seconded by the Audit and       for asset-liability matching, the balance sheet, capital, liquidity, financial
Inspection Commission, oversees the implementation of effective control systems       performance and relationships with credit rating agencies.
(accounting, administrative and management) to safeguard the integrity of its
operations and obtains the required reporting from management. The Board is           The Desjardins Group Investment Coordination Committee is tasked with
supported in this responsibility by the Chief Monitoring Officer of Desjardins        monitoring external factors as well as market forecasting that could affect
Group, whose annual plan is approved by the Audit and Inspection Commission.          Desjardins Group’s investment portfolios in a systematic way and making
Desjardins Group applies a rigorous financial governance process in order to          recommendations to the Desjardins Group Finance and Risk Management
properly support the Senior Vice-President of Finance and Treasury and Chief          Committee on investment strategies.
Financial Officer who, together with Desjardins Group’s President and Chief
Executive Officer, is responsible for certifying the Combined Financial Statements    The Desjardins Group Pricing Committee is responsible for supervising, guiding,
of Desjardins Group.                                                                  coordinating and authorizing pricing at Desjardins Group.

To ensure Desjardins follows industry best practices and to provide multifunctional   In addition, the primary responsibilities of the Finance and Treasury Executive
risk and finance management, the Desjardins Group Management Committee                Division and Office of the CFO include the following:
set up two committees: the Integrated Risk Management Committee and the               • Monitoring the financial framework and financial governance of Desjardins
Finance and Risk Management Committee.                                                  as a whole
                                                                                      • Supporting senior management and the Audit and Inspection Commission
The responsibilities of the Integrated Risk Management Committee are outlined
in section 3.6, “Risk management”. The Integrated Risk Management Committee,          • Reporting to the Board of Directors, the Audit and Inspection Commission and
jointly coordinated by the Finance and Treasury Executive Division and Office           senior management to support the fulfilment of their respective management
of the CFO and the Risk Management Executive Division, is composed of members           and oversight responsibilities
of senior management. One of its main responsibilities is to approve financial
operations that currently have or could potentially have a major financial impact     This strategic function coordinates and sets the standard for Desjardins Group
on Desjardins Group. The following operations are included in the scope of the        in matters concerning general treasury, matching and investment management,
committee’s mandate:                                                                  capital management and relationships with credit rating agencies, financial
                                                                                      governance (including all internal controls for the caisse network), support for
• Commitment limits on loans to businesses                                            the caisses and their centres (business and administrative centres) in managing
• Securities investment activities                                                    their financial performance, support for the Business Sectors’ performance,
• Other investment activities                                                         disclosure of financial reports, accounting standard-setting, financial planning
                                                                                      and taxation. It also assumes operational responsibility for Desjardins Group’s
• New financial products and changes to existing financial products that use          pension fund.
  structured instruments or requiring start-up capital
                                                                                      Financial stakeholders are operating in an external environment characterized
                                                                                      by (i) a more stringent legal and regulatory framework, (ii) growing market
                              DEsJARDIns GRoUP                                        complexity and economic globalization, (iii) a marked increase in specialized
                              fInAncE AnD                                             professions, and lastly, (iv) an environment that is changing rapidly and extensively.
                                                                                      In this increasingly demanding context, coordinating all Desjardins Group’s
                              RIsk MAnAGEMEnT
                                                                                      financial stakeholders is crucial to sound balance sheet and capital management.
                              coMMITTEE


 AssET/LIABILITy              DEsJARDIns GRoUP             DEsJARDIns GRoUP
 coMMITTEE                    InVEsTMEnT                   PRIcInG coMMITTEE
                              cooRDInATIon
                              coMMITTEE


The Desjardins Group Finance and Risk Management Committee also has the
statutory responsibility for reviewing several scorecards, which present key
risk indicators with regard to the activities covered in the scope of its mandate.
To facilitate the flow of information, this committee oversees three additional
committees: the Asset/Liability Committee, the Desjardins Group Investment
Coordination Committee and the Desjardins Group Pricing Committee. The last
two committees were introduced in 2010.




                                                                                                                                          management’s discussion and analysis   105
                                                                                        sEcTIon 4.4
                                                                                        Related party
                                                                                        transactions
fInAncIAL GoVERnAncE                                                                    In the normal course of business, Desjardins Group offers financial services
Although Desjardins Group is neither a reporting nor a venture issuer under             to affiliates or other related companies and carries out transactions with them
AMF Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual         under conditions that are the same as those offered to unrelated parties.
and Interim Filings, management, in conjunction with the President and Chief
Executive Officer and the Senior Vice-President, Finance and Treasury and Chief         Desjardins Group offers its financial products and services to its directors, officers
Financial Officer of Desjardins Group, designed or caused to be designed financial      and employees under the same market conditions applicable to members and
disclosure controls and procedures that are supported by a regular certification        clients for these products and services.
process and internal sub-certification process of financial disclosures made
in annual and interim filings.                                                          Related party transactions are dealt with in more detail in Note 30, “Related party
                                                                                        transactions”, to the Combined Financial Statements.
All information collected as part of the financial governance process is reviewed
on a quarterly and annual basis by the members of the Desjardins Group Disclosure
Committee and of the Audit and Inspection Commission, who play a lead role              sEcTIon 4.5
in overseeing and assessing the appropriateness of financial disclosure controls
and procedures.                                                                         Non-GAAP measures
This rigorous financial governance process, deemed comparable to industry best          To assess its performance, Desjardins Group uses and presents both GAAP
practices, provides reasonable assurance to the President and Chief Executive           measures and various non-GAAP financial measures. Non-GAAP financial
Officer and the Senior Vice-President, Finance and Treasury and Chief Financial         measures do not have standard meanings and are not directly comparable to
Officer of Desjardins Group that material information relating to Desjardins            similar measures used by other companies, and may not be directly comparable
Group and its components is made known to them on a timely basis so that they           to any measures prescribed by GAAP. Investors may find these non-GAAP
can disclose complete and reliable information to the public and to Desjardins          measures useful in analyzing financial performance.
Group’s members and clients. As at December 31, 2010, management assessed
the disclosure controls and procedures and confirmed their effectiveness, both          PRoDUcTIVITy InDEx
in design and operation. Given the inherent limitations in any control system,          The productivity index is used to measure efficiency and is equal to the ratio
Desjardins Group management acknowledges that disclosure controls and                   of non-interest expense to total income, net of claims and insurance benefits.
procedures cannot prevent or detect all misstatements, whether caused by error
or fraud.                                                                               AVERAGE AssETs – AVERAGE LoAns – AVERAGE DEPosITs – AVERAGE EQUITy
Furthermore, concerned with continuously improving its financial governance             Averages for these items are equal to the average of the amounts at the end of the
rules and practices, Desjardins Group considers it important to uphold a structured     previous five quarters, starting from December 31.
internal control environment that allows it to satisfy the expectations of the market
and of its members and clients, while at the same time acting in accordance with        RETURn on EQUITy
these structures, the context, and its governance process.                              Return on equity is equal to surplus earnings before member dividends expressed
                                                                                        as a percentage of average equity.
Thus, in accordance with the timetable set by management, in conjunction
with the President and Chief Executive Officer and the Senior Vice-President
of Finance and Treasury and Chief Financial Officer of Desjardins Group,
work continued throughout 2010 to gradually implement financial governance
rules and practices that are comparable to those prescribed by the Canadian
Securities Administrators, which will make it possible for Desjardins to certify
the design and effectiveness of its internal control over financial reporting
as at December 31, 2011.

As at December 31, 2010, two Desjardins Group components, Caisse centrale
Desjardins as reporting issuer and Capital Desjardins inc. as venture issuer,
complied with the requirements under Regulation 52-109. The management
of both these issuers therefore evaluated the design and effectiveness of financial
disclosure controls and procedures and internal control over financial reporting,
which provide reasonable assurance that this financial information is reliable and
that the financial statements were prepared for external purposes in accordance
with generally accepted accounting principles. This evaluation was carried
out using the recognized control framework of the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and confirmed the effectiveness
of their disclosure controls and procedures and of their internal control over
financial reporting.

Other aspects of governance are examined in more detail on pages 185 to 200
of this Annual Report.




106   management’s discussion and analysis
sEcTIon 4.6
Critical accounting
policies and estimates
A description of the accounting policies used by Desjardins Group is essential to           are intended to provide the reader with approximate, comparable information
understanding and interpreting the results presented in the Combined Financial              only. Note that data for 2007 and 2006 have not been restated given that this
Statements as at December 31, 2010. The significant accounting policies are                 information is provided for information purposes only and are not discussed
described in Note 01, “Significant accounting policies”, on pages 130 to 132 or, when       in this MD&A.
possible, in the notes to the Combined Financial Statements to enable the reader
to understand these policies. Some of these policies are of particular importance           A detailed analysis of the methods that Desjardins Group uses to manage
in presenting Desjardins Group’s financial position and operating results since             credit risk is provided on pages 92 to 94 of the MD&A, and other information
they may require management to make assumptions and estimates that may                      is provided in Note 27, “Financial instrument risk management”, to the
involve uncertainties. Any change to these assumptions and estimates could have             Combined Financial Statements.
a significant impact on the Combined Financial Statements of Desjardins Group.
The following paragraphs summarize the accounting policies.                                 fInAncIAL InsTRUMEnTs – REcoGnITIon AnD MEAsUREMEnT
                                                                                            Desjardins Group initially recognizes all financial assets and financial liabilities
ALLoWAncE foR cREDIT LossEs                                                                 at fair value on the Combined Balance Sheets. Subsequently, financial assets and
Measuring the allowance for credit losses is very important to Desjardins Group,            financial liabilities held for trading as well as available-for-sale financial assets
given the size of its loan portfolio. Certain factors may influence management’s            continue to be recorded on the Combined Balance Sheets at fair value. Changes
assumptions and any material change to estimates or parameters could result                 in the fair value of financial assets and financial liabilities held for trading are
in a change to the currently recognized amount for the allowance for credit losses.         recognized in combined income under “Other income – Trading income” for
                                                                                            the year, while changes in the fair value of available-for-sale financial assets are
The allowance for credit losses reflects management’s best estimate of potential            recorded in combined other comprehensive income until they are derecognized.
credit losses. The allowance is related to a portfolio of loans recognized on the           Equity securities classified as “Available for sale” but not quoted on an active
Combined Balance Sheets and in off-balance sheet items such as letters of credit,           market are recorded at cost. Available-for-sale securities continue to be monitored
guarantees and commitments. The allowance for credit losses is made up of                   on a regular basis to determine whether they have sustained a decline in value
specific allowances and a general allowance.                                                that is other than temporary. Any impairment losses are recognized in “Other
                                                                                            income – Income from available-for-sale securities” in the Combined Statements
For the loan portfolio, credit risk is assessed regularly, and specific allowances          of Income.
are determined, on a loan-to-loan basis, for all loans considered impaired. No
specific allowance is established for credit cards. Credit card balances are fully          Financial assets held to maturity, loans and receivables and financial liabilities
written off when no payment has been received by the end of a 180-day period.               other than held for trading are recognized at amortized cost using the effective
                                                                                            interest method. Interest income and expense on these financial assets and
In addition, a general allowance is recognized to reflect management’s best                 liabilities arising from the Personal Services and Business and Institutional
estimate of probable losses related to the portion of the loan portfolio not yet            Services segment are recorded in net interest income, whereas those from the
classified as impaired. It therefore covers risks that were still not detected as           rest of the business lines and those under the Other category are recorded under
at the balance sheet date due to the existence of a lag between the event that              “Other income – Investment income.”
generates the loss and the moment that the loan becomes impaired.
                                                                                            The fair value of a financial instrument is generally the amount of consideration
In fiscal 2010, Desjardins Group changed its method for measuring the general               for which the instrument would be exchanged in an arm’s length transaction
allowance. The new method more accurately captures risk parameters of different             between knowledgeable, willing parties who are under no compulsion to act.
loan portfolios, in particular by integrating credit risk models developed by
Desjardins Group. These models incorporate parameters such as the probability               The fair values of financial instruments are determined on the basis of quoted
of default (frequency of losses), losses in the event of default (size of the losses) and   market prices (or, in certain cases, the asking price or closing price of the most
the gross exposures at default. These parameters are developed on the basis of              recent transaction) when an active market exists. There is therefore little
historical losses and are determined according to the category and risk rating of           subjectivity in the fair values established in this way. If a market price is not
each loan. Measurement of the general allowance also depends on management’s                available, Desjardins Group determines fair values using either models based
interpretation of current trends in credit quality for each business segment, the           on observable market data or models that do not use observable market data.
impact of changes to its credit policies and the economic environment. This new             When market prices are unavailable, determining a fair value requires that
method therefore allows Desjardins Group to continue to obtain an amount for                management use its judgment in making assumptions that take observable
the general allowance that is reliable and more relevant.                                   market data into account or assumptions not based on observable market data.
                                                                                            When market prices are not available, fair value is estimated using valuation
The changes are mainly reflected by a reduction in the allowance for credit                 techniques and models such as analyses of discounted cash flows or models
losses as at December 31, 2009, by $305 million ($294 million as at December 31,            used to set option prices that, as much as possible, are based on observable
2008), and by an increase in reserves of $191 million as at December 31, 2009               market factors , as well as other factors that may affect the fair value of the
($194 million as at December 31, 2008). The impacts are mainly felt in the                  instrument. These estimates will affect available-for-sale securities, securities
Personal Services and Business and Institutional Services business segment.                 held for trading, trading income and combined other comprehensive income
                                                                                            items. Debt securities not quoted on an active market may be classified as loans
Quarterly data for 2010, quarterly and annual data for 2009, and annual data                and receivables and their impairment is determined on the basis of the loss
for 2008 have been restated to retroactively reflect the changes to the method              incurred on the loan.
for measuring the general allowance. Restated data for 2008 are unaudited and
                                                                                            The fair value of financial instruments is presented in Note 04, “Fair value
                                                                                            of financial instruments”, to the Combined Financial Statements.




                                                                                                                                                management’s discussion and analysis   107
DERIVATIVE fInAncIAL InsTRUMEnTs AnD hEDGInG AcTIVITIEs                                 oThER ThAn TEMPoRARy DEcLInE In VALUE
Derivative financial instruments are financial contracts that derive their value        Available-for-sale securities and securities held to maturity are reviewed regularly
from assets, interest rates, foreign exchange and other financial indices. The vast     to determine if there has been an other than temporary decline in value. Such
majority of derivative financial instruments are negotiated by mutual agreement         impairment losses, if any, are recognized in the Combined Statements of Income
between Desjardins Group and the counterparty and include forward exchange              either under “Other income – Income from available-for-sale securities” for
contracts, interest rate and currency swaps, total return swaps, forward rate           available-for-sale securities or under “Other income – Income from other
agreements, and interest rate and stock index options.                                  investments” for securities held to maturity. In evaluating the decline in value,
                                                                                        Desjardins Group takes into account many facts specific to each investment
Derivative financial instruments are used for trading purposes or for asset-liability   and all the factors that could indicate that there has been a decline in fair value
management purposes. They are used to transfer, modify or reduce actual or              that is other than temporary. Factors considered include, but are not limited
expected risks related to market risk. Derivative financial instruments held for        to, the significance and length of the decline in fair value, significant financial
trading are used to meet the demand of members and clients as well as to allow          difficulties of the issuer, a breach of contract, the increasing probability of the
Desjardins Group to generate income from its own trading activities. These              issuer’s bankruptcy or restructuring, and the disappearance of an active market
derivative financial instruments are recognized at fair value on the Combined           for the financial asset concerned. Impairments recognized under “Other income –
Balance Sheets, and realized and unrealized gains and losses are recorded under         Income from available-for-sale securities” must be reversed on the Combined
“Other income – Trading income”.                                                        Statement of Income when, in a subsequent period, their fair value increases and
                                                                                        this increase may be objectively tied to an event subsequent to the impairment.
Derivative financial instruments held for asset-liability management purposes           Management uses its judgment when determining when to recognize a loss.
are used to manage the risks related to the interest rates and foreign currency
exposure of assets and liabilities on the Combined Balance Sheets, firm                 Supplementary information on the recognition of available-for-sale securities
commitments and forecasted transactions.                                                and the determination of fair value are presented in Note 03, “Carrying value of
                                                                                        financial instruments”, Note 04, “Fair value of financial instruments”, and Note 05,
Derivative financial instruments, including embedded derivatives which are              “Securities”, to the Combined Financial Statements.
required to be accounted for separately in the Combined Balance Sheets, are
measured at fair value. Derivative financial instruments may be designated              AcTUARIAL AnD RELATED LIABILITIEs
as part of a fair value hedge or a cash flow hedge. When derivative financial           Calculations of actuarial and other liabilities related to insurance policies for
instruments are used to manage assets and liabilities, it must be determined            the Wealth Management and Life and Health Insurance segment are established
whether or not hedge accounting is appropriate for each derivative. In a fair value     using the Canadian asset liability method, which requires that assumptions
hedging transaction, the hedging derivative is recognized at fair value, and the        be made with respect to when a number of factors will come into play such as
carrying amount of the hedged item is adjusted by the gain or the loss attributable     death, disability, investment income, inflation, policy cancellations, expenses,
to the hedged risk. When these changes in fair value do not completely offset each      income taxes, premiums, fees and dividends to policyholders and the amounts
other, the resulting amount is recorded under “Other income – Trading income”.          they represent. To predict underwriting experience, Desjardins Group uses best
                                                                                        estimate assumptions.
In a cash flow hedging transaction, the gains and losses arising from changes
in the fair value of the effective portion of the derivative financial instrument       Note 12, “Insurance activities”, to the Combined Financial Statements provides
are recognized in combined other comprehensive income until the hedged item             supplementary information on the recognition of underwriting and related
is recognized in combined income, at which time such change is recorded under           liabilities, the main assumptions used and the impacts on results of changes
interest income. The ineffective portion of hedging activities is recognized            to assumptions.
immediately in combined income under “Other income – Trading income”.
For derivative financial instruments that are not part of a hedging relationship,
                                                                                        sEcURITIzATIon
changes in fair value are recorded under “Other income – Trading income”.
                                                                                        Desjardins Group participates in the National Housing Act Mortgage-Backed
The fair value of all derivative financial instruments is determined using              Securities program. Under this program, Desjardins Group converts mortgage
pricing models that incorporate the current market prices and the contractual           loans into mortgage-backed securities (NHA-MBSs) and transfers them to the
prices of the underlying instruments, the time value of money, yield curves, and        Canada Housing Trust.
volatility factors. The methods, models and assumptions used to set prices and to
measure the value of derivative instruments are subjective. Differences between         These securitization transactions are recorded as sales; NHA-MBSs are
the assumptions made and actual results could lead to different fair values and         therefore removed from the Combined Balance Sheets, since Desjardins Group
financial results.                                                                      has surrendered control over the assets sold and has received consideration
                                                                                        other than beneficial interests in these assets.

                                                                                        The gain or loss on the transfer depends on the prior carrying amount of the NHA-
                                                                                        MBSs sold as well as the fair value of the assets received and liabilities assumed.

                                                                                        When no market price is available, this fair value is determined using the discounted
                                                                                        value of expected cash flows and taking into account best estimates, which are
                                                                                        based on certain key assumptions made by management, including the curve for
                                                                                        Canada Mortgage Bonds, discount rates proportional to the risks involved, the
                                                                                        expected credit losses and the prepayment rate on the loans granted. No credit
                                                                                        losses are expected because the mortgage loans transferred are guaranteed.
                                                                                        Any changes to these assumptions and estimates could, however, have an impact
                                                                                        on recorded gains.




108   management’s discussion and analysis
Note 07, “Securitization of mortgage loans”, to the Combined Financial Statements       earnings distribution plan takes into account a program under which members
as well as section 3.5, “Off-balance sheet items”, of this MD&A provide more            may opt for dividends in the form of shares. As mentioned in the standard,
detailed information on these transactions. Note 07, “Securitization of mortgage        dividends paid in the form of shares carry a premium. The caisses may pay out
loans”, to the Combined Financial Statements, on page 149, provides a sensitivity       member dividends when the legal and regulatory requirements have been met.
analysis of the fair value of retained rights using unfavourable changes of 10% to      The provision for member dividends is attributed to the Personal Services and
20% in the key assumptions.                                                             Business and Institutional Services segment.

EMPLoyEE fUTURE BEnEfIT PLAns                                                           PRoVIsIon foR conTInGEncIEs
Desjardins Group offers most of its employees defined benefit statutory pension         Desjardins Group is party to various business litigation, lawsuits and possible
plans as well as supplemental pension plans, which provide pension benefits in          claims arising in the normal course of business with regard to loan portfolios,
excess of statutory limits. Benefits are calculated based on the number of years        investment portfolios, supplier agreements and its insurance activities, including
of membership in the plans and take into consideration the average salary for           its insurance product distribution activities. In fact, many of these lawsuits are
the employee’s five most highly paid years. Since the plan procedures are such          in connection with measures taken by entities to collect impaired loans and
that the future changes in salary levels will have an impact on the amount of           to exercise their rights in respect of assets given as collateral for a loan.
future benefits, the cost of benefits is determined through actuarial calculations
using the projected benefit method prorated to the number of years of service           Provisions for possible litigation are recorded when Desjardins Group will likely
and management’s best estimate assumptions concerning the expected return               suffer a loss that can be reasonably estimated. Desjardins Group’s management
on plan investments, the discount rate for the obligation, salary increases, and        and internal and external experts assess the probability that a future event will
the retirement ages of employees. Calculation of the expected return on plan            confirm that a liability is created on the balance sheet date, and the amount of the
assets is based on a market-related value of the pension fund assets. The method        contingent loss. New information may result in a different contingency position.
used to calculate the market-related value for all the asset categories consists of     In addition, the actual costs incurred upon settlement of a lawsuit may differ
amortizing the difference between the long-term return objective of the plans’          from the provision recorded.
investment policies and the return on pension fund assets over a five-year period.
                                                                                        For more information, refer to Note 26, “Commitments, guarantees and
Note 24, “Employee future benefit plans”, to the Combined Financial Statements          contingencies”, to the Combined Financial Statements.
provides more information on the recognition of employee future benefit plans
as well as the sensitivity of key assumptions.                                          GooDWILL
                                                                                        The goodwill disclosed in the Combined Balance Sheets of Desjardins Group is
IncoME TAxEs on sURPLUs EARnInGs                                                        not amortized, but is tested for impairment at least once a year. The impairment
The process of calculating income taxes on surplus earnings is based on                 test consists of a comparison of the fair value and the carrying amount of these
management’s interpretation of the anticipated tax treatment of transactions            assets for each operating unit. Fair value is determined by using the discounted
recorded in the Combined Statements of Income, the Combined Statements                  value of cash flows or net realizable values, whichever is most appropriate. These
of Changes in Equity and the Combined Statements of Comprehensive Income.               methods require management to make assumptions on factors such as the expected
To determine the current and future portions of income taxes on surplus                 income based on internal forecasts, growth rates, discount rates and multiples.
earnings, assumptions must be made concerning the dates on which future                 Changing one assumption may affect the fair value of different units differently,
income tax assets and liabilities reverse. If Desjardins Group’s interpretation         and this may affect financial results.
differs from that of the tax authorities or if the reversal dates do not match
the forecasted dates, the provision for income taxes on surplus earnings may            Goodwill is mainly attributed to the Property and Casualty Insurance
increase or decrease in subsequent years.                                               business segment.

Note 22, “Income taxes on surplus earnings”, to the Combined Financial Statements       Note 09, “Other assets – Other”, to the Combined Financial Statements provides
provides additional information on income taxes on surplus earnings.                    additional information on the composition of goodwill.

PRoVIsIon foR MEMBER DIVIDEnDs
The amount of the provision is estimated based on the new financial framework
accepted by the Board of Directors in October 2010. During the year, this
framework was reviewed by a work group that included general managers. All
the work was conducted in line with Desjardins Group’s capitalization plan,
which sets capitalization targets, so, in light of the new standards, it was possible
to apply the basic guidelines for estimating the allocation, taking into account
information obtained from a number of caisses. The board of directors of each
caisse intends to recommend the surplus earnings distribution plan for approval
at the general meeting of its members, including the member dividend payment
amount. The difference between the amount of member dividends actually
paid, in cash or in shares, following the general meetings held by the caisses,
and the amount of the estimated provision is charged to the combined income
of the following year. The allocation basis for member dividends depends on the
interest recorded on loans and deposits, the average Desjardins investment funds
outstanding and Accord D loans obtained by members through a caisse, and
fees collected from members through a caisse for the services used. The surplus




                                                                                                                                           management’s discussion and analysis   109
sEcTIon 4.7
Transition to International Financial
Reporting Standards (IFRS)
BAckGRoUnD                                                                            Processes and internal controls
In February 2008, the Canadian Accounting Standards Board confirmed that,             The main changes made to processes and internal controls had no significant
beginning in 2011, publicly accountable enterprises will be required to apply         impacts on the key internal controls. However, some updates were required
International Financial Reporting Standards (IFRS).                                   following the implementation of new business solutions. As a result, processes
                                                                                      and internal controls related to the following activities were updated:
In order to comply with this timeline, Desjardins Group set up an IFRS conversion     • Securitization – Processes and controls designed to ensure that the securitization
program as early as 2007 and prepared a detailed conversion plan with the three         transactions that can no longer be derecognized are properly recorded in the
main phases described on page 135 of its 2009 Annual Report:                            books of the caisses, Caisse centrale Desjardins and Desjardins Group.
• Phase 1 – Initiative: Identification and Feasibility                                • Employee benefits – Processes and controls designed to ensure appropriate
• Phase 2 – Project: Design, Realization and Deployment                                 recognition of defined benefit plans in the books of all employers participating
                                                                                        in Desjardins Group’s group defined benefit plan.
• Phase 3 – Operation: Post-Implementation
                                                                                      • Financial reporting – Processes and controls designed to ensure that the
Since January 1, 2011, Desjardins Group and its legal entities that are publicly        information presented in financial statements prepared in accordance with
accountable enterprises have adopted IFRS as their accounting framework for             IFRS is complete and free of material misstatements, including comparative
the preparation of their interim and annual financial statements. Desjardins Group      data for fiscal 2010.
will issue its first quarterly financial statements in accordance with IFRS for its
first quarter ending March 31, 2011, as well as comparative figures, a statement of   In anticipation of the adoption of IFRS or generally accepted accounting principles
financial position (formerly called a “balance sheet”) as at January 1, 2010, and     for private enterprises by its members and clients, Desjardins Group has also
transitional reconciliations.                                                         updated processes and internal controls used mainly for certain commercial
                                                                                      activities related to the granting of credit.
WoRk coMPLETED To DATE
                                                                                      In the last quarter, Desjardins Group also upgraded performance measures,
During the year ended December 31, 2010, Desjardins Group continued converting        variable compensation programs and its budget process.
to IFRS and updating its information systems, processes and internal controls as
well as deploying its change management plan. Desjardins Group has therefore          Change management
almost completed work on the deployment and post-implementation phases of its
                                                                                      As part of its change management plan, Desjardins Group held training sessions
conversion program.
                                                                                      for members of the Board of Directors, the Management Committee and the Audit
                                                                                      and Inspection Commission as well as managers and employees of the Finance
The primary financial impacts arising from the IFRS conversion were also
                                                                                      function and some areas that are particularly affected by the arrival of IFRS,
identified based on the available information and the IFRS to be applied as at
                                                                                      including employees providing credit services.
December 31, 2010. These impacts are presented under the heading “Financial
impacts of IFRS on Desjardins Group’s Combined Statement of Financial
                                                                                      A training plan was also developed for officers in the caisses and Desjardins
Position as at January 1, 2010.”
                                                                                      Group’s components. The training began in 2010 with the objective of transferring
                                                                                      the knowledge acquired in the IFRS transition program to operating units. At
Information systems
                                                                                      this writing, activities under the change management plan are proceeding on
The main changes made to information systems were the result of the                   schedule, and regular reports are made to management and to the Audit and
following factors:                                                                    Inspection Commission.
• Consolidation of the segregated funds of the life and health insurance subsidiary
• Changes made to the method used to measure the effectiveness of hedging
                                                                                      Financial disclosure
  relationships                                                                       Desjardins Group has developed a template for its first interim and annual
                                                                                      combined financial statements in accordance with IFRS as well as their
• Use of a revised method for accounting for securitization and loan transactions
                                                                                      notes and has continued to collect the financial data needed to produce these
  that do not satisfy the derecognition criteria
                                                                                      financial statements.
• The development of a solution for collecting data on investment properties
  in the caisses and recalculating the amortized cost of the properties belonging     Desjardins Group continues to monitor changes being made to the standards that
  to the life and health insurance subsidiary that were previously valued using       could affect its Combined Financial Statements after the IFRS adoption date:
  the moving average market method                                                    January 1, 2011.
• Adjustments to consolidation systems so that they would better reflect the new
  disclosure requirements under IFRS, including a template for interim and            The communication plan intended for members and investors was also finalized
  annual combined financial statements and their notes                                in fiscal 2010 and will be fully deployed by March 31, 2011.




110   management’s discussion and analysis
WARnInGs                                                                       fInAncIAL IMPAcTs of IfRs
The financial impacts of IFRS on Desjardins Group’s Combined Statement of
                                                                               Financial impacts of IFRS on Desjardins Group’s Combined
Financial Position and its primary financial measures have been determined
                                                                               Statement of Financial Position as at January 1, 2010
on the basis of current IFRS as at December 31, 2010.                          As part of Desjardins Group’s preparations for the publication of initial financial
                                                                               statements in accordance with IFRS, it prepared a Combined Statement of Financial
The data presented hereafter on primary financial measures are intended        Position as at January 1, 2010, the IFRS changeover date.
only to simulate the impacts of IFRS determined on January 1, 2010, on the
primary financial measures as calculated as at December 31, 2010, under        IFRS were applied retroactively, with the exception of certain optional exemptions
Canadian GAAP.                                                                 and mandatory exceptions under IFRS 1 (revised), “First-time Adoption of
The financial impacts of IFRS on Desjardins Group’s financial statements and   International Financial Reporting Standards”. The effects of this change of
primary financial measures may be adjusted on the basis of the following:      accounting reference framework on the financial position of Desjardins Group
                                                                               as at January 1, 2010, and the methods used to calculate them are presented
• Possible changes in the accounting treatment of member dividends paid        on the following pages.
  by Desjardins Group. IFRS provide no specific standardization on the
  appropriate accounting treatment for this item. Desjardins Group has
  considered member dividends as transactions with members acting as
  clients and has presented them in the income account, which is similar to
  the accounting treatment currently applied under GAAP. As a result, no
  adjustment is shown in the transition table presented on the next page.
  Management has also taken action with the appropriate authorities to
  clarify this normative aspect and determine if member dividends must
  continue to be recognized on the Combined Statements of Income or be
  applied against equity (Combined Balance Sheets), with the objective
  to fairly present the financial position and performance of cooperatives
  under IFRS.
• Future changes to IFRS, which will be applied in the combined financial
  statements for the year ending December 31, 2011, and that could lead to
  restatements of comparative Combined Financial Statements, including
  temporary adjustments recorded at the time of the changeover to IFRS.




                                                                                                                                  management’s discussion and analysis   111
Table 30 – IFRS transition table
As at January 1, 2010
(unaudited, in millions of $)

 BALAncE shEET                                                                                                       REcLAssIfIcATIons (I)
items according to canadian gaap                                                                                         investment
                                                                           amount               non-                   property and
                                                                        according        controlling       income    property, plant       insurance
                                                                       to canadian         interests         taxes    and eQuipment        contracts
                                                                              gaap               (a)          (b)                (c)             (d)
AssETs
Cash and deposits with financial institutions                         $     1,086    $           —     $       —     $         —       $         —
Securities
Securities held for trading                                                19,349                —             —               —                 —
Available-for-sale securities                                              12,064                —             —               —                 —
Securities held to maturity                                                    18                —             —               —                 —
                                                                           31,431                —             —               —                 —
Securities borrowed or purchased
  under reverse repurchase agreements                                       5,055                —             —               —                 —
Loans
Residential mortgages                                                      67,667                —             —               —                 —
Consumer, credit card and other personal loans                             16,915                —             —               —                 —
Business and government                                                    26,259                —             —               —                 —
                                                                          110,841                —             —               —                 —
Allowance for credit losses                                                  (541)               —             —               —                 —
                                                                          110,300                —             —               —                 —
                                                                                —                —             —               —                 —
Other assets
Clients’ liability under acceptances                                        751                  —             —               —                 —
Derivative financial instruments                                          2,647                  —             —               —                 —
Amounts receivable from clients, brokers and financial institutions         453                  —             —               —                 —
                                                                              —                  —             —             673                 —
Land, buildings and equipment                                             1,008                  —             —             299                 —
                                                                              —                  —           599               —                 —
Other                                                                     4,711                  —          (599)           (972)              488
                                                                          9,570                  —             —               —               488
Total assets                                                          $ 157,442      $           —     $       —     $         —       $       488
LIABILITIEs AnD EQUITy
Liabilities
Deposits
Individuals                                                           $ 75,420       $           —     $       —     $         —       $         —
Business and government                                                 21,876                   —             —               —                 —
Deposit-taking and other institutions                                    8,865                   —             —               —                 —
                                                                       106,161                   —             —               —                 —
Other liabilities
Acceptances                                                                   751                —             —               —                 —
Commitments related to securities sold short                                5,038                —             —               —                 —
Commitments related to securities lent or sold
  under repurchase agreements                                              10,080               —              —               —                 —
Derivative financial instruments                                            1,852               —              —               —                 —
Amounts payable to clients, brokers and financial institutions              2,355               —              —               —                 —
Actuarial and related liabilities                                          13,453               —              —               —               488
                                                                                —               —              —               —                 —
Accrued benefit liabilities                                                   782               —              —               —                 —
                                                                                —               —            303               —                 —
Other                                                                       3,950               —           (303)              —                 —
                                                                           38,261               —              —               —               488
Subordinated bonds                                                          1,294               —              —               —                 —
Total liabilities                                                         145,716               —              —               —               488
Non-controlling interests                                                     380             (380)            —               —                 —
Equity
Capital stock                                                             1,608                 —              —               —                 —
Share capital                                                                71                 —              —               —                 —
Undistributed surplus earnings                                              805                 —              —               —                 —
Accumulated other comprehensive income                                      489                 —              —               —                 —
Reserves                                                                  8,373                 —              —               —                 —
                                                                         11,346                 —              —               —                 —
                                                                              —               380              —               —                 —
Total equity                                                             11,346               380              —               —                 —
Total liabilities and equity                                          $ 157,442      $          —      $       —     $         —       $       488




112    management’s discussion and analysis
                                                                    REsTATEMEnTs (II)                       coMBInED sTATEMEnT of fInAncIAL PosITIon
                property, plant                                                                             items according to ifrs
                 and eQuipment                                                                   amount
    employee    and investment                                     financial                   according
     benefits         property         eQuity   consolidation   instruments        other          to ifrs
          (e)               (f)          (g)             (h)             (i)
                                                                                                            AssETs
$         —     $         —       $       —     $         —     $        —     $     —     $     1,086      Cash and deposits with financial institutions
                                                                                                            Securities
          —               —               —              (2)            (1)          —          19,346      Securities at fair value through profit or loss
          —               —               —             (13)            15           —          12,066      Available-for-sale securities
          —               —               —              —               —          (18)             —      Securities held to maturity
          —               —               —             (15)            14          (18)        31,412
                                                                                                            Securities borrowed or purchased
          —               —               —               —              —           —           5,055        under reverse repurchase agreements
                                                                                                            Loans
          —               —               —              —               1            —         67,668      Residential mortgages
          —               —               —              —               —            —         16,915      Consumer, credit card and other personal loans
          —               —               —              —               —            —         26,259      Business and government
          —               —               —              —               1            —        110,842
          —               —               —              —               —           23           (518)     Allowance for credit losses
          —               —               —              —               1           23        110,324
          —               —               —          3,502               —            —          3,502      Segregated fund contract assets
                                                                                                            Other assets
          —               —               —              —               —           —           751        Clients’ liability under acceptances
          —               —               —              —               —           —         2,647        Derivative financial instruments
          —               —               —              —               —           —           453        Amounts receivable from clients, brokers and financial institutions
          —             (46)              —              —               —           —           627        Investment property
          —             (67)              —              —               —           1         1,241        Property, plant and equipment
        303              (2)              —              —               (6)         —           894        Deferred tax assets
        (90)              —               —              (4)             —           3         3,537        Other
        213            (115)              —              (4)             (6)         4        10,150
$       213     $      (115)      $       —     $    3,483      $         9    $     9     $ 161,529        Total assets
                                                                                                            LIABILITIEs AnD EQUITy
                                                                                                            Liabilities
                                                                                                            Deposits
$         —     $         —       $       —     $         —     $      (16)    $     —     $ 75,404         Individuals
          —               —               —              19             —            —       21,895         Business and government
          —               —               —               —             —            —        8,865         Deposit-taking and other institutions
          —               —               —              19            (16)          —      106,164
                                                                                                            Other liabilities
          —               —               —               —              —           —             751      Acceptances
          —               —               —               —              —           —           5,038      Commitments related to securities sold short
                                                                                                            Commitments related to securities lent or sold
        —                 —               —              —               —           —          10,080        under repurchase agreements
        —                 —               —              —               —           —           1,852      Derivative financial instruments
        —                 —               —              —               —           —           2,355      Amounts payable to clients, brokers and financial institutions
        —                12               —              —               —           (2)        13,951      Insurance and investment contract liabilities
        —                 —               —          3,502               —           —           3,502      Segregated fund contract liabilities
     1,381                —               —              —               —           —           2,163      Defined benefit liabilities
       (64)               4               —              —                2          —             245      Deferred tax liabilities
        —               (41)              —              (4)             —            1          3,603      Other
     1,317              (25)              —          3,498                2          (1)        43,540
        —                 —               —              —               —           —           1,294      Subordinated bonds
     1,317              (25)              —          3,517              (14)         (1)       150,998      Total liabilities
        —                 —               —              —               —           —               —
                                                                                                            Equity attributable to members
         —               —                —              —               —           —         1,608        Capital stock
         —               —                —              —               —           —            71        Share capital
    (1,078)             (71)           1,076             (1)           (84)           6          653        Undistributed surplus earnings
         —               —                —              (1)           107            3          598        Accumulated other comprehensive income
         —               —            (1,076)           (32)             —           —         7,265        Reserves
    (1,078)             (71)              —            (34)             23            9       10,195
       (26)             (19)              —              —               —            1          336        Non-controlling interests
    (1,104)             (90)              —            (34)             23           10       10,531        Total equity
$      213      $      (115)      $       —     $    3,483      $        9     $      9    $ 161,529        Total liabilities and equity




                                                                                                                                                       management’s discussion and analysis   113
I) nATURE of ThE PRIMARy REcLAssIfIcATIons                                               As a result, on the date of transition Desjardins Group charged all unamortized
The changes made to the presentation of certain accounts had no impact on                cumulative net actuarial gains and losses related to defined benefit pension plans
total equity as at January 1, 2010, but nevertheless resulted in the reclassification    and other plans to undistributed surplus earnings.
of items from one account to another. As at January 1, 2010, the nature of the           Therefore, as at January 1, 2010, “Defined benefit liabilities” and “Deferred
primary reclassifications in the Combined Statement of Financial Position as             tax assets” were increased by $1,381 million and $303 million, respectively,
a result of the IFRS changeover and the related amounts were as follows:                 and “Other assets – Other” and “Deferred tax liabilities” were decreased
                                                                                         by $90 million and $64 million, respectively. A $26-million reduction was
a) Non-controlling interests                                                             also allocated to “Non-controlling interests”. The net effect as at January 1,
According to IFRS, non-controlling interests are equity items, while according           2010, of this election on first-time adoption was a $1,078-million reduction
to GAAP they should be classified as liabilities.                                        in “Undistributed surplus earnings”.
As a result, non-controlling interests in an amount of $380 million were
                                                                                         f) Property, plant and equipment and investment property
reclassified as a separate equity item as at January 1, 2010.
                                                                                         Primary changes from GAAP – According to GAAP, property, plant and
b) Income taxes                                                                          equipment were recorded at amortized cost, except for the buildings held by
                                                                                         the life and health insurance subsidiary, which were recorded as investment
According to International Accounting Standard (IAS) 1, “Presentation of
                                                                                         properties and recognized using the market-related value method. However,
Financial Statements”, deferred income taxes should be presented on a separate
                                                                                         according to IFRS an election can be made to measure property, plant and
line of the Combined Statement of Financial Position.
                                                                                         equipment and investment properties at amortized cost or at their fair value on
As a result, these items were reclassified from “Other assets – Other” to “Deferred      the balance sheet date of the financial statements. Desjardins Group has elected
tax assets” in an amount of $599 million, and from “Other liabilities – Other”           to recognize, after the transition date, all these assets at their amortized cost.
to “Deferred tax liabilities” in an amount of $303 million as at January 1, 2010.
                                                                                         Options at first-time adoption – According to IFRS 1, an election can be
                                                                                         made to measure property, plant and equipment and investment properties
c) Investment property and property, plant and equipment
                                                                                         at their fair values on the transition date, which would be the assumed cost
According to GAAP, the investment properties should be presented under                   according to IFRS, or to restate the historical cost under GAAP according to
“Other assets – Other”. According to IFRS, Desjardins Group needs to present             the guidance provided in IAS 16, “Property, Plant and Equipment”, or IAS 40,
investment properties separately from operational properties in accordance               “Investment Property”, and to use this new value as the assumed cost. This
with their specific use.                                                                 election may be made on a building-by-building basis. Desjardins Group has
As a result, all investment properties of the life and health insurance subsidiary       decided that, for the purposes of IFRS, it will adopt restated historical cost
were reclassified from “Other assets – Other” to “Investment property” and               as the assumed cost on the transition date for most of its property, plant and
“Property, plant and equipment” in amounts of $673 million and $299 million,             equipment and investment properties.
respectively, as at January 1, 2010.                                                     Due to the above elections and following the reclassifications described in point
                                                                                         (c) as at January 1, 2010, Desjardins Group reduced the carrying amount of its
d) Insurance contracts                                                                   property, plant and equipment and its investment property by $67 million and
According to GAAP, amounts related to the reinsurance activities of the life             $46 million, respectively, and reversed all gains resulting from the sale of investment
and health insurance subsidiary should be presented on a net basis. According            properties that had previously been deferred and amortized using the market-
to IFRS, all amounts related to reinsurance activities need to be presented              related value method—in accordance with the provisions of Section 4211 of the
on a gross basis.                                                                        CICA Handbook, “Life Insurance Enterprises – Specific Items”—in an amount
As a result, as at January 1, 2010, reinsurance assets were reclassified in              of $41 million.
the Statement of Financial Position in “Other assets – Other” in an amount               This revaluation increased “Insurance and investment liabilities” and “Deferred
of $488 million. The counterpart was an equivalent increase in “Insurance                tax liabilities” by $12 million and $4 million, respectively, and reduced “Deferred
and investment contract liabilities” for the same amount.                                tax assets” and “Non-controlling interests” by $2 million and $19 million,
                                                                                         respectively.
II. nATURE of ThE PRIMARy REsTATEMEnTs
                                                                                         The net effect as at January 1, 2010, of this first-time adoption election was
As at January 1, 2010, the nature of the primary restatements in the Combined            a $71 million reduction of “Undistributed surplus earnings”.
Statement of Financial Position as a result of the IFRS changeover and the related
amounts were as follows:                                                                 g) Equity
                                                                                         According to the Act respecting financial services cooperatives, the Fédération
e) Employee benefits
                                                                                         des caisses Desjardins du Québec (FCDQ) and the caisses must distribute their
Primary changes from GAAP – According to GAAP, the cost and the obligation               undistributed surplus earnings in full during the general meeting. However,
of defined benefit pension plans were determined in light of the fair value of pension   undistributed surplus earnings have been affected by several major adjustments
plan assets. These assets were recognized using the market-related value method,         resulting from the adoption of IFRS and will have to be compensated for using
under which changes in the fair value of plan assets can be spread over a five-year      the reserves.
period. According to IFRS, plan assets and the expected return on plan assets are
measured using fair value on the balance sheet date.                                     As a result, on January 1, 2010, an amount of $1,076 million was transferred from
                                                                                         “Reserves” to “Undistributed surplus earnings” in order to compensate for the
In addition, according to GAAP, the accumulated benefit obligation and the fair          impacts of first-time IFRS adoption on undistributed surplus earnings.
value of plan assets were measured as at September 30, three months before the
balance sheet date of the Combined Financial Statements. According to IFRS, the          h) Consolidation
accumulated benefit obligation and plan assets are measured on the balance sheet
                                                                                         Segregated funds
date of the Combined Financial Statements.
                                                                                         Primary changes from GAAP – According to GAAP, the segregated funds
Options at first-time adoption – According to the provisions of IFRS 1, Desjardins       of the life and health insurance subsidiary were not consolidated in Desjardins
Group has elected to use the optional exemption offered, which allows an enterprise      Group’s financial statements following the provisions of Section 4211 of the CICA
adopting IFRS for the first time to depart from the retrospective application            Handbook, “Life Insurance Enterprises – Specific Considerations”. According
principle of IAS 19, “Employee Benefits”.                                                to IFRS, Desjardins Group must now consolidate the segregated funds of its life
                                                                                         and health insurance subsidiary, even though the holders of these funds assume
                                                                                         the risks and benefit from almost all the rewards associated with ownership
                                                                                         of these investments.




114   management’s discussion and analysis
As a result, “Segregated fund contract assets” was consolidated on a specific         The cumulative impact of using new methods to test the effectiveness of
line in assets in an amount of $3,502 million as at January 1, 2010. In exchange,     Desjardins Group’s hedging relationships has been recognized by increasing
the entire amount was recognized as “Segregated fund contract liabilities”            “Undistributed surplus earnings” in an amount of $12 million as at January
in the Combined Statement of Financial Position.                                      1, 2010. In exchange, “Deferred tax assets” and “Deposits” have been reduced
                                                                                      by $3 million and $16 million, respectively, and “Residential mortgage loans”
Deconsolidation of two entities                                                       and “Deferred tax liabilities” have been increased by $1 million and $2 million,
Primary changes from GAAP – According to GAAP, when an entity had                     respectively, as at January 1, 2010.
determined that it had variable interests in an entity and that it was the primary
beneficiary (meaning that it would be covering most of the anticipated losses         Impairment of financial assets – Available-for-sale securities
or receiving most of the anticipated residual returns), it should consolidate the     Primary changes from GAAP – Under GAAP, an impairment should be recognized
entity. According to IFRS, the analytic criteria for determining whether or not       on securities classified in the “Available for sale” category when there is objective
such an entity should be consolidated are quite different, focusing, in substance,    evidence of impairment and when that impairment is considered to be other than
more on the concept of the control. As such, as soon as an entity has a right to      temporary. According to IFRS provisions, an impairment of these securities
obtain the main rewards and covers the main risks of a special purpose entity,        should be recognized as soon as there is objective evidence of the impairment.
the entity must be consolidated.
                                                                                      Unrealized losses on these investments were reversed from “Accumulated other
As a result, Desjardins Group has determined that, for the purposes of preparing      comprehensive income” and recognized in “Undistributed surplus earnings”,
its Combined Financial Statements according to IFRS, two entities that it had         which were reduced by $95 million as at January 1, 2010.
previously combined (Développement international Desjardins and Fondation
Desjardins) should no longer be consolidated. As at January 1, 2010, all these        Valuing equity securities when no active market exists
entities’ asset and liability items were reversed in exchange for a $34-million       Primary changes from GAAP – According to GAAP, when equity securities
reduction in Desjardins Group’s equity.                                               lack quoted prices on an active market, they should be valued at cost, unless they
                                                                                      are classified as held for trading. According to IFRS, if the fair value of these
i) Financial instruments                                                              securities can be reliably measured, they should be recognized at their fair value.
Mortgage securitization                                                               As a result, as at January 1, 2010, Desjardins Group revalued its investments
Primary changes from GAAP –Desjardins Group transforms mortgage loans                 in equity securities for which the fair value can be reliably measured. “Available-
into mortgage-backed securities then transfers them to the Canada Housing             for-sale securities” was therefore increased by $15 million and “Securities at fair
Trust. Even though, according to GAAP, these securitization transactions are          value through profit or loss” and “Deferred tax assets” were reduced by $1 million
recognized as transfers of receivables, they do not meet IFRS derecognition           and $3 million, respectively.
criteria. According to GAAP, the derecognition criteria for a financial asset are
based on control or, more specifically, on the surrender of control. According        The net impact of these adjustments was to decrease “Undistributed surplus
to IFRS, an evaluation must be made of a set of criteria based mainly on the          earnings” by $1 million and increase “Accumulated other comprehensive
transfer of risks and rewards as well as control of the financial asset.              income” by $12 million as at January 1, 2010.

Options at first-time adoption – According to IFRS 1, which was revised               Financial impacts of IFRS on Desjardins Group’s primary
in December 2010, at the date of transition to IFRS an enterprise must apply          financial measures
the transitional provisions in IAS 39, “Financial Instruments: Recognition
                                                                                      The financial impacts of the IFRS transition, described in the section “Financial
and Measurement”, which provide for prospective treatment of its provisions
                                                                                      impacts of IFRS on Desjardins Group’s Combined Statement of Financial Position
to financial asset transfer transactions beginning January 1, 2011, although
                                                                                      as at January 1, 2010”, affect Desjardins Group’s primary financial measures. In
early adoption is allowed. Following approval from the regulatory authorities,
                                                                                      accordance with the previously stated warnings, there may nevertheless be some
Desjardins Group elected for early adoption of this revision and applied it when
                                                                                      adjustments made to these impacts in the fiscal year ending December 31, 2011.
preparing its Combined Statement of Financial Position as at January 1, 2010.
                                                                                      Therefore, based on the information available to date, had the adjustments
As a result, no restatement was recognized in the Combined Statement of Financial
                                                                                      resulting from the IFRS transition been applied to Desjardins Group’s financial
Position as at January 1, 2010. However, all the transfers of receivables that were
                                                                                      statements as at December 31, 2010, they would have had negative impacts
carried out after January 1, 2010, and for which the IFRS derecognition criteria
                                                                                      of 187 basis points on the Tier 1 capital ratio and 141 basis points on the total
were not met will need to be maintained in assets with, in exchange, a debt to the
                                                                                      capital ratio on this same date. Despite these unfavourable impacts, Desjardins
acquirer. Any difference between the amount of the asset maintained and the
                                                                                      Group still satisfies the regulatory requirements with respect to minimum
liability recognized will need to be recognized in profit or loss.
                                                                                      capital. These impacts are mostly due to the $1.1 billion adjustment, at the date
                                                                                      of transition, for employee benefit plans. The assets to regulatory capital ratio
Hedging relationships
                                                                                      would have been 0.94 times higher, yet still under the 20 times maximum.
Primary changes from GAAP – In accordance with GAAP and in certain
circumstances, Desjardins Group has used the change in variable cash flow             In addition, Desjardins Group has reviewed the public notices issued by the
method and the shortcut method to measure the effectiveness of hedging                regulatory authorities. For the purposes of calculating the regulatory capital
relationships. IFRS does not permit the use of either of these methods. In order      and assets to regulatory capital ratios, the authorities will, commencing on the
to comply with the new requirements, Desjardins Group has developed substitute        date of transition to IFRS, irrevocably allow deferring and amortizing, using
methods that may nevertheless increase the volatility of results in the Combined      the straight-line method, most of the impacts of adoption of these standards
Statement of Income. However, certain hedging relationships were already using        on undistributed surplus earnings and reserves over a two-year period ending
methods that are acceptable under IFRS; they have not been modified and did           December 12, 2012. Desjardins Group has decided to avail itself of these elections.
not require any adjustments on the transition date.




                                                                                                                                          management’s discussion and analysis   115
sEcTIon 4.8
Five-year
statistical review
Table 31 – Combined Balance Sheets
As at December 31
(in millions of $)

                                                                                                                             2010           2009              2008              2007              2006
                                                                                                                                           restated(1)       restated(1)   not restated(1)   not restated(1)
Assets
Cash and deposits with financial institutions                                                                          $    1,610      $    1,086        $    1,489        $    1,499        $ 1,334
Securities
  Securities held for trading                                                                                              21,698          19,349            17,746            21,127            3,906
  Available-for-sale securities                                                                                            15,890          12,064            11,338            10,315                —
  Investment securities                                                                                                         —               —                 —                 —           23,099
  Securities held to maturity                                                                                                  17              18                19                 —                —
                                                                                                                           37,605          31,431            29,103            31,442           27,005
Securities borrowed or purchased under reverse repurchase agreements                                                        7,034           5,055             6,130             7,593            4,147
Loans
  Residential mortgages                                                                                                   72,839          67,667            63,220            57,566            52,768
  Consumer, credit card and other personal loans                                                                          17,504          16,915            15,982            15,535            15,070
  Business and government                                                                                                 26,777          26,259            26,086            23,064            21,532
                                                                                                                         117,120         110,841           105,288            96,165            89,370
Allowance for credit losses                                                                                                 (509)           (541)             (532)             (762)             (724)
                                                                                                                         116,611         110,300           104,756            95,403            88,646
Other assets(2)                                                                                                            9,415           9,570            11,054             8,122             8,008
Total assets                                                                                                           $ 172,275       $ 157,442         $ 152,532         $ 144,059         $ 129,140
Liabilities and equity
Liabilities
Deposits
  Individuals                                                                                                          $ 78,751        $ 75,420          $ 71,958          $ 66,319          $ 62,650
  Business and government                                                                                                23,421          21,876            21,512            20,784            16,282
  Deposit-taking and other institutions                                                                                  10,772           8,865             7,966             8,663             9,211
                                                                                                                        112,944         106,161           101,436            95,766            88,143
Actuarial and related liabilities                                                                                        14,457          13,453            12,874            12,831            11,135
Subordinated bonds                                                                                                        2,805           1,294               748               858             1,367
Other liabilities(2)                                                                                                     29,006          25,188            27,445            25,353            19,970
                                                                                                                         46,268          39,935            41,067            39,042            32,472
Equity
  Capital stock(2)                                                                                                         2,129           1,608               915               863               828
  Share capital                                                                                                               70              71                69                67                66
  Undistributed surplus earnings (deficit)                                                                                 1,104             805               (96)              795               634
  Accumulated other comprehensive income                                                                                     528             489               685                50                 —
  Reserves                                                                                                                 9,232           8,373             8,456             7,476             6,997
                                                                                                                          13,063          11,346            10,029             9,251             8,525
Total liabilities and equity                                                                                           $ 172,275       $ 157,442         $ 152,532         $ 144,059         $ 129,140

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2) Data reclassified in accordance with the presentation adopted in 2010.




116    management’s discussion and analysis
Table 32 – Combined Statements of Income
For the year ended December 31
(in millions of $)

                                                                                                                             2010            2009              2008                   2007                   2006
                                                                                                                                            restated(1)       restated(1)        not restated(1)       not restated(1)
Interest income
  Loans                                                                                                                $ 5,236         $     5,068        $    5,573             $    5,438            $     4,971
  Securities                                                                                                               446                 438               474                    447                    386
                                                                                                                         5,682               5,506             6,047                  5,885                  5,357
Interest expense
  Deposits                                                                                                                  1,691            1,920             2,590                  2,578                  2,206
  Subordinated bonds                                                                                                          105               64                39                     62                     70
                                                                                                                            1,796            1,984             2,629                  2,640                  2,276
Net interest income                                                                                                         3,886            3,522             3,418                  3,245                  3,081
Net premiums                                                                                                                4,368            4,247             4,131                  3,824                  3,688
Other income
  Deposit and payment service charges                                                                                        535               513                497                   484                    447
  Lending fees and credit card service revenues                                                                              470               444                410                   381                    326
  Brokerage, investment fund and trust services                                                                              656               581                617                   738                    625
  Trading income (losses)(2)                                                                                               1,013               666             (1,001)                  262                      —
  Income (losses) from available-for-sale securities(2)                                                                      152                79               (405)                  141                      —
  Investment and trading income                                                                                                —                 —                  —                     —                    878
  Other investment income                                                                                                    283               275                239                   179                      —
  Other                                                                                                                      322               343                467                   417                    374
                                                                                                                           3,431             2,901                824                 2,602                  2,650
Total income(2)                                                                                                           11,685            10,670              8,373                 9,671                  9,419
Provisions for credit losses                                                                                                 197               260                223                   197                    139
Claims, benefits, annuities and changes in insurance provisions                                                            4,168             3,758              3,144                 3,171                  3,342
Non-interest expense
  Salaries and fringe benefits                                                                                              2,616            2,423             2,250                  2,338                  2,271
  Premises, equipment and furniture, including amortization                                                                   400              415               393                    381                    373
  Outsourcing of processing services                                                                                          363              371               322                    308                    315
  Communications                                                                                                              258              237               252                    357                    237
  Restructuring expenses                                                                                                       83              101                 —                      —                      —
  Other                                                                                                                     1,683            1,602             1,588                  1,439                  1,338
                                                                                                                            5,403            5,149             4,805                  4,823                  4,534
Operating surplus earnings                                                                                                  1,917            1,503               201                  1,480                  1,404
Income taxes on surplus earnings(2)                                                                                           462              412               113                    358                    398
Operating surplus earnings before
  non-controlling interests and member dividends                                                                         1,455               1,091                88                  1,122              1,006
Non-controlling interests                                                                                                   18                  17                (1)                    21                 18
Surplus earnings before member dividends(2)                                                                            $ 1,437         $     1,074        $       89             $    1,101            $   988
Provision for member dividends                                                                                             299                 311               215                    592                483
Tax recovery on provision for member dividends                                                                             (81)                (98)              (62)                  (174)              (148)
Surplus earnings (deficit) for the year after member dividends(2)                                                      $ 1,219         $       861        $      (64)            $      683            $   653

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2) The data for 2008 were affected by the financial crisis.




Table 33 – Selected financial measures
As at December 31
(in millions of $ and as a %)

                                                                                                                             2010            2009              2008                   2007                   2006
                                                                                                                                            restated(1)       restated(1)        not restated(1)       not restated(1)

Tier 1 capital ratio                                                                                                         17.7 %           15.8 %             13.6 %                 14.2 %                14.2 %
Total capital ratio                                                                                                         18.7              15.8               13.0                   13.6                  14.3
Return on equity(2, 3)                                                                                                      11.6              10.2                 0.9                  12.3                  12.1
Productivity index(3)                                                                                                       71.9              74.5               91.9                   74.2                  74.6
Gross impaired loans as a percentage of gross loans                                                                         0.44              0.46               0.40                   0.41                  0.39
Average assets(3)                                                                                                $       169,003 $         158,689 $          149,722 $              139,957 $             123,563
Average loans                                                                                                            113,777           107,229             99,764                 91,832                85,419
Average deposits                                                                                                         110,462           104,584             99,288                 92,042                85,485

(1) Certain data have been restated. See “Allowance for credit losses” in section 4.6, “Critical accounting policies and estimates”.
(2) The data for 2008 were affected by the financial crisis.
(3) See section 4.5, “Non-GAAP measures”.




                                                                                                                                                                            management’s discussion and analysis     117
sEcTIon 4.9
Glossary of
financial terms
AccEPTAncE                                                                               coLLATERALIzED DEBT oBLIGATIon
Short-term debt security that can be traded in the money market, which a                 Security resulting from a securitization transaction, issued in representation
financial institution guarantees for a borrower in exchange for a stamping fee.          of loans secured by a real property mortgage. The cash flows representing principal
                                                                                         and interest payments on the underlying mortgage loans are tranched for purposes
ALLoWAncE foR cREDIT LossEs                                                              of passing them through to securityholders.
Amount deemed sufficient by management to cover the anticipated credit losses
related to the loan portfolio and other on- and off-balance sheet financial assets.      coMBInED RATIo
The allowance for credit losses is increased by specific and general allowances          In property and casualty insurance, total claims and operating expenses expressed
and decreased by write-offs, net of recoveries.                                          as a percentage of net premiums earned.

ALT-A MoRTGAGE LoAn                                                                      coMMERcIAL MoRTGAGE-BAckED sEcURITy
Loan to a borrower with non-standard income documentation.                               Security created through the securitization of commercial mortgage loans.

AnnUITy PREMIUM                                                                          cREDIT InsTRUMEnT
Amount invested by the policyowner in order to receive annuity payments,                 Credit facility offered to members and clients in the form of loans and other
immediately or after an accumulation period.                                             financing vehicles reported on the balance sheet, or in the form of off-balance
                                                                                         sheet products such as guarantees, letters of credit and securities lending.
APPoInTED AcTUARy
Actuary appointed by an insurance company’s board of directors, in accordance            DEfInED BEnEfIT PEnsIon PLAn
with the federal and provincial laws governing insurance.                                Pension plan that guarantees each participant a defined level of retirement
                                                                                         income, often based on a formula set by the plan in terms of the participant’s
AssETs UnDER ADMInIsTRATIon AnD AssETs UnDER MAnAGEMEnT                                  salary and number of years of service.
Assets administered or managed by a financial institution that are beneficially
owned by members and clients and are therefore not reported on the financial             DERIVATIVE fInAncIAL InsTRUMEnT
institution’s balance sheet. The services provided in respect of assets under            Financial contract whose value fluctuates based on an underlying asset without
administration are administrative in nature, such as custodial services,                 having to hold or deliver such underlying asset. Derivative financial instruments
collection of investment income and settlement of buy and sell transactions,             are used to transfer, modify or reduce current or expected risks, including risks
while the services provided in respect of assets under management include                related to interest and exchange rates and other financial indices.
selecting investments and offering investment advice. These assets may also
be administered by the financial institution. Assets under administration                DEsJARDIns GRoUP coMPonEnT
and management exclude the impact of securitization.                                     A cooperative or a subsidiary that is part of Desjardins Group.

AUToRITé DEs MARchés fInAncIERs (AMf)                                                    EffEcTIVE InTEREsT RATE
Organization whose mission is to administer all the laws governing the supervision       Rate determined by discounting total future cash flows, including fees paid
of the financial industry in Québec, notably in the areas of insurance, deposit-         or received, premiums and discounts, and transaction costs.
taking institutions and financial product and service distribution, as well
as securities. On February 1, 2004, it replaced the following supervisory
                                                                                         fInAncIAL AssET-BAckED sEcURITy
institutions: the Commission des valeurs mobilières du Québec, the Bureau
des services financiers, the Régie de l’assurance-dépôts du Québec, and the Fonds        Security created through the securitization of a pool of financial assets.
d’indemnisation des services financiers. The AMF also replaced the Inspector
General of Financial Institutions for the supervision of the financial industry.         foRWARD ExchAnGE conTRAcT
                                                                                         Commitment to buy or sell a fixed amount of foreign currency on a specified
BAsIs PoInT                                                                              future date and at a specified exchange rate.
Unit of measure equal to one one-hundredth of a percent.
                                                                                         GRoss PREMIUMs WRITTEn
BEnEfIcIARy                                                                              In property and casualty insurance, total premiums charged for insurance
Person, other than the policyowner, designated to receive benefits under                 contracts during the year.
an insurance or annuity contract.
                                                                                         GUARAnTEEs AnD sTAnDBy LETTERs of cREDIT
BEnEfIT                                                                                  Essentially, irrevocable commitments by a financial institution to make
Amount paid by the insurer under a life, salary or accident-health insurance             payments in the event that a member or client cannot meet its financial
policy. The benefit is paid to the policyowner, the insured person or the beneficiary,   obligations to third parties.
as the case may be. In a pension plan, this term refers to the vested rights of a
participant under the plan.                                                              hEDGInG
                                                                                         Transaction carried out to reduce or offset Desjardins Group’s exposure to one
BonD                                                                                     or several financial risks. The transaction involves taking a position exposed
Certificate evidencing a debt under which the issuer promises to pay the                 to effects that are equivalent, but of opposite direction, to the effects of market
holder a specified amount of interest for a specified period of time, and to repay       fluctuations on an existing or forecasted position.
the borrowing at maturity. Generally, assets are pledged as security for the
borrowing, except in the case of government or corporate bonds, aside from
debentures. This term is often used to describe any debt security.




118   management’s discussion and analysis
hEDGInG RELATIonshIP                                                                    MoRTALITy RATE
A relationship established by management between a hedged item and a hedging            Rate of death in a particular group of persons. The life insurance premium
item that satisfies all the conditions stated in the relevant accounting standard       that a person belonging to a particular age group pays is based on this group’s
issued by the Canadian Institute of Chartered Accountants. A hedging item               mortality rate.
(generally a derivative instrument) is used to offset an identified risk associated
with interest rates, foreign currencies and other financial indices to which a hedged   MUTUAL fUnD
item (generally a combined balance sheet asset or liability) exposes Desjardins         Fund made up of amounts pooled together by investors for purposes of a
Group.                                                                                  collective investment. A third party manages the fund and must, on request,
                                                                                        redeem the units at their net asset value (or at their redemption value).
IMPAIRED LoAn
A loan is considered impaired and the related interest is no longer recorded when       nET InTEREsT IncoME
(a) there is reason to believe that a portion of the principal or the interest cannot   Difference between what a financial institution receives on assets such as
be collected; or (b) the interest or principal repayment is contractually 90 days       loans and securities and what it pays out on liabilities such as deposits and
or more past due, unless the loan is fully secured or in the process of collection;     subordinated bonds.
or (c) the loan is more than 180 days in arrears.
                                                                                        nET PREMIUMs EARnED
InsURAncE PREMIUM
                                                                                        In property and casualty insurance, premiums earned for a given period,
Payment that the policyowner is required to make to maintain the insurance              net of reinsurance premiums.
contract in force. This payment represents the cost of the insurance policy
and can sometimes include a savings component. The premium is directly
                                                                                        noTIonAL AMoUnT
proportional to the amount of risk underwritten by the insurer.
                                                                                        Reference amount used to calculate payments for instruments like forward
InsURAncE PRoVIsIon                                                                     rate agreements and interest rate swaps. It is called “notional” because it does
                                                                                        not change hands.
Liability representing an insurance company’s commitments to insured persons
and beneficiaries provisioned to guarantee the payment of benefits.
                                                                                        off-BALAncE shEET fInAncIAL InsTRUMEnT
InsURED PERson                                                                          A wide range of products offered to members and clients related to credit
                                                                                        instruments, which offer them liquidity protection.
Person whose life or health is insured under an insurance policy. See also
“Participant”.
                                                                                        oPTIon
InVEsTMEnT sEcURITy                                                                     Contractual agreement that grants the right (and not the obligation) to sell
                                                                                        (put option) or to buy (call option) a specified amount of a financial instrument
Security held with the intention of holding it to maturity or until the market          at a predetermined price (the exercise or strike price) on or before a specified date.
offers more attractive investment opportunities.
                                                                                        PARTIcIPAnT
LEVERAGED fInAncE LoAn
                                                                                        Person who participates in a group insurance plan through his or her employer,
Loan to large corporations and finance companies whose credit rating is between         an association or a group.
BB+ and D and whose level of debt is very high compared to other companies in
the same industry.
                                                                                        PEnsIon PLAn
Loss RATIo                                                                              Contract under which the participant receives retirement benefits under certain
                                                                                        terms starting at a given age. A pension plan is funded through contributions made
In property and casualty insurance, total claims expressed as a percentage of net       by either the employer alone, or by the employer and the participant.
premiums earned. Net premiums earned represent premiums earned for a given
period, net of reinsurance premiums.
                                                                                        PERMAnEnT shARE
MATchInG                                                                                Equity security offered to caisse members.

Process of adjusting asset, liability and off-balance sheet item maturities in order
                                                                                        PoLIcy
to minimize risks related to interest rates, currency, and other financial indices.
Matching is used in asset-liability management.                                         Written document that evidences the existence of an insurance or annuity contract
                                                                                        and that sets out the terms and conditions.
MEMBER DIVIDEnD
                                                                                        PRoVIsIon foR cREDIT LossEs
Allocation of surplus earnings to members on the basis of their volume of business
with their caisse.                                                                      Amount charged to income and added to the allowance for credit losses.
                                                                                        Specific allowances are established to reduce the carrying value of some assets
MoRBIDITy RATE                                                                          (especially impaired loans) to an estimated realizable value. The general
                                                                                        allowance is established for expected losses on total unimpaired loans,
Probability that a person of a given age will suffer from an illness or a disability.   particularly in industries where loan losses may not yet be estimated on
The health insurance premium that a person belonging to a particular age group          an individual basis.
pays is based on this group’s morbidity rate.




                                                                                                                                            management’s discussion and analysis   119
REInsURAncE TREATy
Agreement whereby one insurer assumes all or part of a risk undertaken by
another insurer. Despite the treaty, the original insurer remains fully liable
to policyholders for the insurance obligations.

RIsk-WEIGhTED off-BALAncE shEET AssETs AnD fInAncIAL InsTRUMEnTs
Assets adjusted based on prescribed risk-weighting factors to reflect the level
of risk of certain balance sheet and off-balance sheet items. Some assets are not
weighted, but rather deducted from capital. The calculation method is defined
in the AMF’s guidelines according to the Basel II Accord, which took effect on
January 1, 2009. For more details, see section 3.3, “Capital management and
credit ratings”.

sEcURITIzATIon
Process by which financial assets, such as mortgage loans, are converted into
asset-backed securities; these securities are then transferred to a trust.

sEcURITy hELD foR TRADInG
Security held on a short term basis for arbitrage purposes.

sEGREGATED fUnD
Type of fund offered by insurance companies through variable capital contracts that
provides purchasers with a number of guarantees, such as principal repayment
upon death. Segregated funds feature various investment objectives and
securities categories.

sUBoRDInATED BonD
Unsecured bond subordinated in right of payment in the event of liquidation
to the claims of depositors and certain other creditors.

sUBPRIME REsIDEnTIAL MoRTGAGE LoAn
Loan to a borrower with a high credit risk profile.

sUBsIDIARy
Company controlled by the FCDQ.

sWAP
Derivative financial instrument under which two parties agree to exchange interest
rates or currencies for a specified period according to predetermined rules.

UnDERWRITInG ExPERIEncE
In life and health insurance, the difference between the actual results and the
actuarial assumptions used to determine the premium or the actuarial liabilities,
as applicable.

VALUATIon AT fAIR VALUE; MARk-To-MARkET
Valuation whose objective is to determine the approximate value at which financial
instruments could be traded in a current transaction between willing parties.

VARIABLE InTEREsT EnTITy (VIE)
Entity whose equity at risk is not sufficient to finance its activities without additional
subordinated financial support or whose holders of equity investment at risk lack
the characteristics of a controlling financial interest.




120   management’s discussion and analysis

				
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