Desjardins almost doubles ABCP writedowns with $220M Q1 writedown
May 15, 2008MONTREAL - Asset-backed commercial paper weighed down the quarterly results of another Canadian financial institution as Desjardins Group took a $220 million first-quarter writedown, nearly doubling its total charges related to ABCP to $493 million.
The writedown announced Thursday equals $150 million after income taxes and follows pre-tax charges of $116 million taken in the fourth quarter and $157 in the third quarter.
Canada's largest credit union said in March that any re-evaluation in its writedown of asset-backed commercial paper would likely reduce the provisions.
But it took an additional writedown of 11 per cent of its $1.8 billion for the period ended March 31.
Its total writedown represents nearly 27 per cent of its ABCP holdings. That's more than the 25 per cent writedown taken so far by rival National Bank of Canada (TSX:NA), which is set to report its quarterly results May 29.
The writedown clouded Desjardins' first-quarter results, said newly installed CEO Monique Leroux.
"This is why we must remain vigilant with regard to the current situation on the capital markets," she said in a news release.
Desjardins said its surplus earnings before member dividends declined by 74.7 per cent to $67 million.
Excluding the ABCP impact, surplus earnings would have been $217 million, a drop of 18.1 per cent from the year-ago period.
The provision for member dividends increased to $122 million, from $111 million a year earlier.
Total revenues declined 8.1 per cent to $2.17 billion.
Return on equity dropped to 2.4 per cent from 12.4 per cent, but would have come in at 9.2 per cent had it not been for the ABCP writedown.
The profitability of Desjardins' caisse network grew, with surplus earnings rising 29 per cent to $179 million in the quarter.
"Our caisse network's performance is noteworthy as it continues to be solid with strong growth in operating income and effective cost control," said Leroux.
The writedowns at banks and financial institutions could continue, said analyst Brad Smith of Blackmont Capital, who doesn't cover the Desjardins financial co-operative.
"We are certainly somewhere between the beginning and the end but I don't think it would be prudent to conclude we are at the end," he said in an interview.
What's important about the writedowns is if they cause dislocation of the business, added Smith, who believes some very large writedowns will take place if the restructuring proposals aren't completed.
Meanwhile Desjardins Group said its combined income was down because of the commercial paper, affecting mainly personal and commercial segment results.
Net interest income rose 3.5 per cent to $809 million and insurance premiums grew 9.6 per cent or $87 million because of greater business volumes. Other income was affected by the $319 million decline in investment income due primarily to the ABCP writedown.
Unfavourable conditions on capital markets reduced income from brokerage, investment fund and trust services by 9.8 per cent, or $17 million.
The Desjardins Group's total assets were $149.8 billion, up 9.6 per cent from $136.7 billion.
