STRATEGIC relations info exchange 11 Robin Bargmann These investments include DSM, the ^ormerly state-owned chemicals group, "teelrnaker Hoogovens, and Nederlandse Kabel Fabriek (NKF), the cable producer formerly owned by Finland's Nokia group. We are also negotiating a stake in Océ van den Grinten, the manufacturer of advanced photocopiers. These shareholdings serve a dual role, explains Robin Bargmann of Corporate Banking. They are highly attractive investments in their own right - they generate consistently high after-tax yields. They are also seedlings of a sort; if carefully cultivated, these assets will grow into trees, or long-term relationships, that can be expected to bear fruit for the whole organization. CHANGING DOMESTIC MARKET The recent consolidation on the Dutch financial scene has spurred this development nd worked to Rabobank's advantage. Vhen ABN and Amro merged in 1992, it became dominant presence in Dutch industry. In some regions, it controlled as much as four-fifths of the total market. Understandably, many companies thought it prudent to seek a alternative banking partner. The formation of allfinanz giant ING, the single largest institutional investor in Holland, exerted a similar effect. STRATEGIC SHAREHOLDING In addition to its own inherent strengths, Rabobank has been able to offer a rather unique profile as strategie partner. First, it has always been a relationship-oriented bank: 'we like to think of our relationship with clients as longer term,' Bargmann says. 'We also tend to be less pushy. We look at a strategie shareholding away to poster deeper commitment.' MARKET ADVANTAGE Neither of Rabobank's two leading Dutch competitors offer exactly the same balance Rabobank has been laying the foundations for its rise as a major presence on the landscape of corporate banking by acquiring a series of strategie investments in non-food and agribusiness- related industries in the Netherlands. of banking and insurance expertise. 'We have an advantage over ABN Amro because we own Interpolis while they have no insurance arm at all,' says Bargmann. 'We also have a dynamic corporate bank. Obviously, it can't boast the same sheer clout as ABN Amro's, yet it is rather sophisticated and it can certainly offer more than ING.' GREATER CONCENTRATION In order to fully appreciate Rabobank's nimble shift into its new 'allfinanz' role, it is worth considering several changes in the regulatory climate. Banking in the Netherlands has traditionally been quite different from that of Britain, France, or Germany. The demands of Germany's postwar reconstruction led its banks to play a far wider and more active role as shareholders in industry instance; in Holland, any bank owning corporate equity was obliged to set aside 100 percent of the value to reserves. Obviously, this took funds out of circulation and encouraged a greater concentration on lending. TAX DIVIDENDS A few years ago, the Dutch central bank changed the rules. The intent was to make BANQUE D'AFFAIRS Worden wij een Banque d'Affairs? Recente lange termijn investeringen in DSM, Hoogovens en NKF lijken hierop te wijzen.Ook in kopieerappparaten zien wij goede mogelijkheden, gezien de recente onderhandelingen met Océ-Van der Grinten. Naast de grote aantrekkelijkheid als investering bieden deze deelnemingen de mogelijkheid tot een verdere groei van de zakelijke relatie met deze bedrijven. 'Als strategisch partner nemen wij in Nederland een unieke positie in. Wij zijn altijd een bank van lange termijn verbintenissen geweest met een speciale band met onze klanten. Onze investering zien wij met name als mogelijkheid om de relatie met de klant te verdiepen/aldus Robin Bargmann. domestic banks more competitive with larger European counterparts. Henceforth, shareholdings could be treated as a form of credit. This meant that equity investments would require a much lower capital set-aside - the figure was lowered to just 8 percent. A second important aspect is the tax treatment on dividends. If own more than a 5 percent of a firm, the dividends from this investment are tax free. Thus, for example, Rabobank's pension fund, which is managed by Interpolis, might happen to own 3 percent in a given company. If the Corporate Banking arm then acquires a further 3 percent, then the entire 6 percent is rendered untaxable (assuming unified taxation). LONG-TERM HOLDING A third practical change is evolution of the so-called cumulative preferential share. This is a share that behaves very much like a bond. It is eligible for a dividend that is fixed in advance. The return is usually tied to capital market rates. Such shares are interesting because they offer virtually no fluctuation in their value and yield a fixed (and potentially tax-free) income from the dividend. They also tend to be priced at their nominal value. This is important because, while ordinary shares often trade at multiples of five and ten times their face value, the price of a preference share is fixed. Hence, a 5 percent shareholding denominated in preference rather than ordinary shares is much less costly to acquire. In exchange, Rabobank will usually agree to hold these shares as a long-term investment vehicle. This arrangement offers the strategie industrial partner a certain sense of continuity. Although such 'gentlemen's agreements' represent an intangible value, they also offer some security at a time when traditional ownership arrangements, including anti-takeover defenses, are being reconfigured as a result of free market policies adopted by Brussels. Bargmann describes the strategie investment as being 'like a kind of a marriage. The best marriages will offer both partners a complimentary set of advantages.'

Rabobank Bronnenarchief

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