STRATEGIC relations
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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.'