BUILDING
OPTIONS
On the markets
WHAT'S NEWS Issue 8 August 1996
info exchange
Rabobank's activities in derivatives
and options have traditionally been
primarily trade-oriented: a matter of
taking positions on our own account.
In the current competitive
environment, however, the cliënt
necessarily takes the centre stage, and
our clients' needs are growing more
elaborate every day - not least in the
^^st-changing derivatives business.
Head of derivative sales. Maarten van
der Kloot Meijburg, explains.
One recent response to the growing and
increasingly complex derivatives business
has been to build up a team of five
dedicated sales people who are working
together with 15 traders to serve and
extend our base of clients from corporates
and institutional investors to include a
large number of so-called 'rniddle market'
companies as well.
LEVERAGING EXPERTISE
Derivatives - financial instruments like
forward interest rate agreements, interest
rate or currency swaps - are all essentially
•ehicles that allow the cliënt to hedge
gainst adverse interest rate or currency
movements. 'More and more, they are
now becoming commodity products,' says
Meijburg. 'We have to work hard to build
up our turnover, our market presence, and
our cliënt base. We can do this not only by
customer-oriented pricing strategies, and
by leveraging our expertise to offer more
exotic instruments, but also by plugging
derivatives into structured deals, into
banking products and services that more
closely meet the clients needs.'
MIDDLE-MARKET TARGET
Given the inherent limit on the profitability
of derivatives deals, espeeially with big
corporates and institutions, the sales team
is particularly keen to broaden its position
and cultivate relationships in the so-called
•liddie market'. These companies, with
les of between NLG 25 and 800 million,
are now served by the local banks. They
are active in such fields as food
production, logistics and transport,
horticulture, and animal feeds. Also, there
are opportunities in the public
sector, where a number of housing
companies, health-care operations,
and municipal authorities are now
headed for privatization.
CREATIVE STRUCTURES
'All of these have substantial interest
rate and other risks and we can
really play a useful advisory role,'
says Meijburg. 'Say you're a shipping
company and you know you have to
invest in a new vessel. That's an
investment of several million
guilders. You might not want to do it
right away, but nevertheless you
want to take advantage of interest
rates while they're low. Rabobank
can hedge you against an interest rate
hike with a forward rate agreement
(FRA) or a forward swap, or it can combine
the benefits of a floating loan and a fixed
loan by using an interest rate option
construction.'
MUTUAL EXPOSURE
In seeking to build up its market - the
goal is an average monthly turnover of
NLG 2 billion this year - Rabobank can
Looking for NLG 2 billion a month - Meijburg
(seated) and bis sales team (fltr) Joris Heijting,
Carolien van Eggermond, Mark van der Plas and
Gerrit Willem Gramser.
use its Triple-A credit rating to special
advantage. 'With derivatives, the cliënt
and the bank always have an exposure on
each other,' Meijburg notes. 'The cliënt is
always reassured by a bank that has a
sound credit rating.'
Rabobank is a significant player on international capital market. But for the
team which works in and on these markets, the bottom line is always: the
customer comes first.
'Our primary goal,' says Haijo Dijkstra,
head of funding and structures, 'is to be
able to offer our investment customers the
best possible products at the best available
rates.' This statement is no mere cosmetic
marketing hype. The bank's priority is to
protect and enhance its long-term
relationship with the cliënt. And this
strategy is pursued even if it means
sacrificing short-term funding targets. The
key is to structure deals that are successful
both for investors and for the bank. This
is accomplished through a variety of
instruments; for example, a multi-currency
European medium term note program.
With pre-set documentation and an
umbrella prospectus, tranches totaling
some ECU 5 billion have already been
issued (out of an ECU 7.5-billion ceiling).
HIGH-QUALITY PAPER
Overall, since 1992, about NLG 18 billion
has been released on the international
capital markets. In 1996 alone, the bank
issued some NLG 4.7 billion worth of
bonds, medium-term loans, and private
placements. Many of these were non-
syndicated funding transactions
specifically designed for institutional
investors who wished to take a view on
the likely movement of currencies, interest
rates, commodities, equities, and/or
credits, (either singly or in combination).
Although there recently has been a shift in
the market away from structured towards
unstructured deals, the institutional
investors' priority was and remains high-
quality paper with a minimal credit risk.
SHAVING POINTS
Rabobank's position as the biggest savings
bank in the Netherlands - coupled with its
high rating - represents big advantages
when it comes to funding the bank's
assets. 'In the competitive environment of
today's marketplace, every basis point we
can shave off the price we pay for funds
helps to bring us closer to our customers,'
Dijkstra remarks.
DIVERSIFYING SOURCES
In order to avoid overdependence on
Dutch institutions and retail investors,
Rabobank is diversifying its funding