WHAT'S NewS Issue 10 November 1997
info exchange
5
attain the economies of scale and global
^cope that are prerequisite to our goal of
fjfrofitably serving our customers.' There is
room to improve our presence in Dutch
equities - where Rabo Securities has built
an impressive 1997 market share of 80
percent in Dutch middle market IPO's.
More needs to be done to obtain a fair
share of the primary and secondary equity
business of larger Dutch companies for
whom there will be active demand from
our retail investors. We will also build
from scratch our London equity operation
with about 70 stage staff, including OTC
Equity and Derivatives; its focus will be
on non-Dutch European equities in the
chosen sectors of F&A, Health Care as
well as several other non-core fields such
as Telecommunications where Corporate
Finance has built expertise.
STRATEGIC CHANGES
leing a knowledge-driven, customer-
oriented bank implies a significant
investment in pan-European research,
including parts of IRIS. Our agri research
unit - already regarded as among the world's
best - will (as a result of the addition of
equity analysts) extend its reach from macro
research on agricultural products or projects
to the provision of information and
investment advice about individual
companies for sale to institutional clients -
this is one example of the integrated
approach for investment banking.
TRANSITION CHALLENGE
In interest rates we have made the
following choices. The single most
important strategie challenge is the
transition to the common European
^fcurrency and the disappearance of our
^^iuilder trading activities within 14 months.
As a result, our most important source of
profit will disappear. Trading in the
common Euro currency is one of the few
commodity products in which we intend to
carve out a strong role. Our ambition is to
become one of the top 10-15 Euro houses
in the world - and the common currency is
one in which we are not, for once, starting
out from behind. Thus, in addition to
servicing our Dutch customer base,
Utrecht's task will be to get the Euro
transition properly organized and emerge
as a highly focused centre of Euro trading
competence that generates Euro products
available for use throughout the network.
This is a new and much expanded role for
Utrecht, an opportunity it did not have
whilst its focus was on a niche currency.
ENVIABLE PORTFOLIO
One of the concerns that has recently
affected corporate bankers is the solvency-
imposed limit on growth in lending.
However the advent of securitization -
whereby such assets are sold to other
institutional investors (who assume the
associated credit risks) - has transformed
our loan portfolio into an enviable
resource. 'We have an army of loan
officers managing relationships with
customers who would do even more
business with us - if only we could. By
creating the skills to securitize loans on a
much larger scale, we can transform what
was seen as a bottleneck in our bank into
a real advantage. We will have corporate
bankers originating something that
investment bankers go on to sell. This is
another very practical example of
investment banking as part of an
integrated bank. Obviously, we can move
beyond our own loan portfolio to offer
similar services for customers'.
MAKING CHOICES
Hard choices have also been made with
respect to our involvement in
sophisticated non-commodity products.
We will focus on those areas - such as
long-term derivatives or complex options
- where our AAA credit rating is crucial
for our customers and counterparties. This
advantage is only of value if we take the
long-term credit risk on a prudent basis.
EXPENDING PRESENCE
Our investment banking presence will be
expanded in areas like Eastern Europe, as
well as selected countries in Southeast
Asia and Latin America, where we will
develop expertise in terms of trading
currencies and securities for corporates
and institutional investors alike. Finally
we are currently investigating a new
product range for hedging price risks
associated with certain soft commodities.
COST-EFFECTIVE PRODUCTS
All of these interest rate derivatives, credit
derivatives, soft commodity products
(which are derivative related), private
placements, asset swaps, spreads on bonds
for emerging markets, asset backed
securities and so forth are closely
interrelated. We must look at generic
classes of risk. This makes our activities in
terms of trading and selling more cost
effective. 'The essential point is to create a
range of products that are like the
contiguous colours of a rainbow,' explains
von Ungern-Sternberg.
IMPORTANT IMPLICATIONS
Clearly, this increased range will have
important implications for the member
banks. Demographic trends mean that
their retail clients are becoming more
affluent, and are increasingly keen to
diversify their investment portfolios. With
the advent of the Euro, the range of
products that they will be interested in will
quickly extend beyond Dutch corporate
equities. One of the key roles of Rabobank
International will be to act as a reliable in-
house supplier that can generate a constant
stream of attractive investment products.
GENERATING VOLUMES
'Our retail distribution network is a great
strength. We need to see the volumes that
only our retail network can generate,' says
von Ungern-Sternberg. 'In this respect,
we're not unlike the three big Swiss Banks.
The Member Banks and Rabobank
International together need to better
organize the flow of products to these
customers, based on a clear exchange of
information about their anticipated needs.
We need to spend a great deal of time over
the next 12 months to organize this
interactive process: it will be decisive to
our success in Investment Banking and
make them attractive to their customers.'
(continued on page 15)
Discussing investment banking policy plans from left: Michael lee, Alex von Ungern-Sternberg,
Marcus Grubb, Ruut Schalij, Reinier Mesritz, Andries Mak van Waay, BUI Cuthbert,
Mark Blundell, Rogier Krens, Teym Eliazov.