Euro bonding
Corporale and Investment banking
WHAT'S News Issue 4 April 1998
investment banking
17
an investment bank because there is a
major difference between the two. Going
into the millennium, Rabobank is
confronting two issues. Guilder goes away,
so domestic prowess is challenged.
Traditionally, Rabobank is a domestic
bank. R1 started seriously 10 years ago;
people in the organization don't question
the fact the organization is going global;
they know they have to internationalize.
That is one.
The second is the decline in return on
solvency of traditional lending if you
approach it from an investor perspective
and put that loan on your balance sheet.
So where does that put Rabobank? It
means both internationalization and new
product offerings. Our relationship
managers have to have something more to
offer clients. That is really what drives the
IB expansion. Nobody in R1 is looking at
Merrill Lynch and its 28 percent ROE and
saying: we want to be like them. As I see
it, that is what went wrong with a lot of
the European universal banks which went
into investment banking - they went into
it for the wrong reasons. What they
should have been saying is: do our core
customers need this? That gives us, as new
people in the bank, a comfort level
because we can see Rabobank is doing it
for the right reasons.
For your product group alone, there will be
more than 150 new people. You talk about
integration, how will this work?
1 think we'11 see a blending of cultures.
You won't turn this place into Goldmann
Sachs and no one wants that. But we will
have to adapt our culture because we are
going to have to compete with Goldmann
Sachs and Morgan Stanley. There is a
reason why there has always been the
difference in culture between commercial
and investment banks. It sterns from the
businesses. So what Lm trying to do is get
away from the culture issue and try to
concentrate on the business. Once we
bring in new and innovative products for
our customers, I think we'11 naturally
bring the cultures together. The painful
part is that it will take some time to
deliver. We are going slower than anyone
would like. I think existing Rabobank
people thought we'd do this in three to six
months. I was never that optimistic. But I
hear the needs, I know the relationship
managers out there want the products,
we're going as fast as we can.
How fast is that?
Okay, the business plan is well into the
implementation state - all it needs now is
people. Recruiting is a very time
consuming business. Our name is clean,
the capital is there and new people coming
in believe in the business plan. But most
people in this side of the banking business
don't know Rabobank, they know it is
big, but many don't even know what a
cooperative means, how the capital
structure works, and so on. The fact that
we have people joining from top firms
means they believe in the platform and
that you can succesfully create this niche
organization. Having said that, you have
to be careful because everyone today says
they want to be a niche player, or a
megabank. Fortunately, we have a very
clear niche. But I also think it is clear that
we're not just adding people, we're
actually adding businesses.
How long will it take?
Assuming I can physically survive the rest
of the year (laughing), I will have it done
by year-end. 1998 is going to be a tough
year, we're budgeting to lose money. We
have to bring in a lot of people and you
have to make commitments to them. So
this will be a high cost year. My objective
is to have those costs in this year. In 1999,
people will be in place, they will be
performing, they will be making money.
We have massive systems issues to slow us
down. We also need to adapt in the
discipline of credit because we'11 be acting
as an intermediary as compared to
traditional lending. This is why I say the
cultures will blend because we are looking
at an integration of businesses focused on
areas were we touch naturally, such as
private placements, loan trading,
securitization, and so on.
Was our own securitization program a kind
of trial run to show the market what we
could do?
I hope that's not why we did it. In my
view, it was necessary. I think it's good we
got a lot of publicity from it, that's a spin-
off. And I think that's why we did it
ourselves rather than putting it out to a
third party. If we'd done that, we would
have been sending out the wrong message
to the market. I'm not saying we should
never outsource. But the key to
securitization is structuring not
distribution. Why not generate that
structure ourselves. That is what we will
do in the future - we'11 use the Merrill
Lynchs of this world for distribution of
commercial paper and we'11 do the
structure ourselves because that is where
the added value is. As I said, securitization
should be a flagship business for us.
This is our niche?
Yes, at least one of them. And when you
are a niche player, you have to be the best.
There is no room for average. You have to
spend the time getting the business right
and that usually means getting the person
right. That's why finding the right people
is so important and why we'11 take the
time we need to do that.
Euromoney International, the British
organization which focuses the European
hanking industry's attention on financial
markets, once again hosted its annual
International Bond Congress in London
mid February - this year Rabobank,
among others, acting as co-sponsor. There
were some 30 presentations, on subjects
ranging from credit risk, credit risk
derivatives and local bond markets as well
as several plenary sessions. Rabobank
International's head of financial markets
research, Bernard Walschots made an
impact with his investigative presentation
on what would happen to world financial
markets if the EMU were to crash,
'something of a unique topic,' he admits,
'since, to my knowledge no other financial
organization has taken such an original
angle.' And judging from the packed room
and overflow of business cards, the
approach was well received. 'The congress
Walschots: 'From a marketing point of view,
our stand at the fair represents Rabobank as
a serious partner in international banking. It
not only improves cliënt relationsbips, but
also attracts new business.
is an ideal opportunity for the bank to
demonstrate its expertise to a wider
audience,' Walschots continues.
'sbobank
Hernationai
