I
investment banking
STIR Spectrum
Collateral Management
What sNewS Issue 6* June 1998 II
H hen I ask: what about return on assets?
A lot of our existing operations had big
asset bases. Tbey generate some profits,
but only with huge volume. Then there is
return on risk. My view is that a ratio of
12 times revenues to risk is an acceptable
target. Over the longer term, 1 look
forward to introducing risk adjusted
return on capital (RAROC).
These are all elements which have been slotted into
the framework you've put together for STIR?
That's right. We will also be
introducing a so-called long-term
operational gearing ratio of 3:1It is all
very well having a business that makes
money. But what happens if you're
making 230 gross and 200 net? The
answer is that in a bad year, you lose
^noney. We intend to make money even in
a had year. This is a very different
approach. The issue is how much money
did it generate relative to its cost and not
did it just make money.
relationships in terms of the fits between
the niches and the customers. What
matters is the global niches and the
customer focus groups. Within STIR,
volume considerations are important. 1
am not a genius like some of my
colleagues. I am a business engineer. I am
all about velocity and volume. That
means 1 have to have big customers, big
counterparts, to play with.
Getting them will be part ofyour satés push1
Customers are vital. We will be
focusing strategy on four areas. The
first is central banks where our credit
rating clearly means they will want to
play with us, particularly in a world were
all other triple-As have gone drastically
and dramatically wrong. Second, the
Netherlands. There are no money markets
to speak of there, so creating one and
selling it to local institutions against a
background of our 30/40 percent market
share will be a very lucrative and
What about customers and
customer focus, how do you
see that aspect?
Istrongly believe
that the customer's
perception of whether
we are doing a good
job is important in all
institutions, but
certainly here at
Rabobank. We have a
customer focus and a
cooperative culture.
IEstablished Rabobank culture would tend
|o lean in the direcfion of 'the customer
comes first' and 'the bank's capital can be
exposed at the bank's expense on behalf
of the customer'. 1 am more right-wing.
But 1 do believe that we can carefully
choose our niches, those areas where we
want to be good, and that we can choose
those customer groups with whom we
want to do business. By choosing your
niches and your customer groups, you can
make sure customers pay for the service
you provide. No one will pay us to give
them a seven-year Standard bilateral loan.
Those days are gone. Someone might pay
us to look after their liquidity because we
are triple-A. You need to piek and choose
your markets.
That is pretty plain speaking.
IA/"ou cannot take the bank's capital and
X. give it to customers and say: play
with it at will. You have to consider that
the bank's store of wealth needs to grow
year on year in order for it to survive and
thrive. And that we need to find good
interesting thing to do. And it will provide
a genuine service. Third, securities lending
- that will take a deep penetration of this
industry sector, both for debt and equity
products. Finally, there are the money
market funds.
This is high on your list of priorities?
There is nothing more obvious if you
are in the money market industry
than to have the money market fund
sector as one of your main customer
bases. But most people aren't in touch
with it. It is certainly huge in the US -
around half of all available funds there.
It is also very big in Europe. But it is
splintered and in different currencies.
Every single bank has its own money
market fund. And depending on the
country, they are enormous or just huge.
It is part of the disintermediation process
ongoing here in Europe. When the euro
clicks in, we will have USD 750 billion in
the money market industry that wants to
find one-month investment. That is a huge
amount of money.
Will we be ready
think so. I am comfortable that very
few of my competition are focusing on
money markets. That's the beauty. Most
of them have one part of the market as a
particular focus - that could be their own
funding, repo trading, trading derivatives
in one shape or form. Very few integrate.
And very few do it from the perspective of
a European bank. I'd say we're ahead of
the crowd.
Given the fact we're relative newcomers on the
international playing field, that is an unfamiliar
position for us.
We have other advantages. One is
that very few institutions can make
the big hubs work with the small
branches. You can only achieve that if
you start with relatively small hubs and
both Utrecht and Eondon were
comparatively small. By doing it this
way, we get everyone to grow together.
The trick is to run it in a way that people
integrate. We're all
trying to find all
the synergy's. One
of my beliefs is
that a global
product manager
must always add
something to a
location. Another
is that we
shouldn't have
two people in the
bank doing the
same job and
competing against each other. At this
stage in our development, I have had to
deliver negative messages at the same
time.
You are also a great believer in the centre of
competence structure.
The GPM approach technically says
that you should be a specialist in
your sphere, but a generalist in location,
as opposed to someone who is a
specialist in, say, Denmark, but hasn't got
a clue what is happening in Finland. My
role is to add know-how. Money markets
are the same the world over. There are 30
ways at least of working them. The
question is which of the 30 ways in
which location. You can also do a lot by
moving people into centres so you get a
better integration. Across product
groups, across borders, and across
cultures. I have to do the same in the
sense that one has to form pacts with
local management and they have to form
a pact with me. Basically, it's all about
cooperation.
