collateral management
Downunder sell-off
Indian entry
What'sNewS Issue 11 November 1998 I
and you get a coupon payment, and
if it goes up, you can convert it into
more valuable stocks.
Basically, it seems to be about relative values.
That's exactly right. It is all about
relative value - between a good and a
bad company, between two classes of
securities from the same company, the
relative value between an index
futures contract and the underlying
shares. It's relative value based on
knowledge and analysis.
^Your role is as facilitator?
Yes. What we do as the facilitators is
match up all the suppliers, the owners
of stock around the world, with all
the people who want to borrow the
stock and short sell it. People like
Rabobank's global equity derivatives,
international equity brokerage - they
are likely borrowers of stock, and as I
said, our people at Rabo Securities,
or in London. There is a lot of option
related trading in Amsterdam, so one
way to offset risk is to sell short.
What my group does is manage the
collateral - the reason it is called
collateral is because any security is
really just cash in another form.
When you've pledged or paid cash
against any sort of securities, you
|have essentially bought yourself some
collateral. Because you can take that
collateral and borrow cash against it.
So we look at it in the same way as
any other form of security we have -
it is collateral against cash. We now
have a valuable commodity for which
we can get other cash or lend it to
someone else.
What do peopie pay to borrow this kind of securitv?
When you borrow cash from a bank,
you pay a fee, and that could be cash,
hut also other stocks or securities.
This means we have a big pool of
collateral internally which are the
bank's own positions, things we've
bought, things we've borrowed. I
match that up with things we want to
borrow and 1 have to give collateral.
So I go to the pool. One counterparty
will take one sort of collateral,
another will require something else. If
I don't have enough collateral, then 1
borrow cash in the market. And then
go and borrow in some more
collateral.
You do that for the bank's own positions, but also for
clients, iarge institutionals and corporates
If they own stocks, they want to
keep the economie benefits of those
securities, but otherwise you're
talking about a dormant asset.
Collateral management is basically
getting extra value out of your assets.
It sounds rather speculative.
One person's investment is another's
speculation. As I said, it is all based
on knowledge and insight into markets
and sectors.
So it is more a win-win situation? What about risk
The biggest issue here is the
counterparty. This is why Rabobank
can be so strong in this market. We
don't need to do any marketing
because people are calling us. This is
The Rabobank Group recently announced the sale of the residential portfolio of
subsidiary Primary Industry Bank of Australia (PIBA) to Australia New
Zealand Bank (ANZ), a sale which, according to Australia and New Zealand's CEO
Cor Broekhuyse, is in line with the Group's overall strategy of becoming a premiere
F&A financier in the region. 'The sale of the portfolio enables us to concentrate
even further on PIBA's rural lending business as well as our activities in the
corporate market. The previously announced acquisition of Rabo Wrightson
Finance is also part of this strategy. We are happy that ANZ is acquiring the unit -
because of both their commitment to developing this business further as well as
their willingness to take on board the staff of our residential lending division.'
Our team in Mumbai hammered
home the Rabobank message
at a major convention to attract
global investment for agri projects
in the region held in mid-November.
Global F&A business manager,
Peter Greenberg, was invited to
make the keynote address at the
event organized by the Maharashtra
regional government to seek funding
and joint venture partnerships in
F&A. Greenberg offered a global
perspective on food and agribusiness
before going on to sketch the scope
of development in India. He was
widely reported by all leading
Indian newspapers who also gave us
quite some coverage on plans to
build F&A and health care in the
Indian market. Says Karan
Ahluwalla of structured finance:
'We got a lot of exposure through
participation in this event, exposure
that will serve us well in the
market.' The Economie Times of
Mumbai noted that Rabobank in
India will be focusing on higher
value added products, such as
M&A, private equity and venture
capital funds, as well as offering the
usual range of products and services
- also for health care. 'In fact,'
Ahluwalla concludes, 'you can't buy
this kind of publicity. We're
delighted here.'
a secure business if you make sure
you're well collateralized and you're
selective about your counterparties.
And that is part of our role. This is
very rnuch a demand-driven business.
You don't get pension funds calling
up and saying do you want to
borrow this or that. What we do
have is people on the demand side
calling, people from inside and
outside the bank who want this or
that security. We negotiate pricing,
collateral and fees with the
relationships we have built up on the
supply side. Basically, our job is to
use our network to get the best
value out of our own assets and our
customer's assests to support our
people in getting the best out of
their strategies.
