budget strategy
i
development by our investment banking
people. But also new product lines on the
credit side. I think the speed of that
investment was irresponsible because the
speed related only to front office
activities. The rest of the organization
was left behind. You may remember I
said in June that our priorities had to be
systems and the euro. What I didn't
know then was that this rapid, one-sided
front office activity was carrying a
tremendous overrun of costs. I know a
lot of people have been wondering what
we've been doing in the interim. Well,
one of the things we've been doing is to
reduce those costs to a rather more
reasonable level, and even then, it is still
very high.
mentioned the fact that euro compliance was a
priority. Will we be compliant?
A lot of people may still not believe it.
But yes, we will be euro compliant. And
that is down to our back office people
working their tails off. Hundreds of our
colleagues have been working nights and
weekends. They are making it happen
and that is a great accomplishment.
You said there were four points.
The second is infrastructure.The problem
is that we had to do three things at the
same time - euro, millennium and build
an infrastructure which had not kept up
with front office growth. At the same
time, we were changing our systems in
Europe. This proved an exercise which
was, and I'm sorry to criticize, very badly
^fejanned. Fortunately, and I say this again
^oecause our people on the administration
side more than deserve it, our systems are
getting back on track and it is due to
those people's efforts that we have
managed to make up so ntuch time in
recent months.
And the third issue
That is organization. We had begun to
construct a matrix system, but within
that matrix there was so much
compromise. I admit this is one of the
most difficult structures to adopt. People
don't feel comfortable if they don't know
exactly who their boss is. And if people
aren't comfortable, then the organization
is not comfortable. On the other hand, I
also see situations where the whole thing
runs like clockwork. Yet overall, the
^^arrix system isn't working as well as it
could and it doesn't give enough
guidance. But there's a lot of goodwill in
the organization. 1 think that when we've
lived through it for longer and have
integrated the processes involved, then
we'11 feel happier with it. If I look at JP
Morgan or Citibank, then I see they went
through this process about ten years ago,
only now they begin to feel more
comfortable with the structure. We seem
to be trying to do everything in two years
where others take ten years.
Is Rl learning from those experiences?
We're learning and consulting with
colleague banks. We've sent teams to
other banks to see how they organize. It's
helping us find the tools and the rules we
need to functionalize. We're heading
towards a client-driven organization
which is more multinational than
national. We are going with product
delivery which is more multinational than
national, systems which are more
multinational than national. And the
same applies to risk management. These
are the things we have to do to
functionalize.
A lot of people expected a blueprint in place earlier.
Yes, I can understand people are
impatient. I'm impatient. It was certainly
our airn to get something on paper before
the end of the summer. Unfortunately,
there was the matter of a global
economie and financial crisis. Everyone in
the organization had more than enough
to do simply keeping the business
together. Admittedly, we didn't have the
very dubious exposures in countries like
Russia that other banks had. But we still
had large positions to manage with
difficult market outcomes. This is why we
will be a little later than originally
planned. Now, what we have to do is
very clear. We have to get all these things
right - including a review of how we
manage this whole process, that's number
four by the way. Then 1 think we can
look forward to a comfortable future,
certainly by 2000.
But there is still 1999 in between - what about the
transformation everyone is talking about. You're currently
engaged in a second budget round.
We asked responsible people - global
product managers, general managers -
every one who has a 'g' in front of their
name. They came up with budgets with
30 percent higher costs than last year.
Now, in a period when the markets are
strained, when we have more than
doubled - yes, more than doubled - our
cost base in the past two years, we are
not going to expend 30 percent more
next year. Country limits are going to go
down because we're losing too much,
solvency will go down because we are
not earning enough, and infrastructure
will have to adapt to new realities such
as Euroland.
How
What we are doing is controlling front
office costs, everywhere except in a shift
in front office costs towards a few more
corporate finance and IB products. When
I say a little bit more, that's exactly what
1 mean, no more than 10 percent. That
means if we don't want to increase costs,
somehow and somewhere we are going to
have to deleverage costs. But how are we
going to organize that, and to move away
from this high cost base? The answer is
to concentrate on why we're here. If we
are going to do everything for every Tom,
Dick and Harry, we'11 never succeed. If
you say that the domestic middle market
is the field of local banks, and we've said
that time and time again, and there are
still hundreds of contacts with mid-caps
within RI, then we're doing something
wrong. We've got to clean up our act. If
we say we want to give service to local
banks from, say, the treasury but we're
not doing it, and there is a group within
the treasury that wants to provide that
service, then we will shift that service to
Rabobank Nederland (RN). At RI, we
are going to focus on those clients we
should be focused on.
You're talking exclusively about the domestic market.
This applies to all countries around the
world. All I'm saying is that if we are
very selective and stick to the cliënt
groups defined by our focus, we may not
have one million prospective custonters,
but we'11 still have 100,000. Look, let's
be honest. We are not even the house
bank of all huge Dutch F&A players, let
alone penetrating this market segment
globally. There is still a lot to be done,
even in the home market.
There is some talk that the Netherlands Branch will rejoin
Rabobank Nederland, leaving Rl.
That's something of a misconception.
There are a number of dual operations,
such as payments, in this organization.
If you take payments, then you see one
system managed by RN, one by RI. The
one managed by RN is one of the best
managed in the world. The RI system is
not getting the attention or investment it
deserves, so it will go back into the RN
fold. Payments are going because they will
get better attention and they become part
of a superb organization. Anything that
has to do with middle market, including
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