Were investing in the future 9 Commodity prices have been very volatilewhich makes it challenging. But the structural demand for foodstujfs is definitely increasin^. In the endy Rob ten Heggeler, Managing Board member As a Managing Board member of Rabobank International, Rob ten Heggeler is responsible for corporate clients and Rabo Securities. He believes old-fashioned relationship banking is back with a vengeance - and he ivelcomes it. and the markets spent too much time denying the impact the US crisis was having on Europe. But when that belief began to crumble they did move very quickly and launched an array of measures. Luckily they also saw the need for capital injections, ratherthan simply buying up illiquid assets, which was the plan in the US. European governments saw that buying up illiquid assets would not by itself be enough to restore confidence in the market. The US government realised this too and adopted the European approach of capital injections. So, in effect, we had a global approach to the problem, which was what we needed. Restoring confidence in the financial sector will be the key to weathering this particular storm." Of course, fora well-funded bank this lack of market liquidity presents a perfect opportunity for cherry picking, or lending to clients that offer the best returns, he says. But even Rabobank can't take up all the slack left by other banks. Nor should it, De Groot says. Rabobank's focus on the Food and Agribusiness (F&A) sector is one of its greatest strengths. To lose that focus in search of quick profits would be a huge mistake, and would be very uncharacteristic of the bank. Rabobank CEO Bert Heemskerk has also been very quick to emphasise that the bank will continue to focus on its core clients and core sectors and has no wish to be all things to all men. Nor is this a matter of putting all the bank's eggs in one basket, De Groot says. "People outside the F&A sector tend to forget that it is an incredibly broad sector, so broad in fact that the various segments mitigate risk in others." Nor should we forget that the middle class is growing very rapidly in a number of very powerful emerging economies. 99 00 oi o Elwin de Groot ,-q According to Rob ten Heggeler, the most visible effect of the current credit squeeze is that banks have virtually stopped lending above a certain leve!. 'There's a big difference right now between smaller funding deals, say €75 million and less, and anything above that. Below that level there is still some competition, although nowhere near as intense as in the past Margins are also higher at this level, but the rise is nothing compared with the huge increase in margins for bigger deals." Banks are stil! very cautious and the bigger the deals the more cautious they are, he says. Although Rabobank is also cautious, it is one of the few banks still active in the market for relatively big deals. And the margins on loans have increased tremendously. "Almost a year ago, we were warning our people that banks were having problems with their liquidity and would be increasingly reluctant to enter new deals. We knew this would drive up margins, but to be honest I really didn't expect margins to increase as much as they have, or as quickly as they have. I was thinking in terms of 25 or 50 basis points, which is dramatic enough, but we're now seeing deals in which the spreads are up as much as 200 basis points." And banks are not even negotiating on deals, with many as happy to walk away from the deal as to close it Any deal not done shortens their balance sheet and improves their solvency ratio, which is something banks are currently focusing on. This, of course, puts borrowers in a very difficult position, as they struggle to close deals no matter how much they are willing to pay. (cont. on page 20) ISSUE THE WORD

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