'Bankers
have a great
responsibility
in society
We are dealing
with a crisis
ofconfidence
REGION SPECIAL NORTH AMERICA
Cor Broekhuyse,
Regional Head, RI-Americas
Jim Lokey,
President, Rabobank, N.A.
Based in New York, Cor Broekhuyse oversees
all of Rabobank International's activities in
the Americas. He was surprised to witness
something that hasn't happened for a few
generations: an authentic bank run in
Western economies. "I have been in the
banking industry for thirty-five years, but this
is completely new to me. The financial crisis
did not come from outside - it has its roots
in banks that lacked caution when they put
certain investments, loans and credits on their
balance sheets. That has led to major losses
at the banks involved. It also prevented
banks from fulfilling their primary function
as credit suppliers, creating a shock wave in
the economy that triggered the recession."
Broekhuyse believes the current crisis
highlights the great responsibility banks
shoulder in society. 'This is a responsibility
that some have not lived up to over the
past few years. Banks that are supposed to
stabilise the economy, suddenly turned
out to be destabilising it. That needs to be
corrected. In the whole turmoil, Rabobank
has not come out too badly. But we can't
be complacent. We have to be alert not
to make the mistakes others have made."
"Here in the US, Rabobank has been
adjusting its strategy continuously since
the beginning of this year. We were aware
early on that we had to react flexibly to
whatever surprises the market might reveal.
We prepared our account managers in spring
and discussed ways to deal with the credit
crunch. The recession will affect our corporate
agribusiness clients, so our account managers
and credit departments need to be extra alert.
We have to manage our credit risks as much
as possible. At the same time we have to
remember that Rabobank, as a cooperative
bank, has an obligation to its clients to
support them when the going gets rough.
A recession is always a phase in the economy
when the survival of the fittest becomes
apparent. Banks will continue to supply
credit, but only if that makes business sense."
'Luckily we only have Food and Agribusiness
on our corporate book, so we don't have to
retractfrom non-food and other industries,"
says Broekhuyse. "In Europe and Asia we
have exposure to other industries, so the
board of Rabobank has decided to withdraw
from these domains. Our focus needs to be
on Food and Agribusiness. Other banks
make different choices. They tend to move
away from agribusiness, so the dynamics
of a recession also presents Rabobank
with new opportunities. Rabobank knows
how farmers think and we are aware that
they will remember who was supporting
them when times were bad. That is in
our DNA. So our focus on Food and
Agribusiness in a downturn will be to our
advantage in the long term. We will emerge
stronger."
Jim Lokey, based in California, helps lead
Rabobank's retail activities in 'the sunny state'.
Rabobank operates more than ninety retail
offices and financial centers in California, and
has around 150,000 customers and $9 billion
in assets. Roughly one-third of the customer
base consists of farmers and ranchers, one-
third are small and medium enterprises and
consumers, while the remaining third are real
estate developers or investors. This dynamic
is slowly changing, Lokey says. "Our focus
now is on agricultural lending plus small-
and medium-sized businesses. Real estate
investors have been important to us, but in
the current environment we are not looking
to expand in that domain."
"While the current crisis is painted as
a banking crisis, it was a few institutions
in the industry that really
went outside sound
banking practices. They
got involved in making
very high loan-to-value
home equity loans. They
also invented sub-prime
and exotic negative
amortization loans, which
were far outside normal
fundamental ways of
banking. Our credit culture
and our role as a trusted
financial advisor prevented
Rabobank, N.A. from getting involved."
While it was a limited number of institutions
that were involved in creating the crisis, the
entire industry has been tarnished. As the
financial crisis surfaced and continues to
unfold, Rabobank's N.A. officers in California
are spending a lot of time talking to the media
and to customers. "Our officers are explaining
the cause and effect of the crisis and have used
the occasion to present Rabobank as a safe,
sound and secure bank. This has attracted new
customers, mainly businesses and wealthy
individuals," he says.
Looking ahead, Lokey believes
we arefacing a difficult
financial and economie
environment that will last
at least twelve to eighteen
months. As a result, many
smaller banks will merge
or be taken over by larger
institutions. "Most banks
will orchestrate this by
themselves and in some
cases the government will
probably have to step in.
This whole development means there are going
to be opportunities for well-capitalised larger
banks. In my opinion that is a good thing for
the industry in the long run. In the US, we have a
very high number of banks per capita, compared
to the rest of the industrialized world."
ISSUE 18
THE WORD