On the long term funding sideevery extra euro you raise today is more time and labour intensive than in the past. face-to-face dialogueoften at management-board level, with investor 9 F UND ING Michael Gower: Filling the gap Rabobank's internat funding structure what is happening within the markets. We have a close relationship with other banking groups and can be sensitive to changes within the market. For example, we anticipated quickly when banks came into problems and were therefore able to reduce our exposure significantly at an early stage. We did this based on signals within the market, allowing us to take immediate action." Marco Roddenhof adds: "When the crisis started, many banks were forced to pay up immediately for funding. We didn't do this, as we realised it would send out negative signals. Instead, we reduced the asset side of the GFM balance sheet, where we have a lot of liquid assets that can easily be sold. Over the course of four months we were able to reduce the balance sheet by about €55 billion, significantly decreasing our wholesale funding needs.This underlines the importanceofa liquid GFM balance sheet and the flexibility to manage this." According to Thijs Berenst, a major challenge for local banks is the price they have to pay for more funds. So called liquidity spreads have risen steadily over the last eighteen months. For example, a five-year spread is now at 80 basis points. This will be reflected in advised prices for loans and mortgages. "One problem they're dealing with is trying to convince customers that they also have to pay more for their liquidity," says Berenst. Dick Klaasse believes the problem is likely to continue, noting that an important indicator - the spread between short-term derivatives and interbank funding - was practically zero until June 2007, but is now at all time highs. 'This means the market believes that the banking crisis will be around for a significant amount of time. However, the crisis will shift more towards the capital position of banks and will lead to real economy challenges. The latter will impact the commercial franchise and credit portfolios of banks." Despite this deep crisis, Rabobank still has access to large sources of money market liquidity. Marco Roddenhof: 'The credit quality of Rabobank is extremely valuable in the money markets nowadays. Short-term investors, like fiduciary clients, central banks and money market funds, are willing to place funds with Rabobank as a safe haven. As a result, Rabobank has a good liquidity position on the short-end of the curve." For long-term funding requirements (longer than one year), Rabobank attracts a large chunk of investment directly from the market. The man tasked with ensuring Rabobank covers its long-term funding needs is Michael Gower, Flead of Long Term Funding within the Treasury Rabobank Group (TRG). As Gower explains, long-term funding is split into two parts: the senior long-term cash requirement of the group, and the subordinated (or capital raising) requirements of the group. "Annually, Rabobank needs to raise a certain amount of cash, based on factors such as asset growth and liability growth," Gower explains. "It is the job of me and my team to attract the required amount to fund the balance sheet over the coming year. For example, if Rabobank calculates the Group needs €30 billion of long-term funding, that's the gap we need to fill from the capital markets. We'll raise that sum at a pre-determined maximum cost and at a targeted average maturity." Over the past couple of years, Rabobank has taken between €20 billion and €25 billion of long-term senior debt from the market annually. Gower: "Our principal method to raise capital is to issue bonds, which are then placed with investors by underwriters. These underwriters are normally investment banks that have strong sales and trading teams, and can help us determine the types of bonds the market is receptive to. For example, if we decide we need to issue a bond in a particular currency or in a particular jurisdiction we will talk to the investment banks about achieving that goal." "Rl is a valuable counterpart and plays an important role in this process. In the European market, for example, Rabobank's own distribution network is extremely useful. And the GFM business is very useful when we're looking to price up options or structures, or look at prices within the swap markets. Their in- formation helps us to gauge the performance of our investment JL. ISSUE 18 THE WORD

Rabobank Bronnenarchief

blad 'RI The Word / The Word' (EN) | 2009 | | pagina 32