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Dutch Bank and US Farm Lender Agree to Buyout

posted on August 13, 2004

The Farm Credit Administration recently published a rule that likely will force Farmer Mac to obtain a credit rating. Currently, Farmer Mac is the largest unrated dent issuer in the country. An FCA spokeswoman said the proposal allows the Farm Credit System to use credit more efficiently by better aligning capital requirements with risk.

Change is in the wind for much of the Farm Credit System, in particular at the Omaha-based Farm Credit Services of America. A Dutch multi-national bank is intent on buying the Omaha bank, which serves farmers and ranchers in four states. Backers of the sale say it will give borrowers greater agricultural expertise and lending services. But to many, the prospect of foreign ownership of the bank brings more questions than answers. David Miller explains.


Dutch Bank and US Farm Lender Agree to Buyout

Omaha-based Farm Credit Services of America, or FCS, serves 59-thousand customers in Iowa, Nebraska, South Dakota, and Wyoming with a variety of agricultural lending products. At the end of July, FCS informed its 51-thousand shareholders Dutch agricultural lender Rabobank had offered to purchase the company. Reactions ranged from anger over what might happen to existing loans and loss of shareholder control to excitement over what the future might bring.

Jack Webster is President and Chief Executive Officer of FCS of America.

Jack Webster, FCS of America: "But there is confusion, questions but the questions are, who will my loan officer be? We get to stay the same. What will happen to my loan prices and products? Same, we'll honor and commit to all that. Where will the office be? Same place. What will the company look like? It will be what we have and more, more products, more services, more people, I hope more locations in time."

The evolution of the deal appears to center around the shared vision of Rabobank and FCS of America's commitment to help farmers succeed. Both financial entities have done business together in the past but neither group is claiming to have initiated the transaction.

Though a vote among the board members was not unanimous, a majority agreed to ask shareholders if they wanted to proceed. At least 5% of all shareholders must participate for any decision to be legal.

If the deal is approved, the federal government's charter, which established the agricultural lender, will be dissolved. Rabobank, the 15th largest bank on the planet with over $500-billion in assets, will pay the U.S. government $800-million for its insurance obligations. In addition, Rabobank will pay FCS shareholders $600 million. The average payout is expected to be around $12 thousand but the range is predicted to be from a few dollars to several thousand a piece.

Jack Webster, FSA of America: "This is different, it's different for the Farm Credit System, it's different for us as an entity and Rabobank has consistently done this very well."

Without the constraints of the charter there will be some changes. Rabobank will be able to expand its lending base beyond the original four states and offer a larger number of services. Borrower's rights previously established under the government charter will be replaced by Rabobank's regulations. Despite what appears to be a negative to the deal, Webster says loans established by FCS will not change.

Jack Webster, FCS of America: "...whatever we've committed to right now all that will be honored, it will all be the same. So, none of that changes but even as we move forward with Rabobank, they have the same passion and commitment to serve as we do."

Webster further stated all the banks assets would stay in the United States.

The proposal has not come without controversy. Officials with Co-Bank, an agricultural lender that makes loans based on the sale of Farm Credit System securities, think the amount being paid is too small and questioned the motivation of FCS management. Officials at both Rabobank and FCS America have stated the executives in Omaha will not receive any kind of incentive bonus if the sale goes through.

Neil Harl, a lawyer, economist and professor at Iowa State University, recommends looking at the effects of the acquisition over the long term.

Neil Harl, Iowa State University: "I think that Rabobank being an agricultural lender, although quite a bit of that is lending to agribusiness, their presence in producer lending has not been as great as their presence in loaning to agribusiness, but they apparently see, in their overall business plan, a need to establish producer oriented lending. I and think, probably in the long run, they will be looking at the larger loans."

The deal is yet to be approved by the government. If everything goes as planned, a letter will be sent to stockholders in November, laying out the risks and opportunities...followed by a stockholder vote in December.

For Market to Market, I'm David Miller.


Tags: agriculture banks industry loans money news