Rebuilding Failed Banks
Has the creative destruction brought about by the financial crisis and the flood of failed US banks finally resulted in a possible fix for ailing banks: a failed bank acquisition by a well capitalized, globally diversified bank that was built on the principles of a true and time-tested community banking model?
Seeking to expand their reach along the agricultural backbone of California’s central valleys, Rabobank N.A. acquired Butte Community Bank and Pacific State Bank on August 20th 2010. The combined transaction involved failed bank assets from the acquired institutions totaling $810 million. Rabobank entered into a loss sharing agreement for assets totaling $675 million with the FDIC that is made up, in great part, of problem commercial real estate assets that contributed to failure of the two California banks.
Part of global financial services leader Rabobank Group, Rabobank, N.A. is a $10.2 billion California-based community bank providing full retail and commercial banking services primarily in non-metro markets across the long agricultural expanse of California.
Organic Growth and Strategic Acquisitions in California
According to the Bank’s August 20th Press Release: “Rabobank began its California retail banking operations with the December 2002 acquisition of Valley Independent Bank and subsequently more than doubled that bank’s assets and capital. In January 2006, Rabobank acquired Community Bank of Central California, adding 14 branches to its then 26-branch network. The January 2007 acquisition of Mid-State Bank & Trust added 41 branches to Rabobank, N.A.’s franchise. In 2009, Rabobank, N.A. opened eight branches in the Modesto-Merced area and one in Carpinteria. In 2010, the bank acquired Napa Community Bank and will open new branches in Visalia, Tulare and Bakersfield (2) later this year.”
Agricultural Focus, Strong Financials
Based in the Netherlands, Rabobank, N.A is owned by one of the 25 largest banks in the world that has more than $850 billion in assets and operations in 48 countries. Rabobank Group has been in business for over 110 years. Rabobank is still a farmers' bank and holds an 85%-90% market share in the agrarian sector in the Netherlands, hence the comfort with Ag lending that forms the core business focus of the California bank. The parent institution is well capitalized and came through recent ECB stress tests with flying colors. The Dow Jones Newswires reported recently that the parent Rabobank's Tier 1 capital ratio, a measure of financial strength, was 14.9% at the end of June, from 13.8% at the end of 2009, and above its target of 12.5%.”
The Cooperative Model
The parent institution is modeled more along the lines of what we in the US know as a credit union, where membership and customer needs drive the design and delivery of bank products and services. Profits, though very important, are not the sole driver of bank services. Community is too.
The challenge with any successful global enterprise is to stay authentically local and serve each micro-market’s unique needs. Rabobank's cooperative approach was originally formed by farmers as a collection of small cooperative banks to serve their rural respective communities. The cooperative model provided a fair and dependable source of credit to local customers through a system of shared liabilities, pooling of resources and the recycling of profits.
As the Rabobank Bank continues to expand in California both organically and via strategic acquisitions, we hope the local approach and cooperative philosophy combined with the strong parental financial support and global diversification continue to translate into a positive banking experience for the farms and businesses located in some of California’s most economically struggling agricultural regions.