Rabobank Group, which has gained a considerable share of the U.S. agricultural lending market in recent years by acquiring a small California bank and two Midwest agribusiness lenders, has apparently set its sights on one the largest lenders in the Farm Credit System.
Sources close to the government-sponsored system said they had expected the $495 billion-asset Dutch banking giant to announce this week that it would buy the assets of the $7.6 billion-asset Farm Credit Services of America in Omaha. They put the price at anywhere from $2.5 billion to $3.5 billion.
But those sources now say the deal is on hold while Farm Credit Services of America mulls a competing offer from another Farm Credit System lender, the $2.8 billion-asset Agstar Financial Services ACA of Mankato, Minn.
Representatives from Rabobank, Agstar, and Farm Credit Services of America all said they do not comment on market rumors. The Farm Credit Administration, which is the system’s regulator and would ultimately approve any sale, also would not comment.
Though it is not unusual for Farm Credit lenders to merge, Rabobank’s bid for Farm Credit Services of America appears to be the first time that a commercial bank has sought to buy the assets of a government-sponsored enterprise, sources said. If Rabobank’s offer were accepted, it would acquire the assets of Farm Credit Services of America, which would then dissolve.
Some industry observers even wondered if such a deal could prompt other government-sponsored enterprises, such as Home Loan banks, to consider the idea of selling to banking companies.
Agstar’s counteroffer seems aimed at keeping Farm Credit Services of America’s assets within the system, but it is presumably lower than Rabobank’s offer, according to sources.
If Rabobank buys Farm Credit Services of America, the price would include a fee that is required of any institution that chooses to leave the Farm Credit System.
It is rare for an institution to leave the system, but it has happened. In 1991 the California Livestock Production Credit Association in Elk Grove, Calif., received Federal Deposit Insurance Corp. insurance and became Stockmans Bank.
Rabobank, with offices in roughly two dozen countries, is one of the largest banks in the world and specializes in agricultural lending.
It has been an active acquirer in the United States. In 2002 it bought the $2.2 billion-asset Valley Independent Bank of El Centro, Calif., saying at the time that its goal was to test American retail banking while expanding in agricultural lending.
Valley retained its name and has become a more aggressive agricultural lender. At the end of the first quarter its farmland loans had increased roughly 600% from the first quarter of 2002, to $217 million, according to the FDIC. Commercial and industrial loans were up only about 3%, to $75.7 million.
Rabobank bought Lend Lease Agribusiness Inc. in St. Louis last September and Ag Services of America Inc., a feed-and-seed lender in Cedar Falls, Iowa, in November.
In a September interview, Cor Broekhuyse, who heads the Americas for Rabobank International, said the purchases were part of a longer-term strategy to “have every product on our shelves for farmers.”
Members of the Farm Credit System have expressed concerns over competing with Rabobank, but none have been willing to go on the record.
The Farm Credit System, like the rest of the financial services world, has been consolidating. At the end of the first quarter there were only 97 Farm Credit lenders nationwide, against more than 1,000 two decades ago.
The Farm Credit System was created by Congress in 1916 to ensure farmer access to credit. The system went through reforms during the Great Depression, including the establishment of institutions to fund cooperatives and establishing the Farm Credit Administration as the system regulator.
Bankers have long argued that the Farm Credit System has outlived its usefulness and that tax exemptions allowing its members to lend at lower interest rates give them an unfair competitive advantage.
