Rabobank Group's deal to buy a Farm Credit System lender has prompted Congress to consider the first changes to the Farm Credit Act in more than 30 years.
Saying he was fearful that a sale of the $7.8 billion-asset Farm Credit Services of America to the Dutch company would leave farmers without a lender of last resort, Sen. Thomas Daschle, D-S.D., has introduced legislation that would increase the waiting time for a Farm Credit institution to get approval to merge with a private-sector company. Some lawmakers are even calling for legislation that would prohibit Farm Credit lenders from leaving the system.
The $500 billion-asset Rabo-bank created a stir with its July 30 announcement that it was buying Farm Credit Services of America for $600 million. (The Omaha lender would have to pay $800 million to leave the Farm Credit System.)
If the deal goes through it would be the first acquisition of a government-sponsored enterprise by a private-sector company.
Lawmakers on both sides of the aisle are concerned about fallout from the Rabobank deal. Rep. Frank Lucas, an Oklahoma Republican, called a hearing of a House subcommittee Wednesday to discuss its potential impact on the 88-year-old system.
Rep. Tim Holden, D-Pa., said at the hearing that institutions should not be allowed to leave the system. "If this deal happens it will have a significant impact on farmers and the communities they serve."
Most of those in attendance, including farmers and other Farm Credit System lenders, vehemently oppose the sale. They say it would violate the system's mission of making credit available to all farmers.
Agstar Financial Services ACA of Mankato, Minn., another Farm Credit lender, has made a counteroffer of $650 million for Farm Credit Services of America. The two institutions' boards have met, but Farm Credit Services has given no official response to Agstar's offer.
Farm Credit Services of America does business in Iowa, Nebraska, South Dakota, and Wyoming. South Dakota's U.S. senators, Mr. Daschle and fellow Democrat Tim Johnson, the Daschle bill's co-sponsor, have been the most vocal in calling for hearings on the deal and are the first to have proposed legislation to change the Farm Credit System.
"Having spent a great deal of time in South Dakota over the past few months," Sen. Daschle said Tuesday, "I can say without any doubt that this proposed sale of one of our leading Farm Credit institutions to a foreign bank has created a whirlwind of confusion and uncertainty."
Farm Credit Services of America has yet to file a termination application with its regulator, the Farm Credit Administration. The application was to be filed in early September, according to a time line presented with the announcement of the deal. The delay has led to speculation that Farm Credit Services of America is having second thoughts, but a spokesperson said Thursday that it still plans to file the application.
Testifying at Wednesday's hearing, Nancy C. Pellet, the chairwoman of the Farm Credit Administration, said that the agency would require that the Farm Credit System start a new lending body from scratch or that existing lenders expand into new territory to cover the space vacated by Farm Credit Services of America.
Ms. Pellet suggested that it might be time to give Farm Credit lenders broader powers.
"The last change" to the Farm Credit Act "was in 1971, and the act does not accommodate changes and market forces," Ms. Pellet said.
Bankers would object to any expansion of Farm Credit lenders' powers.
John V. Evans Jr., the chairman of the Independent Community Bankers of America's Agriculture-Rural America Committee, called Farm Credit Services a "predatory GSE lender that cherry picks the best loans from community banks." He said Farm Credit Services' shareholders, not lawmakers or other Farm Credit lenders, should make the decision on whether to sell to Rabobank.
However, even though banking trade groups favor the Rabobank deal, largely because it would eliminate one of the nation's largest Farm Credit lenders, individual bankers are worried about suddenly having one of the world's biggest banks in their backyard.
Richard L. Harbaugh, the president of the $150 million-asset Equitable Federal Savings Bank in Grand Island, Neb., said in an interview last month that Rabobank might be a fiercer competitor than the Farm Credit System because of its access to world markets for funding.
Mr. Harbaugh asked rhetorically if the Rabobank deal would "create another competitor that may have some other advantages over us."
"I know that Rabobank is doing most of their pricing based off three-month Libor," he said, referring to the London interbank offered rate. "I'll tell you I can't compete with a bank that is basing their pricing off three-month Libor."
