Rabobank Group had no choice but to hold its tongue as its deal for a large Farm Credit System lender was unraveling in late 2004, but the Dutch banking giant is no longer keeping its opinions to itself.
In a comment letter this week, Rabobank vented frustration with the system's regulator, the Farm Credit Administration, over its proposed rules governing the process under which Farm Credit lenders could privatize or merge with private-sector banks.
Rabobank, with more than $600 billion of assets, also took a swipe at Farm Credit lenders themselves for seeking bank-like powers while trying to maintain their tax-exempt status.
The company shook up the banking industry in August 2004 when it announced plans to buy the $8 billion-asset Farm Credit Services of America in Omaha. The deal was met with fierce opposition from farmers, lawmakers, and other Farm Credit lenders, forcing Rabobank to call it off two months later.
Before the cancellation Rabobank remained quiet, because regulations governing privatization meant it could not speak in its own defense. It said little about the process until this week, when it issued a 14-page comment letter responding to the regulatory changes proposed by the Farm Credit Administration.
Currently, lenders that want to privatize must first notify the regulator, then submit a plan of "status termination" that includes proposed stockholder disclosures. If the Farm Credit Administration approves the plan and the disclosure, the stockholders can vote.
No lender has left the system under those rules. The California Livestock Production Association converted to a bank in 1991, but it did so under provisions included for it in the 1990 Farm Bill.
If the directors of an institution want to convert it to a bank or merge with one, the proposed changes would require them to vote three times: once to adopt a resolution stating the institution's plan to leave, once to adopt and submit a termination plan to the regulator and to distribute the plan to stockholders once it was approved, and third, once more to reaffirm its desire to leave the system.
The Farm Credit Administration would vote twice: once on the shareholder disclosure, and once on the termination after the shareholders agreed to it.
In December the Farm Credit Administration said the changes would correct technical errors in the termination rules, discovered during the Rabobank deal review, that take the decision about whether an institution can leave the system out of the regulator's hands.
Rabobank said in its comment letter that the proposed changes would make the process of merging with a private-sector company so "onerous" that no Farm Credit lender would consider it.
Also, there is an "inherent contradiction" in the proposal, because it seeks to tighten certain restrictions at a time when lenders themselves are trying to broaden their powers, the letter said.
In a press release summarizing the comment letter, Robert Bucklin, the head of corporate banking for Rabobank International's North America operations, said, "We believe that it is unfair for [Farm Credit] institutions to use their virtually tax-free status and low ... cost of funds to compete in the same arena as other tax-paying, non-government-sponsored banks."
Rabobank is the only private-sector banking company that has ever tried to buy a government-sponsored Farm Credit lender. In an interview Wednesday, Mr. Bucklin said that his company would not rule out future deals, but that nothing is in the works.
"I don't want to create any possible inference that there is anything going on, because there isn't," he said.
