Best known in the United States as a major lender to agricultural corporations, the Dutch giant Rabobank Group is now setting its sights on individual farmers in the country's largest farming state, California.
The $321 billion-asset company announced Wednesday that it would buy the El Centro-based VIB Corp. - a three-bank holding company with offices stretching from the Mexican border to Fresno - for about $213 million.
Cor Broekhuyse, the regional head of the Americas for Rabobank International, said that the company wants to duplicate the "country banking" model it employs in the Netherlands, New Zealand, and Australia in the United States and that it has been eyeing a bank acquisition here since last fall.
California, which generates nearly twice as much revenue from agriculture as the next-largest farming state, Texas, is the logical place to start, he said. "We'll start this strategy in California. We might do further investment from there."
The current strength of the euro versus the U.S. dollar has also made now a good time for European companies to buy U.S. assets, though Mr. Broekhuyse said that did not factor into Rabobank's decision. The all-cash deal, expected to close in the fourth quarter, would be worth 2.41 times VIB's book value and 14.95 times its projected earnings for this year.
VIB, with $1.3 billion of assets, is the holding company for Valley Independent Bank in El Centro, Bank of Stockdale in Bakersfield, and Kings River State Bank in Reedley. The three banks would continue to operate under those names and with their existing management.
Dennis L. Kern, the president and chief executive officer of VIB, said the deal would give the company the capital it would need to expand. VIB is concentrated in nonmetropolitan areas and has taken an approach similar to Rabobank's worldwide approach in lending to all the businesses of small towns.
However, Mr. Kern said that it has been reluctant to increase the agricultural portion of its portfolio beyond 10%, because it needed capital for other areas as well.
"We will be able to broaden and do more of that lending," with Rabobank's support, he said.
Though Rabobank, whose U.S. headquarters are in New York, lends to large agribusinesses like Archer Daniels Midland Co. and Cargill Inc., this would be its first attempt to target retail customers in this country. It plans to focus on small farms and associated businesses in rural towns throughout California, much as it has done in other regions of the world.
"In the Netherlands, 90% [of agricultural loans] goes through Rabobank; there's something we must do right," Mr. Broekhuyse said.
In 2000 California's farm economy generated $25.5 billion of revenue, according to the U.S. Department of Agriculture. Texas was ranked second that year, the last year for which figures are available, with $13.3 billion.
California is also an attractive market because farmers there are less reliant on government subsidies than those in other parts of the country, Mr. Broekhuyse said. Rabobank intends to bring its worldwide experience to the farmers of California by supplying them with research on global agriculture and markets, he said.
John M. Blanchfield, the director of the American Bankers Association's Center for Agricultural and Rural Banking, said the deal would "make life interesting" for banks in California because of Rabobank's size and experience.
"In every major agricultural region in the world you will find a Rabobank representative," he said.
Richard Marquez, a Central Valley regional senior credit manager for the $35.7 billion-asset Union Bank of California, a San Francisco-based unit of UnionBanCal Corp., said he has dealt with Rabobank on participation loans for large cooperatives and found it to be a well-run operation.
Rabobank's history of lending to large corporations in the United States makes the deal for VIB a little odd, but the combination has potential, Mr. Marquez said. "VIB, from my experience, is always very highly thought of. I think Rabo will be a major competitor."
