Demonstrating the merits of the co-operative structure, The Netherlands' Rabobank has performed stronger in the crisis than many commercial banks enticed by high-profit yet high-exposure investment banking practices. Writer Brian Caplen

Just as state-run banks are back in vogue, so too are co-operatives. One of the leaders in the sector - espousing what is termed the 'Rhineland model' for its stakeholder rather than a shareholder approach to business - is Rabobank of The Netherlands.

Under pressure to switch to a more dynamic Anglo-Saxon strategy, co-operatives can point to the comparative ease with which they have come through the crisis as making the case for their structure.

Rabobank's net profit grew 2% to €2.8bn last year, it maintained a Tier 1 capital ratio of 12.7% and delivered a return on equity of 9.7% - not equivalent to the returns that shareholder banks produce in the boom times but a nice enough profit in a difficult period.

The bank has retained its much-admired AAA rating, achieved 22nd position in The Banker's Top 1000 ranking published in July and was the first bank to issue European subordinated bank debt this year when it sold $1.5bn perpetual Tier 1 securities with an 11% coupon in late May.

Shielded from risk

Outgoing chairman Bert Heemskerk says: "We have come through the crisis pretty well. As a co-operative bank we were never under pressure to deliver huge returns on capital. What happened to a lot of commercial banks was that they developed into investment banks to make higher returns [under pressure from shareholders] but this came with higher risk."

Mr Heemskerk has been succeeded as chairman by Piet Moerland, who has been a member of the executive board since 2003. Mr Heemskerk himself took the position of chairman in 2002 after a long banking career that spanned roles at ABN Amro and Van Lanschot Bankiers. He studied philosophy and theology as well as economics, giving a broad perspective to his deliberations on the markets.

Even while defending the resilience of the co-operative model, Mr Heemskerk acknowledges that it was a combination of skill and luck that kept Rabobank out of the worst of the crisis. After all, Rabobank did dabble in investment banking about 10 years ago and retired hurt, nursing moderate losses. "We said never again," and adopted a strategy of being a Dutch financial supermarket with a specialisation in food and agriculture, he says. "If instead we had specialised in the car industry or investment banking, we would have been affected much more."

Not that agriculture is without its challenges - the long production cycle and weather being the key ones - but with a huge geographical spread of operations, Rabobank has learned how to manage these risks. "We are the only big institution [in The Netherlands] which didn't have to be saved by the government," says Mr Heemskerk. "Banks used to be utilities producing steady returns over the long term. Somewhere along the way the rules of the game changed."

Dangerous deviation

Ironically it was in Germany that the Rhineland model was often abused. "The stakeholder model is about taking account of not just shareholders but also employees, customers and everyone who has an interest in the institution," says Mr Heemskerk.

"Originally the only duty of the landesbanken [German state-owned banks] was to serve the sparkassen [savings banks] and provide wholesale services. But somewhere along the way the state owners decided they wanted higher returns, they stopped following the Rhineland model and became pretty big in investment banking."

Will the co-operative model become more widespread? It hardly seems that there is a rush back to either co-operative or mutual forms of banking. But the crisis has strengthened the hand of banks such as Rabobank that wish to maintain their strategies. "When I was appointed chairman of the executive board in December 2002, the Financial Times described me as 'banker on a pile of manure'," recalls Mr Heemskerk. In the light of recent events, that pile of manure (lending to the agricultural sector) has started smelling rather sweetly.


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