Land of Opportunity

Can foreign banks succeed where U.S. megabanks failed to tread?

Driving growth in the States is the bank’s knowledge of agriculture and its familiarity with supply-and-demand swings of the industry, which makes its client relationships sticky. Case in point: Jackson, Mississippi-based Cal-Maine Foods Inc.

Rabobank first won the business of the $598 million producer of shell eggs in 1984, in part by cutting 200 basis points off the company’s line of credit, says former Cal-Maine CFO Bobby Raines. But more than 20 years later, Rabobank is still the agent bank in the firm’s $40 million revolver. “They stay with you in a loss year; they understand when we have a two-year period when we’re not making money,” says current CFO Timothy A. Dawson.

Rabobank’s agricultural focus has also enabled it to build a mergers-and-acquisitions business in cross-border deals, says Robert S. Bucklin, chief corporate banking officer in North America. M&A is the product that gets the attention of the C-suite, Bucklin says. And although Rabobank’s team in the United States is small — just under 20 people — it has advised on some major deals, including Tata Group’s $677 million purchase of a 30 percent stake in vitamin-water brand Glaceau.

Going forward, the triple-A-rated bank is forging into credits initially judged too risky — chain restaurants and ethanol production. The moves are meant to counter some slowing in the agriculture and food-processing areas. But don’t expect Rabobank’s changing portfolio to generate any controversy. “They take small positions [in terms of] their average loan size. They’re very careful,” says Lynn Exton, a senior vice president at Moody’s Investors Service.

BNP Paribas: Financial Engineers

Careful is not a word typically used to describe derivatives trading, but the S&P 500′s daily price swings the past few months may make utilizing derivatives prudent.

In fact, Todd Steinberg, head of equities and derivatives for BNP Paribas in the United States, believes that market volatility will drive more companies to use equity derivatives — the options market — to protect against securities-market turbulence. Indeed, equity-derivatives volumes on the CME Group (the options exchange) were up 99 percent month-over-month last August. And Steinberg is poised to capitalize: the global equities and derivatives group is contributing one-fourth of the French bank’s revenue.

“A lot of our competitors are pitching equity origination or M&A as their main product,” Steinberg says. But U.S. investment banks don’t spend resources on developing “the technical aspects of the business.”

BNP is doing the opposite. The bank now has 170 front-office people in equity derivatives in the Americas, up from 84 in 2003. In the past two years, BNP’s product set has gotten “much more clever” in addressing each situation that calls for equity derivatives, he adds. For example, the bank created an innovative stock-buyback structure for Hewlett-Packard last year that evened out the tech giant’s share repurchases to protect against dilution from employees exercising options.

Specialized finance contributes another large portion of BNP’s corporate-banking sales. Earlier this year, Capstar Partners LCC, a subsidiary of BNP Paribas’s Energy, Commodities, Export Project unit, helped Ormat Technologies monetize its renewable-energy production tax credits and other tax benefits. The transaction was “a complicated deal accounting-wise,” says Joseph Tenne, CFO of $269 million Ormat, which builds and operates geothermal-energy power plants. The BNP unit structured the transaction, determined the accounting treatment, and helped Ormat to explain the transaction to its auditors. “They brought in the right investors and we got a very attractive yield,” says Tenne.


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