Video exclusive: Rabobank CFO Bert Bruggink talks about Rabo's safety and its new PIE capital issue
27th Apr 09, 7:16pm
Bernard Hickey interviewed Rabobank's Global CFO Bert Bruggink on Monday about Rabobank's safety and its plans to raise NZ$200 million of tier one capital through an issue of perpetual PIE Capital Securities. The key things to take out of the interview were Bruggink's comments about how Rabobank avoided being stung by the Credit Crunch, how much capital it has (13% tier one capital) and how far down the 'rankings' of subordination Rabobank's PIE Capital issue is. Rabobank was rated as number 5 in the world's safest banks in this article here in Global Finance magazine this week. It was ranked as the highest privately owned bank. Rabobank is owned by a Dutch cooperative, which Bruggink said gave it the ability to reduce dividends more easily and meant it did not have the "bonus cultures" of other banks. Here's more details of the issue here in this release and here's our previous article on it. What I think I don't give financial advice, but I'd tell my mother in law to be much, more careful investing in these PIE securities than in a regular Raboplus bank account. They are 10 year perpetual securities, which means if my mother in law wanted to withdraw her money before 2019 she would have to go onto the bond market, through a broker, to sell the securities. Also, they rank much lower than a regular term deposit in the event of failure and the interest rate is set as a margin to the 5 year swaps rate after 5 years. The first five years is fixed at a minimum of 8%, but it may drop after five years if the swaps rate drops from 2014. These securities are significantly more risky than a regular bank account and therefore offer a higher return of at least 8% for taxpayers on the lower tax brackets, or the equivalent of over 9% for those in the 38% bracket. I wonder whether the risk is worth the reward. It depends how lucky my mother in law feels. However, of any bank on the planet issuing this type of security, Rabobank is ranked the highest. It has a AAA credit rating and is the world's safest privately owned bank, according to Global Finance magazine. It lends mostly to agricultural businesses globally. New Zealand and Australia are its biggest markets outside of the Netherlands. There is some risk if farm prices fall significantly, but Rabobank is a pretty conservative lender and farmers are going to be better off in a global downturn than either residential property investors or manufacturers of consumer goods. These Capital securities are likely to have a AA- credit rating, which is not as high as the bank itself. For reader's information, here's an opinion piece by Jenny Ruth in the Sunday Star Times about the issue. She concludes:
Rabobank's $200 million offer of perpetual notes - with unlimited over-subscriptions - is yet another example of how the New Zealand market still hasn't learnt to price risk appropriately. It's a vastly superior offer to New Zealand Post's $200m subordinated debt issue. Not only does it offer a superior credit rating of AA- from Standard & Poor's compared with NZ Post's A rating, but it is also structured to provide PIE (portfolio investment entity) tax benefits as well. And yet the outright yield is significantly higher. The final yield won't be set until May 25 but it will be at least 8% compared with the 7.5% coupon NZ Post got away with.ASB Securities, ANZ and Forsyth Barr are the lead managers for the issue. For more information, ASB Securities can be contacted on 0800 ASB OFFER (0800 272 633), while ANZ National Bank is on 0800 ANZ IPO (0800 269 476) and Forsyth Barr is on 0800 FORBAR (0800 367 227). RaboPlus is also handling applications here Here is the prospectus.