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Friday, 12th April 2024
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Success story: Rabobank’s Irish banking business - one of the AAA rated group's high performers Back  
Since establishing its Dublin office ten years ago, Rabobank Ireland has 'punched its weight' across a number of areas, and is now known as a high performer in the group. Focused mainly on the international side of things, Rabobank moved into the domestic market in 2001, with its acquisition of ACC, and this, says Fergus Murphy, is a good example of an international banking group which broke into the local market as it became more comfortable with 'all things Ireland'.
RRabobank commenced banking business in Ireland in the summer of 1994. The banking operation commenced with capital of NLG 500 million, which we promptly invested in Dutch state loans, as we contemplated the future and began to flesh out the initial blueprint business plans. I think it is fair to say that a ‘serious torrent’ of water has gone underneath the bridge since the summer of ‘94. As at year-end 2003, Rabobank Ireland plc (RI plc) has a balance sheet of over €20 billion, commercial net revenue (i.e. excluding all return on capital) of around €25 million, 90 staff, and mature businesses in structured finance, corporate banking and treasury/capital markets. We have a growing corporate services business that conducts an array of mid-office, credit and back-office functions for a number of the other Rabobank branches in Europe, and we are in the process of developing an outsourcing proposition to third parties, which we expect to roll-out this.

The most important component in the development of the bank over the last decade has been the quality of the people in Dublin. Through time, we have been able to punch above our weight across a number of areas and over the years have gained the confidence of head office senior management.

As Irish Rabobankers have generally been high performers, we have been enabled by the Group and ‘given more rope’ to build and create mandate. Looking back at our business plans from the early days it is clear that they do not resemble the actuality of today in terms of the critical mass and development of the business. ‘The best laid plans of mice and men’ and all that - thankfully for us, the business plans and budgets have been exceeded on the up-side and over the years we have gone from fledgling operation to developing business to ‘fortress Dublin’.

We were lucky to be able to use the raw materials of the Irish financial markets, as they were back in 1994 as the main fuel in our early development. Ireland always had a very strong financial markets trading and dealing community. This was because of our economic and political position between the two big European axes of power, the U.K and Germany. Irish foreign exchange policy was highly correlated to the performance of Sterling and of course we embarked upon fiscal rectitude that benchmarked our monetary policy against Germany. This made for a natural breeding ground in FX and interest rate trading. In the ‘old days’ for example a number of banks’ dealing rooms in Dublin conducted significant volume and market making activity in the GBP/DEM spot and forwards markets. One or two of the Dublin banks were regularly in the top five to ten global participants in that market. Similarly the GBP, DEM and IEP interest rate markets were a fantastic training ground in the breeding of young dealing room professionals, well equipped to run market risk and manage a bank balance sheet. The growth of Guinness Peat Aviation (GPA) and the structured leasing industry in general spawned a strong structured finance and leasing cadre of young professionals.

So, Rabobank and other banks commencing activity in Ireland in the early 1990s were able to piggyback on this pool of talent in treasury/capital markets and structured finance, in building their initial beach head and ‘mandate search’ within their respective organisations. This basically meant that from a strategic point of view, RI plc was able to hit the ground running and the connection was made at head office that the resource, intellectual capacity and experience curve was present in Dublin to ‘push out the borders’.

RI plc now has staff responsible for various front-office (treasury, investment books, structured finance) mandates on a global or regional level, as well as conducting their local responsibilities as part of their global or regional role. The head of the global investment books and the treasury manager of RI are both RI plc employees. The chief operations officer for the European region is also an RI plc staff member. Our I.T. department has responsibility for a number of European platforms, and our financial control department is responsible for the collation of the monthly management accounts of the European region. The bank is now strongly embedded into the hierarchal and functional matrix organisation model of Rabobank International and we expect continued growth from here.

Structured finance
The last decade has seen a marked progression in the structured finance activities of RI plc - from a start-up banking operation to an originator/arranger role with full delivery of locally developed structured finance products.

The structured finance team focuses on the development, adaptation and implementation of customised structured products, both for the Rabo Group and for RI plc’s domestic and international client base. Working closely with the local corporate banking team, structured finance colleagues in other offices (primarily Utrecht, New York, London, Singapore & Hong Kong) and other product groups such as treasury and capital markets, the team has developed a suite of platforms resulting in a number of domestic and cross-border transactions which have generated significant value-added for the Rabo Group and its clients. The execution abilities of the team are further strengthened by the team’s access to the specialised local knowledge and expertise of structured finance colleagues in other jurisdictions in Europe, the Americas and Asia, which has enabled the delivery of tailored cross-border products.

Financial markets
RI plc’s financial markets division runs a diverse portfolio of trading and banking books, reflecting market and credit risk. We attempt to run complimentary activities, that is activities with relatively low correlation, thereby ensuring basis, spread, market outright, credit migration and default risks are compensated across portfolios as much as possible. We manage a large portfolio of US Mortgage Backed Securities (Ginnie Mae, Fannie Mae, Freddie Mac). A credit spread book focuses upon banking and Government risk and efficient liquidity and collateral management. These books are overlaid with a strategic interest rate activity, which focuses upon outright market risk. Our performance in this division has been very strong over the years, acting as a real catalyst for our development of the bank and the taking on of new mandate.

Service centre
Within RI plc, we use the term service centre very loosely. We concentrate on providing solutions to Rabobank Group’s challenges in Europe and, in some cases, beyond to Asia and the U.S. We do not compete with our bigger operational centres in volume processing but try to deliver bespoke solutions, attuned to the specific requirements of our fellow offices. We have built a substantial service delivery model in the areas of transactional operations, IT infrastructure and applications management, funding and liquidity management, banking and credit services and risk management. In particular, we have built a team of professionals capable of delivering total financial service solutions at the top end of the market. Our ‘can do’ approach serves us well and enables us to provides opportunities for our staff to contribute to the success of Rabobank, beyond the local operations level, which leads to greater career opportunities for our dedicated staff.

We have ambitious plans to further build on our service delivery success by extending it to third party companies seeking similar solutions next year. The outsourcing market is in a growth phase and we are well placed to turn this area of activity into a serious profit contributor for our operations in Ireland.

Acquisition in the local market
RI plc originated and managed the acquisition of ACC Bank in 2001/2002. For some time we had been relaying a strong message into head office that there were opportunities in Ireland to develop into the retail and business banking market. We were delighted to get the transaction over the line and create a new platform for the Group in Ireland. ACC Bank is performing very strongly. A change programme which focuses upon the roll-out of a new operating model and systems is at an advanced stage and the financial performance of the bank is excellent. The acquisition of ACC Bank was a good example of an international banking group that had commenced international banking/leasing and insurance activity in the I.F.S.C., breaking out into the local banking market as the Group became more familiar and comfortable with ‘all things Ireland’.

Sister companies in leasing and insurance
In 1991 De Lage Landen International B.V. (a member bank of Rabobank dedicated to leasing and asset finance) established De Lage Landen Ireland Company (DLLI). The primary purpose of DLLI was to provide large ticket bespoke asset finance solutions to the DLL pan - European client base. In 1995 the global treasury front office operations were located in DLLI and 1996 saw the establishment of a fully-fledged back office to support this activity.

Over the last 12 years DLLI has seen enormous development in its leasing and treasury activity. The DLLI balance sheet now stands at just below E10 billion, employs 46 people and this year has taken over the Irish domestic small ticket-leasing portfolio of ACCBank.

In 1991, Interpolis (Rabobanks’ insurance arm), established Interpolis Reinsurance Services in Dublin’s IFSC. Since then, its scope of activities have also grown resulting in the subsequent establishment of three additional group companies, Interpolis Captive Management Services, Interpolis Insurance Ireland (a non-life direct writing insurance company) and most recently Interpolis International Reinsurance Corporation (a non-IFSC entity). Its list of core competencies continue to be the provision of tailor-made solutions to existing challenges in the areas of life and non-life alternative risk transfer reinsurance, insurance portfolio securitisation and captive formation and management services.

Value to the parent
Key to the growth of RI plc over the years has been the recognition by had ofice/goup that the subsidiary in Ireland was bringing meaningful value to the organisation. They understood from an early point that there were strong, if not unique, skill sets available. We needed to leverage the skill sets within the context of the overall direction of Rabobank’s strategy in larger centres like London, New York, Singapore etc. Similar to the experiences of other banks in Dublin, for a while some of the bigger Rabobank centres saw RI plc as an annoying form of internal competition in some areas. The challenge for us was to convince all the stakeholders that our development and ‘good health’ could be complimentary to their global ambitions and business plans. Like every other organisation, we had our fights and ‘pitch battles’, but again important for RI plc was the fact that we had access to the important decision makers in Holland. A number of them were members of our Board, and this gave us an important window into the strategic decision making process. We have been able to engage with the Group at a level possibly above our (past) station in life and leverage opportunistically on that engagement.

The Irish international banking industry
There is now a strong critical mass of international banking activity in Dublin. The statistics are impressive in relation to employment and balance sheet numbers, and I know, particularly in my position as chairman of the Federation of International Banks in Ireland (FIBI), that there are proactive plans to continue to grow the market in and from Ireland. FIBI has an ambitious plan to continue to push the boat out and central to it, is working in a positive and collegiate fashion with the important stakeholders in the relevant Government departments, IFSRA, the Revenue Commissioners and the IDA. In that context, FIBI were delighted to see that the recent Budget has increased the attractiveness of Ireland as a holding company location, through making inroads into the exemption of CGT on disposals of subsidiaries and widening the scope of double taxation relief provisions for dividend income paid to parent companies.

Going forward, I think participants in the international banking market in Dublin can all learn a lot from each other. We should lean more proactively on the experiences of our peer organisations in Dublin. Generally we are not in competition with each other, quite the opposite, and we should not be afraid to regard ourselves as clients of each other for different products and specialisms. This opportunistic and symbiotic client/counterparty/co-traveller relationship can assist us all in growing locally and impressing our respective head offices by striking the right chord in relation to the capacity to originate locally and build relationships from which the Group can benefit. So, onward and upward, roll-on the next decade, bigger, better, faster, more!

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