2004 -- CropChoice news -- Scott Kilman, Wall Street
Journal, 08/19/04 via the Agribusiness Examiner: A
takeover fight has emerged for a little-known but critical
cog in the U.S.'s Farm Credit System, which is causing
an unprecedented headache for regulators and threatening
to ignite a political donnybrook in Congress.
The Minnesota arm of the Farm Credit System Wednesday
lobbed in a competing bid for a sister organization,
Farm Credit Services of America in Omaha, Nebraska,
in hopes of keeping it out of the hands of Dutch financial
giant Rabobank Group, which two weeks ago agreed to
pay $600 million for the Nebraska lender.
The dollar amounts are small in an era of bank megamergers,
but the dust-up in the arcane area of quasi-governmental
agricultural lending has suddenly focused fierce debate
over the future of the massive Farm Credit System and
whether parts of it should be privatized.
"This has opened a huge can of worms," said
Rep. Frank Lucas, an Oklahoma Republican who is making
plans for hearings by his agriculture subcommittee.
Tom Daschle of South Dakota is calling for hearings
in the Senate, where he is leader of the Democrats.
Rabobank, which got its start lending to Dutch farmers,
is unique among the world's big banks by focusing on
agriculture. The world's 24th-largest bank, with $500
billion in total assets, it has expanded into the farm
belts of Australia, New Zealand and Ireland and has
its eyes on Canada and Brazil.
In the U.S., Rabobank has long done business with food
and agribusiness giants such as Tyson Foods Inc., Cargill
Inc. and ConAgra Foods Inc. The proposed deal would
fulfill its goal of becoming a major lender to U.S.
Similar to a credit union, Farm Credit Services of
America is a borrower-owned cooperative that lends to
farmers in four states: Iowa, Nebraska, South Dakota
and Wyoming. It had loan volume of $7.6 billion during
the first six months of this year. A majority of its
directors approved the Rabobank offer, but the deal
is subject to approval by its borrower owners.
"For us, agriculture is still a sexy business,"
said Cor Broekhuyse, who heads Rabobank's operations
in the Americas.
Rabobank's problem is that the Omaha lender is part
of a perk jealously guarded by U.S. farmers. Its territory
is at the geographic center of the Farm Credit System,
a network of lenders created by Congress 88 years ago
with a mission of supplying affordable credit to farmers.
The network is the single largest source of loans for
U.S. farmers, holding $60.6 billion in farm loans, or
about one-third of total farm business debt.
As a government-sponsored enterprise, the Farm Credit
System enjoys tax breaks and its bonds are so prized
that it can raise funds for less cost than commercial
bankers. While the federal government doesn't back Farm
Credit System bonds, the system holds quasi-government
status in the minds of bondholders and farmers. They
assume Congress wouldn't let the system fail, and they
have been correct. The system received a $1.7 billion
federal bailout during the 1980s farm-debt crisis.
To sell itself, Farm Credit Services of America would
have to give up these advantages and pay the system
an $800 million exit fee. In exchange, the Omaha lender
would be freed from restrictions that prevent it from
offering such services as taking deposits and making
home loans in towns.
Many farmers --- as well as Farm Credit System executives
--- were flummoxed when the Omaha lender's board agreed
to sell out. "I didn't know you could even do that,"
said David Williams, a 73-year-old Villisca, Iowa, farmer
and customer who opposes the deal. "Aren't they
violating their mission?"
The answer to that question is the responsibility of
the Farm Credit Administration, a tiny federal regulator
that oversees the system and has never had to pass judgment
on an outside acquisition before. The agency is empowered
to block the sale of a system institution if its departure
would materially hurt those left behind. It isn't clear
how the three members of its White House-appointed board
are leaning. Chairwoman Nancy C. Pellett didn't return
phone calls seeking comment.
Whatever the regulators decide will be controversial.
Blocking the Rabobank deal could anger the powerful
American Bankers Association. Its rural banking members
have long resented having to compete for farmers head-to-head
with a government-sponsored enterprise.
"Why does the Farm Credit System still need GSE
[government-sponsored enterprise] status if Rabobank
thinks their business is so good that it's willing to
buy some of it?" said Denny Everson, head of agribusiness
lending at First Dakota National Bank in Yankton, South
If the Farm Credit Administration approves the Rabobank
deal, many system supporters will howl as a powerful
new competitor materializes. Also, other associations
might try to defect in order to cash in.
The Omaha association owners never thought they could
receive so much money for their shares, which they were
required to buy to qualify for a loan from the cooperative.
The Omaha association had been retiring a small amount
of its shares each year for $5 a share. Rabobank is
offering $600 million for a lender with ten million
shares, giving the deal an indicated value of $60 a
It wouldn't be that simple: Each of the Omaha concern's
50,890 owners would be paid based on the amount of business
they have done with it over the years. The amount would
vary widely among owners, but the average payment works
out to $11,790.
Many top officials of the Farm Credit System oppose
the Rabobank deal. "We want the system to stay
as large as possible," said Jamie B. Stewart, president
and chief executive of Federal Farm Credit Banks Funding
Corp., which raises funds for the system by selling
Many system executives back a merger offer unveiled
yesterday by AgStar Financial Services, part of the
same government-sponsored enterprise, that is designed
to keep the Omaha lender within the fold and away from
Rabobank. Executives of AgStar, Mankato, Minnesota,
say the owners of the Nebraska lender would receive
"If Farm Credit Services of America were to leave
[the system], we would have a big hole in the middle
of the country," said Paul DeBriyn, president and
CEO of AgStar. "If that becomes a trend, it would
create a question about the viability of the entire
In response to the AgStar offer, Jack Webster, CEO
of Farm Credit Services of America, immediately raised
doubts about the financial muscle of AgStar, which has
about one-third the assets of the Omaha lender. The
directors of the Omaha lender, who rebuffed an earlier
overture from AgStar this summer, were slated to discuss
the new offer during a teleconference last night.
Rabobank, meanwhile, issued a statement calling its