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Rabobank Nederland (COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.) Investment Statement for an offer of Perpetual Non-Cumulative Capital Securities of up to $400 million (with the option to accept unlimited oversubscriptions at its discretion) September 10, 2007 Credit Suisse Arranger First NZ Capital ASB BANK LIMITED Joint Lead Manager and Joint Lead Manager Organising Participant
1479384 v10 2 This is an Investment Statement for the purposes of the Securities Act 1978 and is dated and has been prepared as at September 17, 2007. It is an important document and should be read in its entirety.
Important Information (The information in this section is required under the Securities Act 1978) Investment decisions are very important. They often have long-term consequences. Read all documents carefully. Ask questions. Seek advice before committing yourself. Choosing an investment When deciding whether to invest, consider carefully the answers to the following questions that can be found on the pages noted below: What sort of investment is this? [●] Who is involved in providing it for me? [●] How much do I pay? [●] What are the charges? [●] What returns will I get? [●] What are my risks? [●] Can the investment be altered? [●] How do I cash in my investment? [●] Who do I contact with enquiries about my investment? [●] Is there anyone to whom I can complain if I have problems with the investment? [●] What other information can I obtain about this investment? [●] In addition to the information contained in this document, important information can be found in the current General Disclosure Statement of Rabobank Nederland.
You are entitled to a copy of that document on request.
Choosing an investment adviser You have the right to request from any investment adviser a written disclosure statement stating his or her experience and qualifications to give advice. That document will tell you: • whether the adviser gives advice only about particular types of investments; and • whether the advice is limited to the investments offered by one or more particular financial organisations; and • whether the adviser will receive a commission or other benefit from advising you.
1479384 v10 3 You are strongly encouraged to request that statement.
An investment adviser commits an offence if he or she does not provide you with a written disclosure statement within five working days of your request. You must make the request at the time the advice is given or within one month of receiving the advice. In addition: • if an investment adviser has any conviction for dishonesty or has been adjudged bankrupt, he or she must tell you this in writing; and • if an investment adviser receives any money or assets on your behalf, he or she must tell you in writing the methods employed for this purpose.
1479384 v10 4 Contents Important Information Part 1 - Important notice [●] Part 2 - Summary of main terms of the offer [●] Part 3 - Corporate profile [●] Part 4 - Answers to important questions [●] Part 5 - Terms and Conditions [●] Part 6 - Glossary [●] Part 7 - Application Form [●] Part 8 - Directory [●]
1479384 v10 5 PART 1 - Important notice The purpose of this Investment Statement is to provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to subscribe for the Capital Securities.
Investors should note that other important information is available in Rabobank Nederland's recent General Disclosure Statements (which contains Rabobank Nederland’s financial statements) and in the Terms and Conditions applicable to the Capital Securities which are set out in full in Part 5. Copies of Rabobank Nederland’s recent General Disclosure Statements may be obtained free of charge from Computershare Investor Services Limited at Level 2, 159 Hurstmere Road, Auckland, or from Head Counsel, New Zealand, Rabobank Nederland at Level 12, AXA House, 80 The Terrace, Wellington or by phoning +64 (4) 819 2700 or at http://www.rabobank.co.nz/inside_ rabobank/about_rabobank/disclosure_invest_statements/index.html (the latest full annual report for the Rabobank Group which supplements these General Disclosure Statements is available at http://www.rabobank.com/ content/investor_relations/reports/).
In addition to the important information contained in the recent General Disclosure Statements, on August 29, 2007 Rabobank Nederland publicly released its half year financial information. It is not anticipated that the most recent half year financial information will be published in a General Disclosure Statement until September 30, 2007; this information is, however, available at http://www.rabobank.com/ content/news/.
This Investment Statement only constitutes an offer of Capital Securities to the public in New Zealand and to investors in other jurisdictions where the Capital Securities may be lawfully offered. No action has been or will be taken by Rabobank Nederland which would permit an offer of Capital Securities to the public, or possession or distribution of any offering material, in any country or jurisdiction where action for that purpose is required (other than New Zealand). Capital Securities may only be offered for sale or sold in conformity with all applicable laws and regulations in any jurisdiction in which they are offered, sold or delivered.
No Holder, or any other person, may purchase, offer, sell, distribute or deliver Capital Securities, or have in its possession, publish, deliver or distribute to any person, any offering material or any documents in connection with the Capital Securities, in any jurisdiction other than in compliance with all applicable laws and regulations. By applying for Capital Securities, each applicant indemnifies Rabobank Nederland in respect of any loss, cost, liability or expense sustained or incurred by Rabobank Nederland as a result of that applicant breaching the selling restrictions described above.
Rabobank Nederland has engaged Credit Suisse to provide it with assistance in preparing this Investment Statement. Credit Suisse has provided this assistance to Rabobank Nederland solely in its professional capacity. Credit Suisse is not a lead manager, co-manager or an organizing participant and applications cannot be made to it. This Investment Statement does not constitute a recommendation by Credit Suisse, the Joint Lead Managers or Rabobank Nederland to subscribe for, or purchase, any of the Capital Securities. All references in this Investment Statement to "Conditions" are to the Terms and Conditions applicable to the Capital Securities, which are set out in full in Part 5.
Capitalised terms used in this Investment Statement have defined meanings which appear in the Glossary from page [●] or in Condition 1.
1479384 v10 6 PART 2 - Summary of the main terms of the offer Important dates Opening Date September 17, 2007 Closing Date* October 5, 2007 Margin Determination Date September 14, 2007 Initial Rate Determination Date September 14, 2007, and on each October 5 thereafter until (and including) October 5, 2016 Issue Date October 5, 2007 Expected date of initial quotation and trading on NZDX October 9, 2007 First Interest Payment Date January 5, 2008 Subsequent Interest Payment Dates April 5, July 5, October 5 and January 5 in each year until the Capital Securities are redeemed First Call Date October 5, 2017 Floating Rate Determination Date October 5, 2017, and on each January 5, April 5, July 5 and October 5 thereafter until the Capital Securities are redeemed First Conditional Call Date October 5, 2037 * Rabobank Nederland reserves the right to close the offer early.
Any change to the Closing Date will be advised by NZX announcement.
The offer This is an offer by Rabobank Nederland of up to $400 million of Capital Securities with the ability to accept oversubscriptions for additional Capital Securities. The maximum amount of oversubscriptions which may be accepted by Rabobank Nederland is unlimited and will be determined at Rabobank Nederland’s discretion. The offer is available to institutions, to certain customers of Rabobank Nederland and to other members of the public who may participate in the offer through an NZX Firm. There is no pool of Capital Securities generally available to members of the public. Who may apply Capital Securities are offered to New Zealand resident investors and investors in other jurisdictions where the Capital Securities may be lawfully offered.
1479384 v10 7 How to apply Instructions on how to apply for the Capital Securities are contained on page [●] under the heading How much do I pay? Use of funds The funds raised by this offer will constitute Tier 1 Capital1 of Rabobank Nederland for the purposes of the Dutch Central Bank, which is the home prudential authority for Rabobank Nederland, and will be used for the general corporate purposes of the Rabobank Group. Credit rating As at the date of this Investment Statement, the Capital Securities are expected to be assigned on the Issue Date a long-term credit rating of Aa2 from Moody’s, AA from Standard & Poor’s and AA from Fitch Ratings.
A credit rating is not a recommendation to invest in the Capital Securities and may be subject to revision, suspension or withdrawal at any time.
Issue Price The issue price of each Capital Security is $1.00. Minimum application and early application interest The minimum application amount in respect of the Capital Securities is $5,000 and in multiples of $1,000 thereafter. Rabobank Nederland will pay interest at the Official Cash Rate on application money received in respect of accepted applications for Capital Securities from (and including) the date the cheque is banked or the application is settled through the Austraclear System until (but excluding) the Issue Date. Such interest (less any applicable withholding tax) will be paid to successful applicants within five Business Days after the Issue Date and will be paid into the bank account nominated by such applicants on the Application Form.
Interest The Interest Rate on the Capital Securities will be as follows: (a) For the first ten years (until October 5, 2017): the Initial Rate, which is equal to the sum of the Benchmark Rate (the one-year swap rate), which is reset annually, plus the Margin; (b) Thereafter (from October 5, 2017): the Floating Rate, which is equal to the sum of 3-month NZD-BBR-FRA (the 90 day bank bill rate), which is reset quarterly, plus the Margin. The Margin will be a percentage rate per annum determined by the Calculation Agent in consultation with the Joint Lead Manager and Organising Participant prior to the Issue Date and will not subsequently change.
The Margin will be advised by NZX announcement and for Investment Statements distributed after the Margin is set on September 14, 2007, by a rate card accompanying those Investment Statements. Your NZX adviser or other financial adviser can also notify you of the Margin once it has been determined.
1 Tier 1 Capital is the core measure of a bank's financial strength from a regulator's point of view. It consists of the types of capital considered the most reliable and liquid, primarily equity. Examples of Tier 1 Capital are common stock and equivalents thereof, preferred stock and similar instruments that are non-cumulative, and retained earnings.
1479384 v10 8 A description of the interest rates which apply to the Capital Securities, how they are determined, and when they apply is set out on page [•] under the heading What returns will I get? Interest is scheduled to be paid on the Capital Securities quarterly in arrear on each Interest Payment Date.
However, interest may not necessarily be paid on the Capital Securities on each Interest Payment Date. Whether or not interest will be payable on an Interest Payment Date depends on whether, at the relevant time: (a) Rabobank Nederland is required by the Conditions to pay interest; (b) Rabobank Nederland is prohibited by the Conditions from paying interest; or (c) Rabobank Nederland has a discretion under the Conditions as to whether or not to pay interest.
The circumstances in which Rabobank Nederland is required to pay interest, is prohibited from paying interest, or has a discretion to pay interest, are described on page [•] under the heading What returns will I get? If interest is not payable on an Interest Payment Date, that interest will not accumulate or compound and Holders of the Capital Securities will have no right to receive that interest at any time, even if interest is subsequently paid in the future. Redemption The Capital Securities are perpetual securities which have no scheduled repayment date. However, Rabobank Nederland has the option to redeem the Capital Securities in certain circumstances (including from the First Call Date (October 5, 2017)), and has undertaken to exercise its option to redeem the Capital Securities on the first Conditional Call Date (October 5, 2037).
The ability of Rabobank Nederland to redeem the Capital Securities, including on a Conditional Call Date, is subject to Rabobank Nederland satisfying certain conditions. These conditions, and the circumstances in which Rabobank Nederland is entitled to redeem the Capital Securities, are described on page ] under the heading What returns will I get?
Holders of Capital Securities have no ability to require Rabobank Nederland to redeem their Capital Securities unless an Event of Default occurs. The Events of Default, and Holders' rights following an Event of Default, are described on page [•] under the heading What returns will I get? This means that Holders of Capital Securities have no ability to cash in their investment, except: (a) if Rabobank Nederland exercises its right to redeem or purchase the Capital Securities; (b) if permitted following an Event of Default; or (c) by selling their Capital Securities on the NZDX Market. Status and subordination The Capital Securities constitute direct, unsecured and subordinated obligations of Rabobank Nederland as described on page [●] under the heading What are my risks? and in Condition 4.
Further issues of Capital Securities Rabobank Nederland may from time to time without the consent of the Holders create and issue further instruments ranking pari passu in all respects (or in all respects save for the date from which interest accrues and the amount of the first interest payment on such further instruments) and so that
1479384 v10 9 such further issue shall be consolidated and form a single series with the outstanding Capital Securities. NZDX Listing and Quotation Application has been made to NZX for permission to list the Capital Securities and all the requirements of NZX relating thereto that can be complied with on or before the date of this Investment Statement, have been duly complied with. However, NZX accepts no responsibility for any statement in this Investment Statement. Registered Capital Securities The Capital Securities will be issued in registered book entry form. No certificates of title in respect of the Capital Securities will be issued to Holders.
Title to the Capital Securities passes by transfer and registration as described in Condition 3. Rabobank Nederland and the Registrar will rely on the Register for the purpose of determining entitlements to interest payments on each Interest Payment Date, and for the repayment of the principal amount of the Capital Securities if and when they are redeemed.
Both Rabobank Nederland and the Registrar are entitled to rely on the Register as constituting the sole and conclusive record of all Capital Securities and as to the Holders of those Capital Securities. Neither Rabobank Nederland nor the Registrar shall be liable to any Holder for relying on the Register or for accepting in good faith as valid any detail recorded in the Register subsequently found to be forged, irregular or not authentic. No guarantee The Capital Securities are obligations of Rabobank Nederland and are not guaranteed by any member of the Rabobank Group or any other person.
1479384 v10 10 PART 3 - CORPORATE PROFILE THE RABOBANK GROUP STRUCTURE Rabobank Nederland is a cooperative entity formed primarily as a result of the merger of the two largest banking cooperative entities in the Netherlands on December 22, 1970, and is incorporated with unlimited duration.
A cooperative under Dutch law has members and has the statutory objective to provide for certain material needs of its members. Rabobank Nederland was registered with the Trade Register of the Chamber of Commerce in Utrecht, the Netherlands in December 1970 under number 30046259 and the executive offices are located at Croeselaan 18, 3521 CB Utrecht, the Netherlands. The telephone number is +31 (0)30 2160000.
Membership in Rabobank Nederland is open only to cooperative banks whose articles of association have been approved by Rabobank Nederland. In addition to being a member of Rabobank Nederland, each local Rabobank has shares in Rabobank Nederland. The shares are fully paid up on issuance and are not permitted to be pledged, given in usufruct, or otherwise encumbered, alienated or transferred. The articles of association provide that shares may be issued only pursuant to a resolution of the General Meeting proposed by the Executive Board and approved by its Supervisory Board. Pursuant to the articles of association, each local Rabobank is obliged, by virtue of its membership, to participate in any future issue of shares in the same proportion as the proportion which existed in the year preceding the year of issue between its balance sheet total and the sum of the balance sheet totals of all local Rabobanks.
Since 1995, no new shares have been issued. At December 31, 2006, 1.4 million fully paid up shares (for an aggregate amount of € 638 million) had been issued to the local Rabobanks. As members of Rabobank Nederland, the local Rabobanks have certain ownership rights with respect to Rabobank Nederland. However, their position with respect to ownership cannot be compared to the position of shareholders in a corporation. Pursuant to Rabobank Nederland’s articles of association, if, in the event of Rabobank Nederland’s liquidation, whether by court order or otherwise, its assets should prove to be insufficient to meet its liabilities, the local Rabobanks, as members of Rabobank Nederland at the time of the liquidation as well as those who ceased to be members in the year prior to the liquidation, shall be liable for the deficit in proportion to their respective last adopted balance sheet totals.
If it should prove impossible to recover the share of one or more liable members or former members in the shortfall, the remaining liable parties shall be liable in the same proportion for the amount not recovered. Under the articles of association of Rabobank Nederland, the total amount for which members or former members are liable shall never exceed 3% of its last adopted balance sheet total. However, this limitation of liability under the articles of association of Rabobank Nederland does not affect the liability of the local Rabobanks under the Cross-Guarantee System and their liability under the compensation agreements, referenced below.
Rabobank Nederland’s functions within the Rabobank Group can be broadly divided into several areas. Traditionally, an important task of Rabobank Nederland has always been its function as bankers’ bank. Another major task is the service task. As far as service is concerned, the first priority is to provide service to the local banks in the form of support, advice and guidance. Rabobank Nederland negotiates rights in the name of the local Rabobanks and enters into commitments on their behalf, provided that such commitments have the same implications for all local Rabobanks (for instance, the entering into collective labour agreements on behalf of the local Rabobanks).
Furthermore, Rabobank Nederland is entrusted with the supervision of the local Rabobanks pursuant to the provisions of the Financial Supervision Act (Wet op het financieel toezicht). Finally, Rabobank Nederland operates its own banking business, both complementary to and independent of the business of the local Rabobanks and is the holding company of the various subsidiaries.
1479384 v10 11 The local Rabobanks are organised as cooperative entities under Dutch law and draw all of their members from their customers. Through mergers, the number of local Rabobanks has decreased from 248 at December 31, 2005 to 188 at December 31, 2006. At December 31, 2006, the local Rabobanks had approximately 1.64 million members, an increase of approximately 90,000 members from the previous year. Members of the local Rabobanks do not make capital contributions to the local Rabobanks and are not entitled to the equity of the local Rabobanks. Members are not liable for any obligations of the local Rabobanks.
Internal Liability (Cross-Guarantee System) Through their mutual financial association, various legal entities within the Rabobank Group together make up a single organisation. An internal liability relationship exists between these legal entities, as referred to in Article 3:111 of the Financial Supervision Act. This relationship is formalised in an internal ‘cross-guarantee’ system, which stipulates that if a participating institution has insufficient funds to meet its obligations towards its creditors, the other participants must supplement that institution’s funds in order to enable it to fulfil those obligations.
Participating entities within the Rabobank Group are: Rabobank Nederland The local Rabobanks De Lage Landen International B.V. De Lage Landen Financiering B.V. De Lage Landen Trade Finance B.V. De Lage Landen Financial Services B.V. Schretlen & Co. N.V.
Rabohypotheekbank N.V. Raiffeisenhypotheekbank N.V. The local Rabobanks are also parties to several compensation agreements whereby shortfalls of local Rabobanks with respect to equity, profitability, loan loss reserves and financing losses are financed by charging all other local Rabobanks. For regulatory and financial reporting purposes, Rabobank Nederland and the local Rabobanks, as well as the participating subsidiaries, are treated as one consolidated entity. Rabobank Nederland’s ‘Central Bank’ Activities Capital Adequacy and Liquidity The cross-guarantee system operates in concert with the regulatory and administrative oversight of the local Rabobanks by Rabobank Nederland.
Notwithstanding the fact that Rabobank Nederland and the local Rabobanks are supervised by the Dutch Central Bank on a consolidated basis, based on article 3:111 of the Financial Supervision Act, Rabobank Nederland has the responsibility for ensuring compliance by the local Rabobanks with the applicable capital adequacy and liquidity regulations. The capital adequacy regulations are intended to preserve a bank’s ability to withstand loan losses and other business risks through reserves and retained earnings. The internal standards actually applied by Rabobank Nederland, however, are more conservative than the regulations promulgated by the law.
This policy partly reflects the fact that local Rabobanks, which cannot raise new capital by the issue of shares, can only grow and maintain an appropriate ratio of reserves to total liabilities by making profits. Any local Rabobank whose ratio of reserves to total liabilities fails to meet internal solvency standards is subject to stricter supervision by Rabobank Nederland. In particular, Rabobank Nederland may restrict such local Rabobanks' authority to make lending decisions within the Rabobank Group lending limits.
1479384 v10 12 The local Rabobanks are permitted to have accounts only with Rabobank Nederland, which is the sole outlet for each local Rabobank’s excess liquidity and acts as treasurer to the local Rabobanks. Each local Rabobank is also required by Rabobank Nederland to keep a certain portion of its own deposits on current account with Rabobank Nederland. Supervision on market conduct Pursuant to Section 2:105 of the Financial Supervision Act, Rabobank Nederland has been designated by the Minister of Finance as an undertaking which is deemed to have a collective license, applying both to itself and to all local Rabobanks.
As a consequence of this collective license, the supervision by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten), as far as compliance with the rules on market conduct pursuant to the Financial Supervision Act is concerned, will be directed at Rabobank Nederland. In turn, Rabobank Nederland plays a central role in the supervision of the conduct of the local Rabobanks. The articles of association of Rabobank Nederland were amended on January 2, 2007, a day after the entry into force of the Financial Supervision Act, in order to provide a statutory basis for this supervisory task of Rabobank Nederland.
RABOBANK NEW ZEALAND BRANCH In April 1996, Rabobank Nederland was granted a banking authority to engage in banking on a branch basis in New Zealand. The branch Rabobank Nederland established is generally referred to as Rabobank New Zealand Branch. The Reserve Bank of New Zealand is responsible for the registration and supervision of banks in New Zealand. These powers and responsibilities are set out in Part 5 of the Reserve Bank of New Zealand Act 1989. As a registered bank, Rabobank Nederland falls under the Reserve Bank of New Zealand's supervision and, amongst other obligations, must prepare the General Disclosure Statements (which are referenced in this Investment Statement) in accordance with section 81 of the Reserve Bank of New Zealand Act 1989 and the accompanying Registered Bank Disclosure Statement (Full and Half-Year - Overseas Incorporated Registered Banks) Order 2007.
The main focus of Rabobank New Zealand Branch was the food and agribusiness corporate sector. This was, and remains, in line with Rabobank Nederland’s international strategy, which is primarily targeted at establishing Rabobank Nederland as a global leader in the financing of international food and agribusiness. A related area of interest for the Rabobank Group is servicing the trade finance requirements of its existing clients and significant growth potential is also identified in agri-trade finance through expansion of the group’s client base.
Rabobank New Zealand Branch is not a stand-alone, or separately incorporated, legal entity and it does not have any share capital.
DESCRIPTION OF BUSINESS OF THE RABOBANK GROUP General The Rabobank Group is one of the largest banking organisations in the Netherlands and the largest mortgage lending and savings organisation in the Netherlands by market share. The Rabobank Group is one of the 25 largest banking institutions in the world in terms of assets and Tier I capital (according to The Banker magazine, July 2007 http://www.thebanker.com). It offers a broad range of financial, insurance and asset management services across retail, corporate and commercial sectors, both domestically and internationally. The Rabobank Group has the highest credit ratings awarded by the international rating agencies Moody’s (Aaa since 1986) and Standard & Poor’s (AAA since 1985).
On a consolidated basis, the Rabobank Group's total assets were € 556 billion at December 31, 2006 with total liabilities of € 527 billion. At December 31, 2006, the Rabobank Group had 50,573 full- time equivalent employees.
1479384 v10 13 The Rabobank Group is comprised of the cooperative Rabobank Nederland, the cooperative local Rabobanks, which are members of Rabobank Nederland and are also licensed banks, and Rabobank Nederland’s subsidiaries. The Rabobank Group had 188 local Rabobanks and 1,214 branches located throughout the Netherlands at December 31, 2006. The local Rabobanks are themselves cooperative entities that draw all of their members from their customers. See ‘The Rabobank Group Structure’.
The various entities within the Rabobank Group comprise a network of ‘competence centres’ which provide financial services and products to the local Rabobanks and to each other.
This networked expertise allows the Rabobank Group to respond actively to the growing demand from business clients and private individuals for a balanced package of financial services and products. The Rabobank Group therefore seeks to combine the best of two worlds: the local presence of the local Rabobanks and the expertise and scale of a large organisation. The underlying purpose of Rabobank Nederland’s cooperative structure is to provide high quality services and products to its customers at reasonable prices, while maintaining the financial stability of the Rabobank Group. Historically, the Rabobank Group engaged primarily in lending to the agricultural and horticultural sectors in the Dutch market.
Since the 1990s, the Rabobank Group has also offered a wide variety of commercial banking and other financial services not only in the Netherlands but also internationally. As part of an ongoing programme, the Rabobank Group has increased both the number and type of products and services available to its customers in order to diversify from a traditional savings and mortgage-based business to be a provider of a full range of financial products and services, both in the Netherlands and internationally. To this end the Rabobank Group pursues an ‘Allfinanz’ concept, meaning that it provides an integrated range of financial services comprised primarily of domestic retail banking, wholesale and international retail banking, asset management and investment, leasing, real estate and distribution of insurance products to a wide range of both individual and corporate customers.
As part of this Allfinanz strategy, the Rabobank Group focuses on operations that produce fee-based income in addition to its traditional interest-based income sources. Through Rabobank Nederland, the local Rabobanks and their subsidiaries, the Rabobank Group provides services in the following five core business areas: Domestic Retail Banking, Wholesale and International Retail Banking, Asset Management and Investment, Leasing and Real Estate. The diagram below sets forth the organisational structure of Rabobank Nederland, the local Rabobanks and the subsidiaries that engage in the Rabobank Group's core business areas.
1479384 v10 14 Domestic Retail Banking The Rabobank Group provides a variety of lending and savings services in the Netherlands through its network of local Rabobanks and its domestic offices and agencies. From January 1, 2006 through December 31, 2006, the Rabobank Group had a market share of 25.5% of new home mortgages in the Dutch mortgage market (20.3% by local Rabobanks and 5.2% by Obvion N.V. ("Obvion"); source: Dutch Land Registry Office (Kadaster)). In 2006, the Rabobank Group had an 84% market share of loans and advances made by banks to the Dutch primary agricultural sector (measured by its own surveys).
In 2006, the Rabobank Group also had a 38% market share of domestic loans to the trade, industry and services sector (i.e., small enterprises with less than 100 employees; measured by its own surveys). At December 31, 2006 the Rabobank Group had a 39% market share in the Dutch savings market (source: Statistics Netherlands (Centraal Bureau voor de Statistiek)). The foregoing percentages in this paragraph should be read as percentages of the relevant Dutch market as a whole. For the year ended December 31, 2006, the Rabobank Group's Domestic Retail Banking operations accounted for 57%, or € 1,535 million, of their operating profit before taxation.2 Wholesale and International Retail Banking Through Rabobank International, the Rabobank Group provides a variety of wholesale banking services, including advising on mergers and acquisitions and stock transactions, lending and providing special financing arrangements to both domestic and international corporate clients.
Rabobank International is also responsible for the international retail operations. For the year ended December 31, 2006, the Rabobank Group's wholesale and international retail banking operations accounted for 30%, or € 802 million, of their operating profit before taxation. Asset Management and Investment The Rabobank Group provides asset management, investment and private banking services to private, institutional and corporate investors through a number of subsidiaries. Robeco Groep N.V. ("Robeco") is the competence centre for asset management services within the Rabobank Group, offering financial products and services to their Asset Management and Investment operations.
Schretlen & Co. N.V. ("Schretlen") operates the Rabobank Group's private banking activities in the Netherlands and internationally private banking and institutional clients are serviced by Bank Sarasin & Cie AG ("Sarasin") in which the Rabobank Group holds a majority stake (69% of voting rights). The internet-brokerage activities are conducted under the trade name Alex. Alex provides investment services to its clients via the internet. For the year ended December 31, 2006, the Rabobank Group's Asset Management and Investment operations accounted for 11%, or € 285 million of its operating profit before taxation.
Leasing The Rabobank Group's leasing activities are undertaken primarily by De Lage Landen. De Lage Landen provides factoring and leasing services to corporate borrowers, mainly in the food and agribusiness, car leasing, technology, healthcare and banking industries. At December 31, 2006, De Lage Landen had a loan portfolio of approximately € 18.9 billion. Operating profit before taxation from the Rabobank Group's leasing operations, at € 271 million, accounted for 10% of its operating profit before taxation for the year ended December 31, 2006.
2 As the Rabobank Group conducts more activities than the five core business areas, the gross operating profits of the five core business areas do not add up to 100% of consolidated operating profit before taxation.
1479384 v10 15 Real Estate The Rabobank Group provides a variety of real estate services to institutional and corporate clients through Rabo Bouwfonds. Rabo Bouwfonds consists of the real estate development and investment management activities which, as discussed below, were taken over from ABN AMRO Bouwfonds, Rabo Vastgoed (real estate project development) and FGH Bank (commercial real estate financing). For the year ended December 31, 2006, the Rabobank Group's Real Estate operations accounted for 5%, or € 144 million, of its operating profit before taxation. In December 2006, Rabobank Nederland completed the acquisition of the real estate development and asset management parts of ABN AMRO Bouwfonds N.V.
Recent Developments Acquisition of Athlon Car Lease by De Lage Landen completed Following its public offer for all outstanding shares in Athlon Holding N.V. (presently named: Athlon Car Lease International B.V.) for cash consideration of € 30.25 per ordinary share, which offer price includes the rights to dividends for the financial year 2005, De Lage Landen held at July 21, 2006 (after the expiration of the post-acceptance period) 99.6% of Athlon’s total issued and outstanding share capital, all shares being fully paid up. Presently De Lage Landen has 100% of the shares in Athlon Car Lease International B.V.
The total investment (100%) has been € 551 million. The combination of car leasing companies Athlon Car Lease and De Lage Landen Translease (the car leasing subsidiary of the De Lage Landen) has resulted in a position as one of the market leaders in the Netherlands.
Rabobank acquires two banks in Indonesia In January 2007 the Rabobank Group acquired two small Indonesian banks, Bank Haga and Bank Hagakita, from individual shareholders. Both Indonesian banks focus primarily on serving owners of small and medium-sized businesses. The banks have a network of 78 branches, sub-branches and cash offices. The acquisition will decrease the Tier 1 ratio of the Rabobank Group by approximately 0.03%. Bank Sarasin & Cie AG At the end of 2006, the Rabobank Group exercised its call option to purchase all the shares in Eichbaum Holding AG, a holding company owning a majority interest in Bank Sarasin & Cie AG.
On April 11, 2007, the share purchase was finalised. The Rabobank Group now holds (through Eichbaum Holding AG) 46.06% of the share capital and 68.63% of the voting rights, resulting in the Rabobank Group having a controlling stake in Bank Sarasin & Cie AG. Bank Sarasin & Cie AG retains its public listing on the Swiss Stock Exchange ("SWX").
Acquisition of part of Bouwfonds completed In December 2006 Rabobank Nederland completed the acquisition of the real estate development- and asset management business of ABN AMRO Bouwfonds N.V. Rabobank also acquired Rijnlandse Bank as part of that transaction, but did not acquire the real estate financing activities. The total investment amounts to € 855 million. Subsequent to the takeover the group operates under the name Rabo Bouwfonds. Acquisition of Mid-State Bank & Trust On April 30, 2007 Mid-State Bank & Trust became part of the Rabobank Group. Mid-State Bank & Trust has merged into Rabobank N.A., Rabobank’s community banking subsidiary in California.
Under the terms of the acquisition agreement, Rabobank acquired all the shares of Mid-State Bank & Trust for a purchase price of US$ 37 per share in cash, or a total purchase price of US$ 857 million all shares being fully paid up.
1479384 v10 16 Rabo Mobiel In November 2006 the Rabobank Group entered into a joint venture with multimedia company Talpa and Orange to provide mobile banking services to its customers. The Rabobank Group is the first bank in Europe to introduce mobile banking and low-cost calling as one service. Robeco On February 22, 2007, the Rabobank Group through Robeco acquired a 64% stake in the Swiss based Sustainability Asset Management ("SAM") Group. Zanaco On April 3, 2007, Rabo Financial Institutions Development B.V., a 100% subsidiary of Rabobank, completed the acquisiton of 49% in Zambia National Commercial Bank PLC ("Zanaco"), as part of the Rabobank Development Program.
HNS Banco In April 2007, the Rabobank Group and GE Commercial Finance and Ergas Group, owners of HNS Banco in Chile, announced an acquisition agreement through which HNS Banco will become part of the Rabobank Group. The transaction closed on April 30, 2007. Most of the Rabobank Group’s existing operations in Chile will be integrated with HNS Banco, which will be renamed Rabobank Chile, and will become the principal Rabobank Group business entity in Chile. Alex The Rabobank Group announced that it is currently considering the strategic options for Alex Beleggersbank, the online brokerage business of the Rabobank Group, providing online trading capabilities in stock, options and other financial instruments.
A sale of these activities is possible. Certain information on important Group companies Robeco Groep N.V.
Robeco has its statutory seat in Rotterdam, the Netherlands. Robeco provides investment management services, financial services and acts as a holding and financing company. Its issued and fully paid up share capital amounts to € 4,537,803 (4,537,803 shares with a nominal value € 1 each) as of December 31, 2006. Rabobank Nederland’s share in its issued capital is 100 per cent. Robeco’s net result in 2006 was € 202.9 million, corresponding to € 44.71 per share. As at December 31, 2006, Rabobank Nederland’s liabilities to Robeco amounted to € 313 million (bonds), € 675 million (current account), nil (professional securities transactions) and € 11 million (loans/deposits).
Rabobank Nederland’s claims on Robeco as at December 31, 2006 amounted to € 252 million (loans) and € 270 million (current account).
De Lage Landen International B.V. De Lage Landen has its statutory seat in Eindhoven, the Netherlands. De Lage Landen provides factoring, car leasing and vendor lease services. Its issued share capital amounts to € 98,470,307, fully paid up. Rabobank Nederland’s share in its issued share capital is 100 per cent. De Lage Landen’s net profit in 2006 was € 206 million (before minority interest). As at December 31, 2006, Rabobank Nederland’s liabilities to De Lage Landen amounted to € 756 million. As at December 31, 2006 Rabobank Nederland’s claims on De Lage Landen amounted to € 16,840 million (loans and current account).
1479384 v10 17 Group Strategy At the Central Delegates Assembly ("CKV") held on March 22, 2006 - the ‘parliament’ of the local Rabobanks - the exchange of ideas on the strategic direction, which had been initiated in 2005, was concluded with the finalisation of the Strategic Framework for 2005-2010. Besides autonomous growth, this framework is founded on the following indisputable principles: • the Rabobank Group is and remains Dutch, with its dominant market position in agriculture, among private individuals and in small and medium-sized enterprises; • the Rabobank Group is and remains a cooperative; exceptions may be made for Group subsidiaries; • the Rabobank Group remains AAA worthy; and • the Rabobank Group remains independent.
Three growth areas The new strategic framework profiles the Rabobank Group as ‘the global food and agriculture bank with its roots in the Netherlands’ and in doing so distinguishes three growth areas: • Growth in the Dutch Allfinanz market, in particular through further collaboration with Eureko/Achmea and through further strengthening of the Rabobank Group’s position in the top end of the private and corporate markets.
• Continued expansion abroad as a leading international food and agriculture bank. • Further growth of and synergy between the Group subsidiaries. Strategy in the Netherlands - Market leader in Allfinanz Market leadership in Allfinanz in the Netherlands remains the main objective. In addition to the mass market for banking services to private individuals, small and medium-sized enterprises and the agricultural sector, there are attractive opportunities for growth in the top end of the private and corporate markets. Other focuses are the ‘segments of the future’ - young people and entrepreneurs from ethnic minorities as well as the urban areas and a number of product markets.
Here, insurance, consumer credits, investment and real estate financing are the spearheads. Leverage distribution strength as a ‘near-you bank’ The Rabobank Group intends to leverage its distribution strength as the ‘near-you bank’ of the Netherlands, not just physically but also, and increasingly, through ‘virtual’ channels. Using differentiated market strategies, it will respond to differences in client segments, geographical differences and distinct labels and distribution channels. The Rabobank Group’s answer to the growing competition in the ‘near-you’ aspect lies in expansion of the number of client interface points.
By further expansion of the virtual bank, it is expected that clients’ experience of the Rabobank Group as ‘near-you’ and personal will be maintained.
International strategy International growth is necessary to support Small and Medium-sized Enterprises ("SME") and corporate clients, since they are increasing their operations on the global stage. This would have the added advantages of easier access to the international capital markets and enhancing the Rabobank Group’s continued attractiveness as an employer. The corporate bank Rabobank International aims to be the world’s leading food and agriculture bank. This ambition dovetails with the Rabobank Group’s cooperative origins as the pre-eminent financier of the Dutch agricultural sector and the substantial amount of expertise it has developed.
1479384 v10 18 The Rabobank Group’s international operations can be divided into five categories: • International retail banking • The Rabobank Group focuses on three growth markets. The main priorities are traditionally agricultural countries with a stable climate and a structurally attractive agricultural sector, such as the United States, Australia and Canada. The next objectives are countries in Central, Eastern and Southeastern Europe with a growing agricultural sector, such as Poland and Turkey. Then follow the rapidly emerging countries with a large agricultural sector, such as Brazil, China, India and Indonesia.
Projects in these countries are small-scale, in which the financial interest is relatively limited.
• Support of Dutch clients abroad • In order to maintain its market leadership among clients with international operations, the Rabobank Group will in the coming years work towards strengthening the expertise and selling power of local advisers and account managers, improving its product management and intensifying the relationship management with partner banks abroad. • International wholesale operations • In future years, and more than in the past, the international office network will focus its wholesale operations on Dutch wholesale clients, other than the international food and agriculture clients.
The primary geographical focus is on Europe and the countries where Rabobank International is developing retail operations.
• Professional market activities • The Rabobank Group values its AAA rating and will continue to use it for a selected number of profitable product/market combinations in the professional financial markets. In view of the greater volatility of professional markets, the Rabobank Group aim to realise approximately 50% of international profits from international retail operations in the future. • Rabobank Development Programme • Complementary to the successful activities of the Rabobank Foundation, which started 30 years ago, the Rabobank Development Programme ("RDP") was established in 2004.
The RDP’s aim is to help a number of banks in developing countries grow into successful ‘Rabobanks’. During the next few years, its activities will be focused on five countries, including China and a number of countries in East Africa.
• Strategy of the subsidiaries • The Rabobank Group’s Dutch subsidiaries play an important part in achieving the Group’s market leadership ambitions. The objective is to double their net profit and to achieve/maintain leading market positions by the end of 2012. • Organisational and financial implications • The Rabobank Group’s strategic ambitions have been embedded in a cooperative, high-quality and sustainability-driven organisation. • Strengthening the cooperative identity • The cooperative is and remains the Rabobank Group’s cornerstone. The local cooperative Rabobanks and their central cooperative Rabobank Nederland, which is also the holding company of the Group’s subsidiaries, are and will continue to be managed in accordance with the cooperative model.
• High-quality policy for Human Resource Management ("HRM") • The quality of the Rabobank Group's people is of paramount importance to their strategy. The priority in HRM policy is to secure the required calibre of talented, highly educated staff and managers.
1479384 v10 19 • Sustainability • The Rabobank Group aims to build on its strong position in sustainability and corporate social responsibility ("CSR"). It is working towards more CSR criteria in all banking operations, more sustainable financial products such as green financing and green investments, and more deeply embedding sustainable development in its operations.
Ambitious financial targets The Rabobank Group maintains the following financial targets: • annual net profit growth of at least 12%; • a Tier 1 capital adequacy ratio of at least 10.0; and • return on equity of at least 10.0% per annum. Business Activities of the Rabobank Group Domestic Retail Banking The Rabobank Group's Domestic Retail Banking operations are primarily undertaken by the local Rabobanks and Obvion. Their Domestic Retail Banking operations include making loans, taking deposits and providing fund transfers and non-credit service operations, primarily in the Netherlands. Each of the local Rabobanks provides credit and deposit services.
In keeping with the Allfinanz concept, each of the local Rabobanks distributes insurance products and also provides, either directly or through the Rabobank Group’s specialised subsidiaries, investment and a wide variety of other services to customers in the local Rabobank’s specific geographical business area. Obvion provides mortgages finances and operates through independent agents. Obvion is a joint venture between the Rabobank Group and Algemeen Burgelijk Pensioenfonds.
At December 31, 2006 the Rabobank Group had a 39% market share in the Dutch savings market measured as a percentage of the amount of deposits (source: Statistics Netherlands (Centraal Bureau voor de Statistiek)). For the year ended December 31, 2006, the Rabobank Group's domestic retail banking operations accounted for 55%, or € 5,551 million, of their total income and 57%, or € 1,535 million, of their operating profit before taxation. At December 31, 2006, the Rabobank Group's domestic retail banking operations employed 29,375 full-time equivalent employees. The Dutch mortgage loan market is a highly competitive market.
Driven by the tax deductibility of mortgage loan interest payments, Dutch homeowners usually take out relatively high mortgage loans. This does not necessarily indicate a high risk for banks with mortgage lending operations. The Rabobank Group have a balanced mortgage loan portfolio with a weighted loan-to-value of approximately 60%. Historically, mortgage lending has been relatively low risk and all mortgage loans are collateralised. Mortgage loan defaults do not occur frequently, either in their mortgage lending operations or in the Netherlands generally. Almost all mortgages in the Netherlands have a maturity of 30 years.
Generally, mortgages have long term (greater than 5 years) fixed interest rate, after which period the rate is reset at the current market rate. Customers generally do not have the option to prepay on their mortgage loan without incurring a penalty fee, thus reducing the interest rate risks related to mortgage loan refinancing for the Rabobank Group.
Local Rabobanks With 1,214 branches (the most branches of any financial institution in the Netherlands), 810 cash dispensing machines in public locations, service shops, agencies and other points of contacts as of December 31, 2006, the local Rabobanks have 3,091 points of contact. Through the local Rabobanks and Obvion, the Rabobank Group is the largest mortgage lending institution in the Netherlands, with a market share of 25.5%, based on the amount of new Dutch residential mortgages in 2006. The Rabobank Group is the leader in loans to the Dutch agricultural sector and in the small and medium-
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