tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Friday, September 10, 2004

Rabobank deal poses taxpayer issue

One of the largest banks in Europe is Rabobank of The Netherlands. It is in the center of a controversy regarding the role of Farm Credit System lenders in this country because Rabobank has proposed to buy Farm Credit Services of America, a Farm Credit System lender based in Omaha serving Nebraska, Iowa, South Dakota and Wyoming. A Congressional Research Service report published August 23 affirmed such a deal is legal.

The proposed acquisition is controversial because no commercial company – let alone a foreign company -- has ever purchased a U.S. government sponsored enterprise such as FCSAmerica. Unlike regular banks, lenders in the Farm Credit System raise money through the sale of bonds on Wall Street. Because government sponsored enterprises have an implicit U.S. government guarantee, those bonds pay investors a little less than bonds from a typical private company. Since they can raise money more economically than typical banks can, the loans made by a government sponsored enterprise are generally priced a little better than the loans banks make. This is a pretty good deal for farmers and ranchers who are eligible to borrow from lenders such as FCSAmerica.

If the deal takes place in early 2005 as Rabobank anticipates, FCSAmerica will withdraw from the Farm Credit System, leaving its regulator – the Farm Credit Administration – the authority to issue charters to other Farm Credit System lenders to serve those four states. Rabobank said in a July 30 press release that it expects the FCA to do exactly that.

But I say, wait just a minute.

If the shareholders of FCSAmerica approve its acquisition by Rabobank, aren’t they essentially saying they don’t need a Farm Credit System lender? At the very least, they are saying they would rather have the money. FCSAmerica has 51,000 shareholders who would split the $600 million sale price. That’s an average of about $12,000 per shareholder but, in fact, some shareholders would receive a lot more and others less. AgStar, a Farm Credit System lender based in Mankato, Minn., has made a rival bid for FCSAmerica. AgStar is offering $650 million.

Sens. Tom Daschle and Tim Johnson of South Dakota have called on the Senate Agriculture Committee to hold hearings on the situation. Sen. Tom Harkin of Iowa also wants hearings. And, this morning’s St. Paul newspaper reports that one of Minnesota’s U.S. Senators, Norm Coleman, now also is calling for hearings. Since we already know that Congress can’t stop the deal, the focus of those hearings should be about the authorization of new Farm Credit System lenders in the affected area. I strongly urge the Farm Credit Administration not to issue new charters.


Let’s face it, new Farm Credit System lenders in South Dakota, Wyoming, Iowa and Nebraska simply are not needed. The FCSAmerica shareholders are saying as much if they approve the transaction with Rabobank. If new charters are granted, what’s to stop Rabobank or some other entity from buying those new lenders in a few years; the shareholders make thousands of dollars more and the Farm Credit Administration grants additional charters. The process makes a mockery of American taxpayers, who are ultimately on the hook for government sponsored enterprises. As a taxpayer, I will not be taken for granted. Ag borrowers in South Dakota, Wyoming, Iowa and Nebraska either really need a government sponsored lender or they don’t – they can’t have it both ways. Taxpayers are willing to take the risk of backing government sponsored enterprises because we assume such entities are really needed. But if the people who are benefiting directly from the government sponsored enterprise vote to sell the entity, then they are sending a clear signal that they really don’t need taxpayer help anymore.

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