Rabobank Group sold the elements of its Rabobank North America unit not directly related to food and agriculture to Mechanics Bank for $2.1 billion.
Announced last week, the deal sees Mechanics Bank – a community bank headquartered in Walnut Creek, California, and founded in 1905 – take control of Rabobank NA’s retail, business banking, commercial real estate, mortgage and wealth management businesses.
As part of the transaction, Rabobank will receive 9.9 percent of Mechanics Bank’s outstanding shares, 79 percent of which are owned by Ford Financial Fund II, a $755 million private equity vehicle focused on community banks.
The food and agriculture loan portfolio formerly held within Rabobank NA is valued at $5 billion and will be transferred to Rabo AgriFinance, a St Louis, Missouri-headquartered unit of the Dutch bank.
Rabobank entered California in 2002 through the acquisition of Valley Independent Bank of El Centro, California. It went on to build a nationally chartered banking unit headquartered in Roseville, California, with 100 branches and $13 billion in assets.
Last February, Rabobank agreed to forfeit $368.7 million as part of a guilty plea on charges Rabobank NA executives had obstructed and investigation into its compliance with anti-money laundering regulations relating to the bank’s Mexican customers’ alleged involvement in narcotics trafficking.
“Getting those things behind them, allows us to really explore the possibility of refocusing and doubling down our efforts on agriculture,” Rabobank’s executive vice-president and head of North American rural banking Curt Hudnutt told Agri Investor. “The timing is pretty good, if you look at valuations, as well.”
Though the US ag economy currently presents one of the most challenging lending landscapes since the 1980s, Hudnutt said, there are still profitable producers in every sector and opportunities remain.
Rabobank will focus its lending on the top 25-30 percent of producers, Hudnutt said, highlighting animal protein, not necessarily in California, as a subsector the firm already has significant exposure to that it will look to expand.
Hudnutt noted that while some private firms have come to play a role as lender of last resort to large producers and by providing input financing, the role of such lenders remains relatively small.
“There is some private equity coming into agriculture,” he said. “Most producers are a little bit leery of private equity, given what typically their business model is and what they are looking to do. Some are leveraging it and utilizing it as opportunities to grow.”
Hudnutt added he has been a bit surprised by the continued interest of institutional investors in real asset-style farmland purchases given the challenging conditions facing producers.
“We haven’t seen land values come down, proportionate to some pull-backs in rents,” he said. “It’s challenging for those funds to make the return they are looking for because they are not getting that appreciation anymore, but we are still seeing activity in that space.”