VideoTwo years ago, as Micki Hidayatallah scouted potential acquisitions, he knew he needed more cash. But when the CEO of Houston-based Allis-Chalmers Energy Inc. met with RBC Capital Markets, its head of energy banking identified what he really needed: to disencumber the company from a line of credit personally guaranteed by Hidayatallah and his wife.
After a second meeting, RBC CM, a U.S. unit of Royal Bank of Canada, extended Allis-Chalmers a $50 million syndicated line with a lower rate and lighter covenants, replacing the oil-and-gas equipment company's credit line from its existing bank. Since then, RBC CM has financed $700 million in public debt and equity for Allis-Chalmers that has propelled it through six acquisitions. RBC even stuck by Allis-Chalmers during one deal by bridging public debt and equity on its own balance sheet. Hidayatallah couldn't be happier. "They're the best relationship bank," he declares.
How did a Canadian bank swipe a client from a well-known U.S. one? Not through its international presence or knowledge of overseas markets. RBC was simply more geared to small- and mid-cap businesses "than any U.S. bank I've met," Hidayatallah says.
Constrained by their relatively small, high-cost, and crowded home markets, banks from outside the United States are tweaking their strategies to exploit greenfield opportunities here.
Admittedly, it has been a slog. While the U.S. offices of foreign banks have doubled their assets to $2.5 trillion in 10 years and increased business lending by 19 percent, to $337.8 billion, their share of total banking assets is up only 2 percent and their share of business loans has declined compared with 1997, according to the Federal Reserve.
But those statistics miss some of the investment-banking businesses of international banks, such as RBC. Indeed, internationally based banks have taken full advantage of the Gramm-Leach-Bliley Act of 1999, which removed the separation between commercial and investment banking. Many have also snatched up consumer retail branches to complement their corporate banking arms.
And, as the three banks highlighted here — Rabobank International, a unit of Utrecht, the Netherlands-based Rabobank Group; Paris-based BNP Paribas; and Royal Bank of Canada's capital-markets business — illustrate, some banks have made inroads by offering something different in products, vertical industry expertise, and the banking relationship itself.
In fact, were U.S. money-center banks' compulsion to grow overseas to distract them from their commercial businesses here, foreign banks would be poised to fill the breach. Johnny Cameron, Royal Bank of Scotland's corporate banking chief, has stated that, "there are not enough serious corporate banks in America for a country the size of America."
Rabobank: Tilling U.S. Soil
Netherlands-based Rabobank is serious about expanding its stake in the United States. The bank made headlines recently by yanking Tour de France leader Michael Rasmussen from its cycling team for missing drug tests. But to U.S. customers, the banking cooperative is better known for being one of the largest institutions financing food and agricultural businesses, with a portfolio of $15 billion in North America.
Driving growth in the States is the bank's knowledge of agriculture and its familiarity with supply-and-demand swings of the industry, which makes its client relationships sticky. Case in point: Jackson, Mississippi-based Cal-Maine Foods Inc.
Rabobank first won the business of the $598 million producer of shell eggs in 1984, in part by cutting 200 basis points off the company's line of credit, says former Cal-Maine CFO Bobby Raines. But more than 20 years later, Rabobank is still the agent bank in the firm's $40 million revolver. "They stay with you in a loss year; they understand when we have a two-year period when we're not making money," says current CFO Timothy A. Dawson.
Rabobank's agricultural focus has also enabled it to build a mergers-and-acquisitions business in cross-border deals, says Robert S. Bucklin, chief corporate banking officer in North America. M&A is the product that gets the attention of the C-suite, Bucklin says. And although Rabobank's team in the United States is small — just under 20 people — it has advised on some major deals, including Tata Group's $677 million purchase of a 30 percent stake in vitamin-water brand Glaceau.
Going forward, the triple-A-rated bank is forging into credits initially judged too risky — chain restaurants and ethanol production. The moves are meant to counter some slowing in the agriculture and food-processing areas. But don't expect Rabobank's changing portfolio to generate any controversy. "They take small positions [in terms of] their average loan size. They're very careful," says Lynn Exton, a senior vice president at Moody's Investors Service.
BNP Paribas: Financial Engineers
Careful is not a word typically used to describe derivatives trading, but the S&P 500's daily price swings the past few months may make utilizing derivatives prudent.
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