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What Happened to Rabobank?

After announcing a commitment to build a world-class forex operation nearly two years ago, Rabobank decided in June to curtail the business. The decision resulted in 105 job cuts in London (about one-third of the dealing room) as part of a restructuring of its wider international wholesale operation.

With the decision to relocate the London-based forex and FX derivatives operations to Utrecht where it has centred its euro currency activities, the bank eliminated the position held by global FX manager Michele Di Stefano, who joined the bank in September 1997 specifically to build the business. It also cut all but about eight positions from the 22-strong forex team.

The official line on Rabobank’s restructuring is that the decision was part of a wider realignment taking place at Rabo, against a backdrop of a “rapidly changing global market, which has seen the advent of the euro and an increasing shift to niche specialisation”.

“Previously, all FX business was managed by a global product manager, Michele Di Stefano,” says a spokesperson in Utrecht, “But that function has been cut and divided into three sections: trading, sales and derivatives activities.”

Bill Cuthbert, who was named head of Global Financial Markets following the departure last December of chief executive Alex von Ungern-Sternberg, continues to head the London office. Cuthbert is a member of the managing board of Rabobank International. He joined from Deutsche Bank in late 1997 as head of global short-term interest rate products.

A few people have survived the London cutbacks, including Adrian Brickell, who joined from Barclays to oversee global currency options; Lee Ferridge, originally from Commerzbank who runs global FX strategy; and Gary Kaye, who came from Merrill Lynch to head spot trading.

Kaye is responsible for the day to day management of the spot activities, which from London includes sterling, Scandis and Swiss franc trading. However, the spokesperson says the spot trading activities will be relocated from London to Utrecht, while FX forwards trading, with respect to non-euro/euro currencies, will remain in London. Kaye reports to David Vander, who was head of Stir, but is now also responsible for FX and long-term interest rates.

Currency options head Brickell reports to Jonathan Laredo, who was running commodities, credit and structuring, but who is now also global head of equity derivatives and financial engineering.

“As a whole, Rabobank is still maintaining the same activities for customers that we had in terms of FX, but we will be relocating and dividing these under different activities,” says the spokesperson.

A Culture Clash?

According to market sources, the reversal may have had something to do with a clash of cultures, whereby Utrecht was uncomfortable handing over control of the investment banking business to London. Sources also say the Dutch bank may have balked at the idea of performance-related compensation, often associated with running a big investment bank.

“The recent appointments to the managing board show that the bank is clearly embracing its commercial banking background, and wasn’t willing to elect London as a centre of competence,” says one source.

“The individual businesses within the investment banking division, such as FX, swaps and money markets, were profitable. So the decision was not performance related,” according to the source. “The bank benefited greatly from the diverse across-the-board expertise that was brought in over the past year, but at the end of the day, the decision to become a major player has to be embraced at the board level. I think Rabobank is probably going to see a return to the decentralised, regional approach that was in place several years ago.”

The bank’s decision to cut back the London forex operation came about six months after Ungern-Sternberg left the bank. Di Stefano worked briefly with Ungern-Sternberg at Deutsche, where the latter had spent 10 years before moving to Barclays as head of treasury in late 1995. Di Stefano joined Barclays shortly afterward as head of FX sales for Europe, witnessing a major shake-up of the bank’s FX business during 1996. Ungern-Sternberg left the bank later that year and joined Rabobank in spring of 1997. Di Stefano joined him towards the end of that year.

Di Stefano began the FX build-up in earnest around January of last year, making a number of high profile hires to run the business. While a handful of these remain in place, decisions such as Rabo’s are costly, though not uncommon. Not only does it cost the bank its initial investment in human capital and technology (Rabobank, like First Chicago before it, built a new, state-of-the-art trading room to accommodate its expansion), but it also costs substantial amounts to wind down the operation.

But perhaps hardest hit are those who left their jobs to become part of an exciting new venture. “Making the decision to give up a secure job, especially in today’s market, is a difficult one in the best of times. Now these people, who were made certain promises, now find themselves looking for work in a tough environment,” says a former NationsBank trader.

Or a Lack of Commitment?

“We’ve seen it before,” says another market source. “We saw it with NationsBank and we saw it with First Chicago. These banks have very good credit ratings, decide they want to be in FX and then buy in the talent to make it work. So they start with a very high cost base in a business that takes a long time to develop. When the profits don’t come after six to twelve months, they retrench or shut down. They either don’t have the commitment to see it through, or someone decides the business isn’t making enough to justify the salaries.”

One bank that has stuck to its guns is Deutsche Bank. Five years ago, the bank hired a team of Citibank’s top traders and sales dealers and undertook a major drive to become one of the top forex banks. Many of that original team remain at the bank today and, besides the reverse decision taken last year not to have a standalone investment bank, the parent bank has kept its commitment to the forex business alive.

Profit & Loss

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