Investor relations: working on the right-handside of the ledger

Do you remember Jochem de Bruin? This friendly Rabobank employee appeared in a number of the bank’s adverts between 2003 and 2006. He went around the world explaining that Rabobank was a successful cooperative bank with a triple-A rating. Jochem de Bruin could have been modeled on Freek Hoek. “Those ads were spot-on”, Hoek tells us in his modest office in Utrecht. “Although I’m always saying we shouldn’t go on too much about our triple-A rating. I want us to be modest about that. After all, it’s just a grade issued by a rating agency. I think it’s more important to focus on Rabobank’s excellent credit quality in its own right.”

Born in 1948, Hoek joined Rabobank as long ago as 1979. Since then he has held a number of different posts. His previous one was Global Head Business Development Rabobank Group Treasury, and before that he was general manager of Rabobank Tokyo. In 2004 he was asked by the CFO, Bert Bruggink, to set up Investor Relations (IR) for Rabobank.

“In 2004 we decided to take investor relations very seriously, because we realized that with the lending boom the bank’s borrowing requirement would expand significantly in the future. Over the past eight years our balance sheet total has increased from EUR 403 billion to EUR 675 billion. You certainly can’t finance such a jump from savings in the Dutch market. Following the introduction of the Basel-III rules, the long-term funding needs and the capital requirement will surge,” says Hoek.

The tightening of the rules, in particular the introduction of the ‘net stable funding ratio’ and the ‘liquidity coverage ratio’, will spark a run on big investors in the coming years. Investor Relations will therefore play an even more important role in the future. Hoek notes: “Rabobank has got its investor relations sorted, and we have good access to these investors. That’s not so much the case for banks that are still setting up their investor relations departments.” It is estimated that the whole financial sector will need EUR 700 billion in Tier 1 capital. Rabobank has already successfully placed two pioneering capital-strengthening issues. “Gaining the investor’s favor is a very competitive business,” he adds.

“The question ‘Who owns Rabobank?’ kept cropping up.”

More than communication

To stand out among your competitors, a professional IR department is essential and communication is important. But IR is far more than communication, stresses Hoek. “It’s our job to give investors a good idea of the bank’s financial situation and of the risks, so that they can make a balanced judgment.

IR is above all about figures. You want to make all kinds of things clear to investors. What’s the Tier 1 ratio? What’s the provision for bad debts? What about the interest rate and market risks? Institutional investors are making ever higher demands of the quality of financial analyses. The bank is no longer a kind of ‘black box’, divulging the odd figure here and there. I sometimes found it quite difficult to get people within the bank to share information. But that’s the key. Transparency and consistency is what it’s about.”

The ways in which Hoek and his people convey figures ranges from newsletters and investor presentations (in 10 languages) to the IR web pages – brimming with figures, charts and information – on http://www.rabobank.com. The website is the information pivot of Hoek’s IR strategy. Indeed, every scrap of data which may be important for investors (and which can be published) can be found here.

The most important weapon in the struggle to secure the investors’ favor is Hoek himself. All the wonderful IR presentations and communications are important, but Hoek wants to get around the table with his investors to explain Rabobank’s financial situation. That is why he has been traveling the world, often with Raboank’s CFO, to talk to investors in their own surroundings.

“Certainly the larger investors expect you to visit them reasonably regularly to explain your performance. Especially at the start we had quite a lot to explain to foreign investors. Our cooperative structure, our cross-over guarantee, our all-finance strategy, our market shares in the Netherlands, and our focus as an international food and agriculture bank.

“The question ‘Who owns Rabobank?’ kept cropping up. When you’re meeting investors, you have to be able to answer all their questions. You have to be prepared. Stay calm, even when an investor says that they don’t believe you. And stay honest. Outline scenarios, give the investor a clear idea of what’s happening. Even when you’re dead-tired because you’ve been on the road for days and have had to repeat the same story loads of times.”

These days Hoek does not have to spend much time on explaining Rabobank’s governance. “After nearly eight years and with a base of more than 3,500 institutional investors from across the world, the discussions tend to concentrate on the financial performance, the risk profile of our credit portfolio, and our capital position.” At the moment, explaining economic developments in Southern Europe takes more time than Rabobank’s story.

“You’re the contact person for the investor, and you have to act as such.”

A bit boring

Does Hoek have any tips for organizations and institutions that want to improve their IR policy? Hoek considers the question: “If you want to be truly professional about it, you need someone with an investment-analytical background who knows the bank inside-out. Investors are suspicious of smooth-talking youngsters. You have to be sober, perhaps even a bit boring.”

The lifestyle is not ideal either. “All the traveling does not suit everyone. My wife forgives me all the times that I missed my daughter’s birthday; but only because I usually wasn’t home on my own birthday either. And finally, honesty is very important. If someone asks me what gives me sleepless nights, I give a straight answer. You’re the contact person for the investor, and you have to act as such. You have to reassure the investor.”

Hoek’s approach works. In 2010 Rabobank won the Dutch IR Award for Debt IR. Hoek regards that award as the supreme accolade for his work. “The fact that we won this prize in such a difficult year means that we – the whole team – did something pretty impressive. I can stop later with an easy conscience. I mean that.”