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Is DLL Leasing Really Up For Sale?"

by Christopher Menkin

Perhaps it is just a rumor that Rabobank Group is making plans to sell its leasing unit, De Lag Landen International, BV, for a price tag of $4.9 billion. It is very difficult to believe as Rabobank is among the best capitalized, best run, and most profitable banks in the world.

It is accurate that Europe is toughening its capital rules; however, are alternate financing, mobile and internet banking services going to cut into banking competition as much as it is being hyped, forcing Rabobank to sell off a golden goose? Is Europe embracing Bitcoin and Blockchain, the public ledger of transactions for Bitcoin. Is it the European Union or the new International Lease Accounting rules?

To me, it doesn't make any sense for Rabobank to sell off its leasing division, as it is very profitable. You don't get rid of good income property. Whether changes in European accounting regarding leasing are a factor does not seem accurate, as other banks would suffer the same impact to their balance sheets regarding operating leases. Most securitizations are disclosed on the balance sheet in the footnotes of regulatory filings.

Making an analogy to GE may not be fully correct, as GE is divesting
itself from the financial end to concentrate on its industrial products,
and GE has chosen not to face the toughening banking regulations, which may effect their entire operation. A European Central Bank audit recently resulted in capital requirements that may have impacted the decision because penalties resulted from the findings. It may be similar to GE conclusion, although GE has products to manufacture and sell. It may very well be the capital ratios the European Central Bank is imposing may be similar to what GE is trying to avoid.

The other side of the question that may be of interest is who has an appetite that big? Not the US banks...the EU banks are under the same restraints... who has the capacity and the desire to bite off a chunk that big? Will it be broken up into units as GE did? Perhaps even further divided by countries. Will it then move executives and staff around to other companies, or other job opportunities?

The alleged deadline for the transaction is in the second half of 2016, so a sale have to happen soon to meet the legal requirements for an actual the end of the year conclusion.

In May, 2012, it was rumored that De Lage Landen's parent, Rabobank, was putting its car leasing division up for sale. It was stated at the time by several sources that De Lage Landen's car leasing business was under review along with the fund management arm Robeco. At the time, it was noted, "The De Lage Landen business, which includes Athlon Car Lease, reported a 51% growth in profit for 2011 - the largest profit gain within the Rabobank portfolio." Again, a golden goose you don't get rid of.

The car leasing company became a part of DLL in 2006 and remains with Rabobank Group, who has 330 offices in 42 countries outside the Netherlands.

Are recent "criminal" activities part of the decision?

According to stories in the media, Rabobank is today under investigations regarding money laundering by clients at its branches in California near the Mexican border. The bank reportedly has more than 120 locations in California with $14.3 billion in assets, which is less than 2% of the parent company's total assets as stated in their SEC filings. The bank is reportedly fully cooperating with the investigation.

In 2013, Rabobank was caught along with others rigging the London interbank offered rate, referred to as Libor. They were fined $1.1 billion and six of their former traders were criminally charge, and then-Chairman Piet Moerland resigned.

Certainly DLL, and perhaps many other European banks, have seen
better times. Will the new investors then be from the United States?
China? India?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.