* Two of five Farm Credit System banks to merge 2011
* Merger seen tied to consolidation not bank problems
By Christine Stebbins
CHICAGO, Dec 16 U.S. AgBank and CoBank, major
lenders to U.S. agriculture and part of the
government-sponsored Farm Credit System, said on Thursday they
plan to merge in 2011 to boost diversification and efficiency.
CoBank, with $60 billion in assets, is based in Denver,
Colorado, while U.S. AgBank, headquartered in Wichita, Kansas,
has $25 billion in assets. Both banks are members of the Farm
Credit System, a cooperative created by Congress in 1916 to
provide credit to U.S. farmers and rural areas.
"This deal has been percolating for a long time now. It is
not because of problems in U.S. AgBank but more of a matter of
CoBank trying to spread its wings further," said Bert Ely, a
scholar at The Cato Institute and a well-known critic of the
Farm Credit System, which competes with commercial banks.
The combined bank will do business under the CoBank name and
provide financing to more than 70,000 farmers, ranchers and
other rural borrowers through Farm Credit association banks in
CoBank's president and CEO Robert Engel will become chief
executive of the combined bank while Darryl Rhodes, U.S. AgBank
CEO, will retire after the merger completes on Oct. 1, 2011.
"The merged bank will enjoy substantial diversification
benefits through the combination of two highly complementary
loan portfolios, enhancing its ability to withstand risk,"
Engel said in a statement.
The board of directors for both banks approved a letter of
intent to merge on Wednesday, FCS said. The merger requires
both regulatory and stockholder approvals.
CoBank headquarters will remain in Denver. U.S. AgBank
offices in Wichita and Sacramento, California, will stay open.
"CoBank had already been doing business with some of the
California associations that belong to U.S. AgBank. I think we
are going to see further consolidation among the banks," said
There has been massive consolidation of FCS banks over the
years, now down to four banks with the CoBank-US AgBank merger.
Once there were some 37 regional banks lending to the system's
association banks. FCS obtains its basic capital by selling
securities on domestic and international capital markets.
"The whole bank association structure within the Farm
Credit System is kind of archaic," Ely said.
Farm Credit banks held about 37 percent of total U.S. farm
debt, with commercial banks holding about 46 percent, insurance
companies 5 percent, the USDA's Farm Service Agency about 2
percent, and individuals and other creditors about 10 percent,
according to the USDA's Economic Research Service.
(Reporting by Christine Stebbins; Editing by David