CoBank Leaves Investors in the Lurch

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CoBank is a behemoth – it has $117 billion in total assets. If it were considered a bank, regulated like a bank and taxed like a bank, it would be the twenty-first largest bank in the country.

So when CoBank throws its weight around, the ground shakes.

And CoBank isn’t averse to throwing its weight around and acting unilaterally. In March, the Farm Credit Administration (FCA) issued a new rule that stipulated that Farm Credit System (FCS) banks had to shore up their capital reserves, despite assuring the House Committee on Agriculture that the FCS was “fundamentally safe and sound.”

CoBank had to fulfill the requirement. In April, Bloomberg reported that CoBank revealed “a plan to buy back at par about $405 million bonds sold in April 2008.” Naturally, investors were not pleased – they had purchased these bonds in 2008, when the economy was teetering. These bonds weren’t just an investment in the traditional sense – they were votes of confidence in CoBank and its ability to weather tough times.

CoBank repaid this loyalty and vote of confidence with reimbursement of the bond’s principal and just under 8 percent of interest, far short of the 12.5 percent investors would have received if the bonds were allowed to mature.  To make matters worse, these votes of confidence came from a number of not-for-profit funds, including Catholic United Investment Trust and Thrivent Financial for Lutherans.

Fortunately, these funds aren’t taking this lying down. Last month, Bloomberg reported that investors have filed suit against CoBank to restore the bonds so that they can receive the promised value in full.

CoBank has $117 billion in total assets, and it garnered a total net income of $936 million in 2015. It has the resources to stymie this lawsuit by throwing money and lawyers at it. If this is the sort of behavior that CoBank thinks it can get away with, then potential investors need to consider whether they can afford to support such an unscrupulous organization. And if there’s even a whiff that potential investors aren’t interested in financing CoBank, then Congress needs to examine whether this government-sponsored enterprise should conduct its own affairs.