In the current Congressional debate over whether the Export-Import Bank (Ex-Im Bank) should be reauthorized, one aspect of its activities has received little, if any attention.
Since 1970, the Ex-Im Bank has maintained a cozy relationship with the Private Export Funding Corporation (PEFCO). The “PEFCO is a private sector, tax-paying entity.” It “was established in 1970 with the assistance of the Export-Import Bank of the United States (Ex-Im Bank) to supplement the export financing then available through Ex-Im Bank and from commercial banks and other lending institutions.”
Instead of PEFCO performing its own risk analysis, Ex-Im Bank does that and makes U.S. taxpayers serve as the backstop for guaranteeing loans: “Since all loans made by PEFCO are guaranteed or insured as to the due and punctual payment of principal and interest by Ex-Im Bank or other U.S. government institutions, such as the Overseas Private Investment Corporation (“OPIC”), whose obligations are backed by the full faith and credit of the United States, PEFCO relies upon this U.S. government support and does not make evaluations of credit risks, appraisals of economic conditions in foreign countries, or reviews of other factors affecting collectability of its loans.”
This has been the case since 1971, as PEFCO mentions in its 2014 annual report: “Under the terms of a Guarantee Agreement, DATED DECEMBER 15, 1971, AS AMENDED, BETWEEN PEFCO AND EX-IM BANK, DUE AND PUNCTUAL PAYMENT OF THE PRINCIPAL OF AND INTEREST ON ALL FOREIGN IMPORTER NOTES (“GUARANTEED IMPORTER NOTES”) EVIDENCING LOANS MADE BY PEFCO WITH THE APPROVAL OF EX-IM BANK WILL BE FULLY AND UNCONDITIONALLY GUARANTEED BY EX-IM BANK.” (Emphasis added.)
Under this agreement, the Ex-Im Bank exercises a level of supervision over the activities of PEFCO, including the right to have a representative present at PEFCO board meetings, access to financial information, approval of loans, etc. PEFCO also pays “a semi-annual guarantee fee on the total interest accrued by PEFCO during the preceding semi-annual period on securities on which interest payments have been guaranteed by Ex-Im Bank.”
When you look at who owns PEFCO, things get interesting. “PEFCO’s stock is owned by 26 commercial banks, six industrial companies and one financial services companies (sic).” The largest “shareowner” as they call shareholders is JPMorgan Chase & Co. which owns 2,937 shares or 16.51 percent. Of particular note, the fifth-largest shareholder, and the largest owner among the industrial companies is The Boeing Company, which owns 1,425 shares or 8.01 percent. Boeing, as has been noted many times, is a major beneficiary of the Ex-Im Bank’s activities, something that has earned the Bank the moniker, “Bank of Boeing.”
On page four of its annual report, PEFCO states that it made 118 loan commitments totaling $1,562,000,000 in 2014. Of this amount, 84 percent, or $1,316,000,000, was for aircraft. Page six of the report states that $6,166,000,000 of their $7,342,000,000 in outstanding loans, or 84 percent, is for aircraft.
Boeing, as it just so happens, has been a beneficiary of PEFCO loans to its customers in the past for aircraft such as its 777-300ER, which “the national flag carrier of Angola, TAAG Angola Airlines (Linhas Aereas de Angola), is purchasing.”
So it works like this: companies like Boeing through their involvement in PEFCO get risk-free, government-guaranteed investments, and those investments then go to purchase their own products. The company gets profits from their PEFCO ownership and sales because PEFCO finances purchases of their own products.
Like 10,000 other things that most people have never heard about, does this sound like something in which the government should be involved? It is fine if a group of companies wish to band together to form a corporation to finance the sales of their own products. Just do it without having the federal government so woven into the fabric of the corporation that the line between public and private disappears.
Nathan Mehrens is President of Americans for Limited Government Foundation.
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