By Adam Andrzejewski
In 1970, the federal governments Export – Import Bank (Ex-Im) "spun-off" a private bank empowered to trade on the guaranteed loan portfolio of Ex-Im. It’s owned by Citibank, JPMorgan, Chase, Boeing, and GE – some of the largest beneficiaries of Ex-Im support.
Between now and the end of June, Congress will decide the fate of the federal agency, Export – Import Bank (Ex-Im) of the United States, either by doing nothing and letting the bank expire or by voting to let the bank continue. Critics say the bank is the epitome of cronyism, corruption and corporate welfare. Supporters, on the other hand, argue the bank boosts our national security, supports domestic jobs, and levels the global economic playing field.
Last week, our organization American Transparency (OpenTheBooks.com) fact checked the claims of politicians and pundits with the release of our 30 page Federal Transfer Report – Export – Import Bank
. One special section of our oversight report
addresses a topic that hasn’t received much attention. We looked at large private banks that have processed more than $125 billion in Ex-Im supported transactions since 2007. These private-sector bank beneficiaries processing Ex-Im supported transactions around the world have so far avoided intense scrutiny. They include Citibank, JPMorgan Chase, New York Mellon, Deutsche, Bank of America, and many others.
It’s well known that Ex-Im mitigates all credit risk to private banks by guaranteeing payments from foreign importers. The top two firms engaged in this practice were JPMorgan Chase ($23 billion), and Citibank ($9.4 billion). But it was also a big boost for the fifty large banks that processed 70 percent of all disclosed Ex-Im activity since 2007.
But the biggest banks took it a step further and found new ways to engage in self-dealing and double dipping.
In 1971, the federal Ex-Im Bank "spun-off" a private bank naming it the Private Export Funding Corporation (PEFCO). It’s incorporated in Delaware and chartered to trade only in products bearing a full Ex-Im guarantee (or U.S. Treasury equivalent). The owners of this Ex-Im "subsidiary" are some of the largest bank processors and corporate beneficiaries of Ex-Im transactions including JPMorgan Chase, Citibank, New York Mellon, Bank of America, and Deutsche. The Fortune 100 corporations owning a slice of PEFCO include Boeing and General Electric.
Here’s just one example of how a corporate giant gets to double dip their Ex-Im backed transaction:
Through information disclosed online, we discovered PEFCO has traded in Ex-Im backed loans mostly within the airline industry. Even in Angola, where the people face malnourishment and starvation, PEFCO provided the long-term loan to the state-owned Ministry of Finance for the $256 million purchase of Boeing airplanes with an Ex-Im guarantee.
How convenient that Boeing owns 17 percent of PEFCO – the private bank.
Boeing was not only able to sell their product to one of the world’s most corrupt governments through cheap Ex-Im financing plans (up to $2 million benefit per plane), but was also able to privately monetize the entire transaction through their ownership of PEFCO.
For JPMorgan Chase and Bank of America, the deal is even better. As the owners in PEFCO, these bankers also underwrite PEFCO’s commercial paper. New York Mellon manages all aspects of PEFCO long-term notes and collateralized obligations. Separately, all these banks partner with Ex-Im on financial transactions around the world.
This Private Export Funding Corporation (PEFCO) is chartered to operate only under express Ex-Im permissions. In fact, the relationship is so tight that the former Ex-Im Chief Operating Officer John McAdams recently joined the PEFCO board and Rita Rodriquez, a former Ex-Im Bank director is also a PEFCO director. The top corporate officers at Boeing, Bank of America, JP Morgan, Citizens Financial, Citibank, and Mellon are also directors at PEFCO.
Ex-Im is in trouble because its premise is hostile to free market capitalism: the use of public money to mitigate risk while privatizing profit. The discovery of this insider run private bank trading on the unique Ex-Im charter won’t help its case.
But who can blame the bankers or companies involved? It’s an easy business model when your "loan product" is fully backed by Uncle Sam. That’s a reality members of Congress should keep in mind when they decide the bank’s fate later this month.
Adam Andrzejewski is Chairman of American Transparency and founder of the transparency website, OpenTheBooks.com