REPORT TO THE C ,I,’ 2 .d g&Y 3 llMllllllllllllllllllillllillll~lll LM095492 Examination Of Financial Statements Of The Export-Import Bank Of The United States Fiscal Year 197180714823 BY THE COMPTROLLER GENERAL OF THE UNITED STATES COMP’ROLLER GENERAL OF THE UNITED STATES WASHINGTON, D.C. 20548 B- 114823 To the President of the Senate and the 6) Speaker of the House of Representatives The General Accounting Office has examined the statement of / financial condition of the Export-Import Bank of the United States, a :/ 1. -I- w.holly owned Government corporation, as of June 30, 1971, and the related statements of income and expense and analysis of retained in- come reserve and source and application of funds for the year then ended. This examination, pursuant to the Government Corporation Control Act (31 U.S,C. 841), was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we con- sidered necessary in the circumstances. The interest and other financial expense reported by Eximbank include interest char.ges on a significant part of the borrowings from r -the U.S. Treasury at rates lower than the rate prevailing at the time the y-i’/ / funds were borrowed. Had the Treasury charged Eximbank interest rates approximating the full cost of the funds, the Bank’s interest and other financial expense would have been increased by about $11.9 and $16.9 million in fiscal years 1971 and 1970, respectively, and the net income from operations for the years then ended would have been cor- respondingly reduced. During our fiscal year 1970 audit, we’were advised by Eximbank officials that these special borrowing arrangements were made with the Treasury to compensate, in part, for Eximbank’s having financed its op- erations through the sale of participation certificates and certificates of beneficial interest and for EximbarWs having made certain relatively low-interest-rate loans, all in furtherance of national policy. During the latter part of fiscal year 1971, the Eximbank and Treasury entered into a new agreement with regard to the borrowings, whereby such low-interest borrowings from Treasury are tied-in directly to the rate, term, and amount of the outstanding balances of those loans which Eximbank states have been made at concessionary terms in the na- tional interest. The effect of the new agreement, however, eliminates only a portion of the concession given Eximbank on its low-cost bor- rowings from the Treasury. Because the interest rates on the loans 50 TH ANNIVERSARY 1921- 1971 ‘B-114823 made by Eximbank are less than the Treasury*s cost of borrowing the funds, the Treasury will be absorbing that portion of the cost between its lending rate to Eximbank and the cost of obtaining the funds. The net income reported by Eximbank is stated before any provision for losses that may be sustained on loans receivable and re- lated accrued interest or on guarantees and insurance, All accumu- lated net income, after dividends, has been reserved as a provision for future contingencies, defaults, or claims, (See note 2 to financial statements.) The contingent liabilities reported by Eximbank as loan matu- rities sold subject to contingent repurchase commitments include par- ticipations in specific loans, in support of which Eximbank issued in- struments called certificates of beneficial interest. The buyers of these instruments are not free to dispose of them except as permitted by the Eximbank, which also assumes fully the risk of default. Ac- cordingly, we believe that such instruments should be considered as borrowing or financing transactions, which, if so handled on the Eximbank’s financial statements, would increase the Eximbank’s total assets and liabilities by about $540 million as of June 30, 1971. In our opinion, the accompanying financial statements, sub- ject to our comments in the paragraph directly above, present fairly the financial position of the Export-Import Bank of the United States at June 30, 1971, and the results of its operations and the source and application of its funds for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Federal laws. The accompanying financial statements (sch. 1, 2, and 3) are those contained in Eximbank’s annual report to the Congress. 2 E-114823 Copies of our report are being sent today to the President of the Export-Import Bank and to the Secretary of the Treasury. Comptroller General of the United States 3 =CIAL STATEMENTS - _.- ._ SCHEDULE 1 COMPARATIVE STATEMENT 0F FlrUANCIAL COhUITION FISCAL YEARS 1971-1970 Assets June30,1971 June30,1970 Cash: In banks, In trarwt, and on hand B 5,679,201 $ 13,480.868 With U.S. Treastiry 84‘192,836 12,931,687 .s 89,872,037 $ 26,412,555 Loans receivable: Outstanding loans and undisbursed authorizations 9,185,945,59a 8,690,392,26i Less undisbursed balance of authorized loans 3,521,218,248 2,976,582,969 Outstanding loans receivable (Notes 2 and 3) 5,664,727,350 5,713,809,292 Accrued interest and fees ’ receivable on loans and guarantees . 67,667,294 71,186,966 Other assets: Due from Foreign Credit Insurance Association . . 353,025 274,740 Miscellaneous . . 1 ,I 27,231 1,676,586 1,480,256 1,951,326 Furniture and equipment, less accumulated depreciation (1971, $384,635; 1970, $405,022) . .. 297,466 297,314 Deferred charges- unamortized balance of financial expense ,’ 1,519,409 2,483,347 Total assets $5,825,563,812 $5,816,l40,800 Liabilities, Capital, and Reserve June 30,197l june 30,197O Liabilities: Portfolio Participation Certificates payable (Note 3) . . . $1,224,895,706 .w,492,798,705 Debentures payable . . . . . .. 400,000,ocQ ‘m~,~ Short-term notes payable . . . .. .. l,OOWWJOQ - Notes payable to U.S. Treasury (Note 7j . . . . . . 783‘465,737 I ,586,ao,84a Dividend payable fNote 7) . . .. 50,000,000 5o,ooo,ooo Guaranteed letters of credit payable . . a,soi,a2i 7,092,338 Accrued interest payable . . . . . . 31,422,257 26,294,462 Other ._..... . . .. . . .. . . . . . . . . .. .. . .. 6,744,336 2,791,431 Total liabilities .. . .. . . ... $3,505,029,a57 $3,565,417,784 Deferred Income . . . . . . .. . . . . 5,469,867 S,176,936 Capital and Reserve: Capital stock held by U.S. Treasury fNote 7) . . . . . . . . . . . . . . . . . .. 1 ,ooo,ooo,ooo 1 ,ooo,ooo,ooo Retained income reserve for contingencies and defaults (Note 2) . . . .. .. . . . .. ~,315,064,088 1,245,546,080 Total capital and reserve . . . . . . . . . . 2,315,064,088 2,245,546,@30 Total liabilities, capital, and reserve . . $5,825,563,8l2 SVW4fJt=3 The Notes to the Financial Statements on Page h .are an integral part of this statement. See Note 7 for composifion of the U.S. Government’s investment in Eximbank. SCHEDULES 2 and 3 . . Comparative Statement of Income And Expense and Analysis of Retained Income Reserve Fiscal Year Ended Revenues: June 30,197l june 30,197O Interest and fees on loans ................................ $ 322,487,909 $. 317,121,559 Insurance premiums and guarantee fees ................... 3,824,969 3,024,814 Other income ........................................... 5,989 8,408 Total revenues ...................................... % 326,318,867 $ 320,154,781 Expenses: Interest and other financial expense ....................... $ 197,762,130 $ 203,441,369 Administrative and other expenses ......................... 7,035,6X 5,967,034 Total expenses ...................................... $ 204,797,745 $ 209,408m3 Operating income ......................................... $ 121,521,122 $ 110,746>78 Loans charged off and claims paid-net of recoveries .......... 2,003,114 15,978 Net income.. ............................................. $ 119,518,008 $ 110,730,404l Less: Dividend declared on capital stock (Note 7) ............. 50,000.000 50,000,000 --~ Addition to Retained Income Reserve Wore 21 ................ $ 69,518,008 $ 60,730,4oo - Analysis of Retained Income Reserve: Balance at beginning of fiscal year ......................... $1,245,546,080 $1,184,815,680 Addition to reserve (Note 2) .............................. 69,518,008 60,730,400 Balance at End of Fiscal Year ......................... $lr315,tK4,088 $1#245,546,080 Comparative Statement Of Source and Application of Funds Fiscal Year Ended June 30,197l June 30,197O Funds Provided: Net income from operations . . . . . . . . . . . . . . . . . $ 119,518,008 $ 110,730,400 Add depreciation expense for the year . . . . . . . . 50,448 45,904 Funds provided by operations . . . . . . . . . . . . . $ 119,568,456 $ 110,776,304 Sales of short-term notes . . . . . . . . . . . . . . . . . . . . 2,500,000,000 - Repayments and other credits to loans receivable . . . . . . . . . , . . . . . . . . . . . . . . 1,186,573,485 870,586,219 Sales of individual loan maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,622,907 406,240453 Borrowings from U.S. Treasury- Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 866,252,766 Other-Net . .. . . .. .. . . . .. . . . .. . . . .. . . . .. . . . (47,772,288) (55,408,346) Total Funds Provided . . . .. .. . .. . . . .. . . . $4,026,992,560 smh447#3% Funds Applied: Repayment of U.S. Treasury borrowings-Net . . . . . . . . . . . . . . . . . . . . .._... I 802,975,111 $ - Payment of dividend to U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000,000 5o,OOO,K!a Disbursements and other additions to loans, including capitalized interest (1971, $7,+WQ9; 1970, $5,912,363) . . . _ . . . . . 1,406,114,450 1,569,148,161 Repayments on Portfolio Participation Certificates . . . . . . . . . . . . _. . . . . . . 267,902,999 321,154,235 Redemptions of short-temr notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000,000 258.145.000 Total Funds Appkd .. . .. .. . .. .. . .. . . . $6,026,992,!S0 $2;198,447,3% The Notes to the Financial Statements on page 4 are an integral parr of these statements. 3 Notes to the Financial Statements June 30,1971 Note 1 Eximbank’s authority to borrow from the U.S. and outstanding, the oldest past due installment Treasury is limited to $6 billion outstanding at any having matured in 1949. one time, and the authority to lend, guarantee, The entire retained net income is reserved for and insure is limited to $13.5 billion. Up to $3.5 contingencies and defaults. This amount of billion of outstanding guarantees and insurance $1,315,064,088 substantially exceeds the total may be charged against this lending authority at 25 outstanding balances of both principal and interest percent of the contractual liability assumed. At on the foregoing delinquent loans. Because of June 30,1971 the uncommitted authority to lend, the unpredictable nature of future economic and guarantee, and insure totaled $2,873.1 million. political conditions throughout the world, the The investment of the U.S. Government in risk of loss on Eximbank’s loans, guarantees, and Eximbank is comprised of the following: insurance is not susceptible to accurate measurement. The management of Eximbank June 30,1971 June 30,197O believes therefore that its accumulated net earnings __-.- - Notes payable should be retained as a reserve for contingencies to U.S. Treasury $ 783,465,737 $1,586,440,848 and defaults. Capital stock held The contingent liabilities of Eximbank are by U.S. Treasury 1 ,ooo,ooo,ooo 1 ,ooo,ooo,ooo summarized below in millions of dollars as of June 30, 1971. Dividend payable 50,000,000 5o,OOo,c0O Retained income Loan matunties sold subject to reserve (Note 2) 1,315,064,088 1,245,546,080 contingent repurchase commitments . . . _ $ 554.6 Total investment $3,148,529,825 $3,881,986,928 Guarantees . . . . . . . . . . . . . . . .._.........._.. 1,893.3 FCIA insurance . . . . . . . . . . . . _ . . . . 1,720.6 Consignment insurance . . . . . . . _ . . _. .I A dividend of $50 million was declared on June 30,1971 and paid on July 1,197l. Total contingent liabilities .. . .. . . . . $4,168.6 -__ Note 2 Note 3 Loans with delinquent installments of 30 days or From May l,lG62, to June 30,1968,19 issues of over at June 30,197l are summarized in millions guaranteed Certificates of Participation in portions of dollars as follows: of Eximbank’s loan portfolio were sold. On June 30, 1971 this designated portion of loans totaled $1.7 Numbn Old-at TOtal Ddinqent in&dlmen& of past due mctstandina billion. Certificates of Participation outstanding Imns inntalhnmt minciod Princkd Interest Tatd L -___ -AA--.--- - at June 30,1971 totaled $1.2 billion. Cuba . . . . . . . 5 1958 $ 36.3 $25.1 $22.3 $47.4 Nigeria . . . . . . 7 1967 1.6 1.6 .4 2.0 Thailand . . . . 1 1971 14.0 2.3 .8 3.1 United Arab *FOOTNOTE TO NOTE 1. Republic . . 2 1966 23.4 20.3 6.6 26.9 On August 17,1971, President Richard M. Nixon signed into law Other . . . . . . 17 1966 35.1 2.6 1.1 3.7 - -- - - P. 1. 92-126 (The Eximbank Finance Act of 1977) which amends Total . . . . . 26 $110.4 $51.9 $31.2 $83.1 the Export-fmport Bank Act of 7945. The new Law raises these = - s B zzzzEc= tired figures from $73.5 billion to $20 billion and $35 billion to $70 billion. In addition, by agreement, the Republic of China is not at this time being called upon to make payments on that portion of four loans made to the Republic of China prior to 1947, when the seat of the government was on the mainland, which relates to assets no longer under the government’s control. The total outstanding principal of this portion of these loans was $26.4miliion at June 30, 1971; on that date $39.1 million ($21.4 million principal plus $17.7 million interest) was matured 5 APPENDIX I . PRINCIPAL OFFICIALS OF THE EXPORT-IMPORT BANK OF THE UNITED STATES AT JUNE 30, 1971 Date 05 appoint- Position ment BOARD MEMBERS: Henry Kearns Chairman and President 3-20-69 Walter C. Sauer Vice Chairman and First Vice President 9-28-62 Tom Lilley Director 10-26-65 R. Alex McCullough - Director 5-21-69 John C. Clark Director 6- 3-69 R. H. Rowntree Economic Advisor to Board of Directors Z-10-70 OFFICERS: Don Bostwick Executive Vice President 3-18-70 John E. Corette, III General Counsel 5- l-69 J. Patrick Dugan Senior Vice President and Treasurer Controller 6- 2-69 Warren W. Glick Senior Vice President Fi- nancing 9-21-69 Raymond L. Jones Senior Vice President Ex- porter Credits, Guaran- tees and Insurance 7-22-62 Charles E. Shearer, Jr. Senior Vice President Planning and Export Ex- pansion 3-18-70 Joseph H. Regan Secretary 12-14-65 U.S. GAO, Wash.. D.C. Copies of this report are available from the U. S. General Accounting Office, Room 6417, 441 G Street, N W., Washington, D.C., 20548. Copies are provided without charge to Mem- bers of Congress, congressiona I committee staff members, Government officials, members of the press, college libraries, faculty mem- bers and students. The price to the general public is $1.00 a copy. Orders should be ac- companied by cash or check.
Examination of Financial Statements of the Export-Import Bank of the United States, Fiscal Year 1971
Published by the Government Accountability Office on 1971-10-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)