oversight

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)

REPORT TO THE C
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                                 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




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