“Ex-Im Bank is a competitor.” Michael Kraemer is banker at American International Group, and he was manning his company’s booth at this year’s Export-Import Bank annual conference.
AIG shelled out for a booth at the event in an effort to advertise itself to the U.S. exporters that attend the conference, because among AIG’s products is payment insurance for sellers, including exporters. If you’re selling goods overseas, you might worry about the foreign buyer never paying you, so you buy accounts receivable insurance from a private financial institution like AIG.
Or you buy it from the Export-Import Bank, which is backed by the full faith and credit of the United States government.
Competing against a government agency isn’t easy, but Ex-Im — because it is does things that the private sector would normally do — regularly competes with the private sector, a fact Ex-Im’s defenders deny.
Ex-Im subsidizes exports mostly by guaranteeing loans made by private banks, and so those banks obviously love Ex-Im. “There’s nothing that a commercial bank loves more than guaranteed financing,” Citigroup managing director Michael Eckhart said at the Ex-Im conference. “That’s a good thing!”
Two bank lobbies this week put out a letter endorsing Ex-Im. The letter includes the claim, “Ex-Im complements rather than competes with private-sector lenders.” This is a central claim to the defense of Ex-Im, because conservatives like Kevin McCarthy say “the private sector can do” what Ex-Im does.
“We don’t compete with the private sector,” Ex-Im President Fred Hochberg said last week. When I challenged this notion on Twitter this morning, Tony Fratto, who works for the export-subsidy lobby, told me flatly, “you can’t find trade finance professionals who agree with you.”
He’s wrong, of course. Kraemer, at AIG, is exactly that — a trade finance professional. He does what Ex-Im does, but from the private sector. Others in the industry sound the same note.
Charles Baker is also in the industry, working at Atrafin. Atrafin gets Ex-Im backing for all the trade finance they do, and so Baker certainly doesn’t want the agency to disappear, but he told me at the conference, “There is a vibrant private export credit market.” Baker added: “Ex-Im provides financing that the private sector also provides.”
“There is definitely competition,” Bryan Maloney says. He works at DS Factoring, which provides financing for mid-sized exporters. “It’s kind of outlandish to say there isn’t.” Maloney’s firm, which doesn’t use Ex-Im financial products, he tells me, competes directly with Ex-Im, but also with larger finance firms that sell products backed by Ex-Im guarantees.
Goldman Sachs analysts agree. In a research note on Boeing last year, the bank wrote: “If the US Export-Import charter is not renewed, we believe the overall impact in the near-to-medium term would be fairly limited given the robust financing environment at present…”
The Goldman note added: “It would only require a small step up from each of the many other sources of financing to fill an Ex-Im gap…”
Boeing’s CFO Kostya Zolotusky also says that the financing currently provided by Ex-Im would be provided by the private sector if Ex-Im were absent. The Wall Street Journal reported in 2013 that Zolotusky “said he was confident the company could find alternative funding sources for customers that wouldn’t require it to boost its support of aircraft sales.”
If the private sector would step in to fill the void left by Ex-Im, as Boeing and Goldman both say, that implies Ex-Im is displacing private-sector financing — and that’s exactly what the private-sector finance professionals tell me.
