PEFCO PRESS COVERAGE
PEFCO PRESS COVERAGE
Herewith some articles taken from the New York Times, attributed PEFCO’s establishment.
Banks to Finance Exports of Jets
The New York Times, September 4, 1968
Proposed Company Will Aid the Sales of Aircraft to Foreign Airlines
The nation’s largest banks are working on a joint project to form a multibillion-dollar finance company to finance exports of jet aircraft, and possibly other major “big-ticket” exports as well.
The proposed company - to be called the Private Export Finance Corporation - would be largely, if not exclusively, owned by the banks. It would be designed to play a major role in facilitating sales of aircraft to foreign airlines, sales that are projected at some $13 billion over the next 10 years.
The proposal comes at a time when the United States trade surplus, traditionally the strongest element in the nation’s balance of payments, has dropped alarmingly. In the second quarter, net exports were at a seasonally adjusted annual rate of $900 million, compared to $5.4 billion in the third quarter last year.
Given the magnitude of the financing requirements for jet aircraft in the years ahead, a key Washington official said yesterday, the role of a company such as the Private Export Finance Corporation could be “crucial” in rebuilding the nation’s trade surplus.
John R Petty, assistant secretary of the Treasury for International Affairs,(joined Lehman Bros. in January 1972) said yesterday that “we welcome positive steps to promote exports and we welcome private initiative to provide export financing.”
“It seems to me,” Mr Petty said, “that this moves in both of these directions.” Financing facilities, Mr Petty said, could be an “important factor” in promoting export sales.
It was acknowledged, however, that for the plan to get off the ground would probably require endorsement by the State, the Treasury and Commerce Departments, the Federal Reserve Board, and perhaps the White House since most of the foreign airline customers are government-owned.
The plan has its origin in work done several years ago by the Bankers Association for Foreign Trade , which is concerned about the problem of financing jet exports especially with the coming of giant Boeing 747’s, which may cost as much as $25 million apiece.
At the same time, the Federal Aviation Agency was also concerned with finding financing facilities for the supersonic transport, which is now in development.
A rough outline of the proposal was developed by a group headed by August Maffry, former head of the international department at the Irving Trust Company and now a senior consultant to the Bank of America in New York.
Eventually, Mr Maffry’s role was taken over by James W Bergford, a senior vice president at the Chase Manhattan Bank, who in turn hired the investment banking firm of Dillon, Read & Co Inc, to make an exhaustive study of the problem.
Dillon Read presented a confidential report to the banks last April (1968), proposing at least two possible alternatives to the problem of financing jet exports.
One of these possibilities was the Private Export Finance Corporation , whose development has been pressed for strongly since that time. The idea is expected to be aired publicly at a meeting of the Aerospace Industries Association of America scheduled for early next month.
The essence of the Dillon, Read idea is that the Export-Import Bank of Washington, a Government agency that handles much of the medium and longer term financing of aircraft now, would guarantee the loans made by the Private Export Finance Corporation, PEFCO, which in turn would sell bonds to the public backed by these Government guaranteed obligations.
PEFCO would not be limited by the restraints on the Federal budget that have been affecting some of the Export-Import Bank’s operations lately.
The proposal contemplates that life insurance companies, savings banks and pension funds would be among the major buyers of the bonds.
The guarantee from the Export-Import Bank is of key importance. Not only would it make PEFCO’s bonds saleable, but it would also exempt them from the Foreign Credit Restraint Programme and from the Interest Equalisation Tax.
Under the plan, the commercial banks - which would include the 15 largest banks in the country - would put up a comparatively small amount of money, only a few million dollars total to start.
But this limited capital contribution would be leveraged to the maximum extent possible through borrowing in the commercial paper market, through conventional bank borrowing as well as through sale of long-term bonds.
PEFCO would finance only the medium and longer term maturities of any particular borrowing by a foreign airline. The banks would continue to pick up the short-term maturities.
Projections compiled by Dillon, Read in its report show that the total assets of PEFCO could exceed $2 billion by 1974 and $4 billion by 1982.
Not only does the PEFCO idea require endorsement by the Government at the highest level, but there are also likely to be antitrust problems as well.
As the Dillon Read report notes, “because the organisation and operation of PEFCO inevitably involves some degree of association among banks and exporters who are competitors or potential competitors, compliance with the Federal antitrust laws may cause difficulties.”
When the details of the proposal have been worked out” the report said, “clearance from the Department of Justice or the Federal Trade Commission will be essentia
Plan for Financing of Exports Backed By Administration
The New York Times, May 21, 1969
The Nixon Administration endorsed in principle yesterday a plan to form a multibillion company to finance “big ticket” export items such as jet aircraft, computers, and the like.
The plan, developed by the investment banking firm of Dillon, Read & Co, Inc, for the Bankers Association for Foreign Trade , calls for the creation of the Private Export Finance Corporation, or PEFCO, which would be largely owned by the banks.
PEFCO would attempt to tap the long-term capital markets through the sale of bonds and would in turn provide medium-term and long-term financing for exports.
In a statement issued yesterday in Washington and in Boca Raton, Florida, where the bankers’ group is holding its annual meeting, Henry Kearns, president of the Export-Import Bank of Washington , a Federal agency, said that the bank “favours the creation of the Private Export Finance Corporation - and would be prepared to issue the guarantees the PEFCO plan requires.”
“The related Federal agencies and departments,” Mr Kearns said, “have approved the principle of Eximbank’s participation, and are prepared, along with Eximbank, to support and work closely with the Bankers Association for Foreign Trade (BAFT - see following page) sponsors in preparation of a final corporate plan.”
Mr Kearns cautioned, however, that “a number of detailed points have been raised by the Export-Import Bank which needs to be resolved with BAFT.” But bankers who have been leading the drive for the formation of PEFCO - including James W Bergford, senior vice president of Chase Manhattan Bank, and Alfred H Von Klemperer, senior vice president of the Morgan Guaranty Trust Company - said that these problems were largely technical in nature.
“The basic issues have been resolved,” said Mr Von Klemperer in a telephone interview from Boca Raton. This view was confirmed by a spokesman for the Export-Import Bank in Washington. The bankers added that if all went as planned, PEFCO could be in business by the end of the year.
The importance of the plan is closely related to the sharp drop in the surplus in the United States balance of trade, which traditionally was one of the strongest items in the nation’s overall balance of international payments.
Some Government officials believe that sales of jet aircraft - for example, the Boeing 747 jumbo jet, which may cost as much as $25 million - may be crucial in rebuilding the American trade position to its former status.
Officials caution that PEFCO would not take the place of the Export-Import Bank, but rather would be a supplement to it. “I think it will be a very useful supplement,” said one Washington official yesterday.
The Eximbank guarantee is vital to the PEFCO plan. Eximbank would guarantee the loans made by PEFCO, which would make its bonds saleable, and this would, in addition, exempt PEFCO’s loans from the interest equalisation tax and the voluntary credit restraint programme.
[Note - Bankers Association for Foreign Trade (BAFT)
BAFT was founded in 1921, located in Washington DC. It is multinational. Its members are US banking organisations that have international departments, associates are foreign banks with offices in the US and honorary and service members. It works to promote and improve techniques for international banking and trade. In 1992 its committees were:- Education, International Operations, Legal Documentation, Project Finance, Small Business Export Finance and Trade Financing. It hosts an annual conference and has a $1 million budget.
Curb to Continue on Export Credit
The New York Times, May 22, 1969
Brimmer Says No Shortage of Financing Discerned
Washington May 21 - The Federal Reserve Board has decided against exempting export credits from the programme limiting bank loans to foreigners, it was disclosed today.
The disclosure came from Andrew F Brimmer, the member of the board who administers the foreign lending programme. He said a study undertaken last winter had led to the conclusion that “this country does not face a shortage of funds to finance its exports.”
Mr Brimmer said in a speech to the Bankers Association for Foreign Trade in Boca Raton, Florida, “I am also convinced that a drastic increase in bank credit geared to exports would produce little in the way of additional export shipments, while adding greatly to the capital outflow (in the balance of payments).”
The Reserve Board member also expressed strong opposition to the suggestion, made in and out of government, that the Federal Reserve establish a special discount facility for export paper. Mr Brimmer gave his personal support to a proposed new private export finance concern to help finance exports of jet aircraft and other costly items. But he noted that the Reserve Board would have to approve the financing arrangements because banks would participate through their “Edge Act” corporations, subject to board control.
On the export financing issue Mr Brimmer made these points:
* Despite the dip in the trade surplus “our exports have generally performed quite well.”
* Commercial banks “apparently finance a much smaller proportion of United States exports than is generally supposed” - roughly a fifth of about $6 billion last year.
* The capacity of banks to finance exports under the ceilings in the lending-control programme “is apparently more than adequate.”
The review of the programme led to the conclusion, Mr Brimmer said, “that exports have not been hampered by the voluntary foreign credit restraint programme - that is, no significant amount of exports has been lost by the United States and gained by other countries because of the programme.”
Mr Brimmer said the board opposed a Federal Reserve rediscount facility for export paper “because it believes that such operations are not properly a function of the central monetary authority.”
Bank Group Supports Private Export Finance Unit
The New York Times, January 8, 1970, page 55.
The formation of a new billion-dollar private company to finance exports of jet aircraft and other “big ticket” items was authorised yesterday by a group of the nation’s largest banks.
The Bankers Association for Foreign Trade , sponsor of the project, gave a green light to the proposed Private Export Finance Corporation (or “PEFCO” for short) after 40 major banks indicated their willingness to put up some $10 million in initial capital to get the company in business by mid-year.
Dillon, Read & Co Inc, a major investment-banking concern that designed the PEFCO plan, and the Wall Street law firm of Shearman and Sterling , counsel for the group, were given a go-ahead to button up all the legal details to raise the money to get PEFCO off the ground.
Yesterday, James W Bergford, a senior vice-president of the Chase Manhattan Bank who is chairman of the committee responsible for PEFCO, sent a formal request to the 40 banks to contribute a total of $500,000 to cover the costs of organising the company.
At the same time, Kenneth P K Kinney of the Northern Trust in Chicago, president of the Bankers Association for Foreign Trade asked all the other members of the association - that until now have not participated in the PEFCO project - to re-consider their positions.
For the members of the PEFCO team, yesterday’s announcement represented a key turning point in a long and difficult process. The initial Dillon, Read report recommending the formation of PEFCO was issued in April of 1968. Since that time, many long hours of tough negotiations and many changes in the original plan have been required to bring PEFCO to its present tentative state.
Among other things, a wide range of Government agencies - under both the Johnson and Nixon administrations - have had to give their clearance to the idea.
And even now some of the original sponsors of the plan are sufficiently dissatisfied with the outcome that these names were not among the 40 banks that gave their OK. The drop-out banks include the Mellon National Bank & Trust Company in Pittsburg; the First Pennsylvania Banking and Trust Company , Philadelphia ; the Marine Midland Trust Company of Western New York; Buffalo and Wachovia Bank and Trust Company , Winston-Salem, North Carolina.
But according to Arthur L Wadsworth, executive vice-president of Dillon, Read , the overall plan that has resulted is a good one, one that in many ways is better than his firm’s original proposal.
In any event, the bankers believe that there is “huge foreseeable need” for the type of financing that PEFCO will provide.
Never before, according to Mr Wadsworth, has such an attempt been made to try to marshal the resources of the long-term capital market in the United States to finance exports.
According to Dillon, Read’s projections, by 1973 PEFCO should have assets of more than $1 billion, under almost any conceivable set of operating assumptions.
PEFCO will work closely with both its sponsor banks and the Export-Import Bank of Washington, which is a Government agency that finances exports at below-market interest rates.
In a typical deal, according to Mr Wadsworth, the banks might take 25 percent of the financing of a particular item (say a Boeing 747), with maturities up to three years, PEFCO would take the middle 50 percent, while EX-IM would take the remaining very long-term maturities.
The Export-Import Bank will guarantee PEFCO’s loans and in addition will insure a portion of PEFCO’s capital against loss. In return, the Government will be able to oversee certain aspects of the PEFCO operation and there will be limits on the payment of dividends by the company.
PEFCO’s sponsors have no illusions about the difficulties they will encounter in starting a major new finance company at a time when interest rates are at historic highs; but they are hopeful that rates will subside to more normal levels before too long.
But even if interest costs do not decline, the bankers believe that the need for financing exports will be so great that PEFCO’s ability to sell long-term bonds (and then use the proceeds to finance exports) will be essential.
PEFCO’s timetable calls for registration of a stock issue with the Securities and Exchange Commission by midyear. The stock will be available to domestic banks; to foreign banks with offices in the United States; to non-bank financial institutions with an interest in financing foreign trade; and to American manufacturers that sell in the export market.
Purchasers of the stock at $1000 a share would have an obligation to buy an equal amount on call from PEFCO. Under the terms of the proposal, PEFCO will finance exports for anyone, but for the first seven years of its existence non-shareholders would have to pay an extra charge of one-half of a percentage point over the rate that would be charged otherwise.
In the meantime the Bankers Association has named a committee under the chairmanship of Alfred II Von Klemperer, a senior vice president of the Morgan Guaranty Trust Company , to find a chief executive for PEFCO. No decisions have been reached, but among the names being discussed are Rudolph A Peterson, retired chairman of the Bank of America, and George Champion, retired chairman of the Chase Manhattan Bank.
Private Export Picks Its First Executives
The New York Times, April 15, 1970
Nelson Schaenen, retired president of Smith, Barney & Co, Inc, has been elected chairman and John R Burton, senior partner in the Law Company of Reid & Preist, president of the newly formed Private Export Funding Corporation.
The corporation was created under the auspices of the Bankers Association for Foreign Trade to tap private capital for financing United States exports.
PEFCO, incorporated in Delaware, will have offices in New York. An offering of its common stock is expected in late spring or early summer.
Eximbank Curbs Widely Assailed
The New York Times, March 12, 1971
Congress Urged to Remove Them and Help Exports - Funding Unit Activated
Washington, March 11 - Business, industry and Government spokesmen joined in urging Congress today to remove outmoded restraints on the funding and operations of the Export-Import Bank. They said such restraints were stifling the Government’s own export expansion campaign.
Winding up a week of hearings before the Senate Banking subcommittee, Assistant Secretary of the Treasury, John R Petty, endorsed legislation removing the bank from the unified Federal budget. This would remove a Budget Bureau limitation on bank loans and guarantees based on an allowable difference between disbursements and receipts.
The Treasury official also supported legislation that would raise the overall authorised ceiling on Export-Import bank operations from $13.5 million to $20 million. His testimony echoed a recommendation by the Chamber of Commerce of the United States in a comprehensive report on requirement of “competitive export financing for the seventies,” which it filed with the Senate panel.
With committee approval of the liberalising legislation virtually assured, the Export-Import Bank later today signed a guarantee and credit agreement with the newly organised Private Export Funding Corporation.
The agreement gave life to the corporation, designed to take the burden of export financing on more favourable terms than have been available from private banks.
By its terms the Export-Import Bank will guarantee principal and interest on debt obligations purchased by the corporation that are issued by foreign purchasers of United States products and services.
PEFCO, as the new corporation is called, will thus acquire a portfolio of Government guaranteed commercial paper which will be the basis for its raising money in the private market to finance United States exports.
The bank also will guarantee interest payments on PEFCO’s own debt obligations. The agreement provides a short-term $50-million revolving line of credit from the bank to PEFCO, which can now take the necessary steps to sell its stock to investors.
All this assumes that the rates charged by PEFCO will prove attractive to exporters and that Congress raises the overall ceiling on bank operations to $20 billion. About $10 billion of the amount is to provide backing for the bank’s guarantee of paper acquired by the corporation and for its general guarantee and insurance programme, now limited to $3.5 billion.
Recommendations of the Chamber of Commerce’s comprehensive survey of competitive export financing requirements were presented to the Senate group by Virgil Grant of the Caterpillar Tractor Company and Daniel Goldy of the International Systems and Controls Corporation.
A prime target of the Chamber’s report was the voluntary credit restraint programme of the Federal Reserve Board, which it identified as one of the chief lack of incentives to commercial bank participation of export financing.
Designed in 1965 to restrict capital outflow by controlling loans to foreigners, the programme has had the effect of limiting the availability of bank export credit, forcing many United States corporations to establish foreign subsidiaries to take advantage of more favourable export credit facilities and thus has contributed to unemployment and the balance-of-payments deficit, according to the report.
The voluntary restraint programme put a ceiling on bank loans to foreigners roughly equal to the value of such loans the individual bank held at the end of 1964 or equal to a stipulated percentage of the bank’s total assets at the end of the year.
US Is Urged to Improve World Payments Balance
The New York Times, March 12, 1971
Washington - April 28 - Two leading international monetary officials made an urgent plea today for improvement in the United States balance of international payments world monetary system.
Raymond Barre, European Common Market commissioner in charge of monetary affairs, said that “if massive payments deficits persist, the accumulation of dollar balances by foreign central banks would sooner or later reach a limit.”
Warning of “anarchy” in such a situation, he proposed a three point approach to the problem, including an end of discussion of greater flexibility of currency exchange rates and an agreed plan for halting the growth of dollars in foreign reserves.
Pierre-Paul Schweitzer, managing director of the International Monetary Fund, said recent events had made a “fundamental strengthening of the United States payments position all the more imperative.” Also without directly mentioning the United States, Mr Schweitzer said that countries trying to emerge from a recession should stimulate their economies by fiscal policy - taxation and government spending - rather than monetary policy.
Mr Barre gave his views in a speech to the Bankers Association for Foreign Trade in Boca Raton, Florida. Mr Schweitzer spoke in Stuttgart, Germany. Both texts were made available here.
In a related development at Boca Raton, the Export-Import Bank and the
Foreign Credit Insurance Association jointly announced an improvement in the FCIA programme and a target for vastly expanded insurance of export sales and credit.
Henry Kearns, president of the Export-Import Bank, also discussed in a speech to the BAFT convention 29 separate proposals that had been made for possible improvement in the bank’s operations to spur export credit financing. He was sympathetic to many of them.
Mr Kearns disclosed that the bank now has under consideration for possible financing by the new Private Export Finance Corporation, known as PEFCO, export transaction that would total about $3.5 billion, “and there is more in prospect every day.” PEFCO will raise funds for long-term export financing on the private capital market.
Mr Barre in his speech was not critical of United States policy. He said:
“No one doubts that the United States authorities will exercise their full responsibility to maintain a non-inflationary expansion of the economy, in spite of external constraints and employment difficulties. No one believes they will heed experts who advise them to treat the balance of payments problem with “benign neglect.”
But he added: “A continuous effort from the United States is the key condition for a better psychological climate in international monetary relations and for a proper working of the international monetary system.
In giving what he called an “independent view” of the situation, Mr Barre rejected the idea, backed within the United States, of more flexible exchange rates, saying that changes in exchange rates “cannot become a normal instrument of policy.”
He urged, second, that “the Euro-currency market be regulated by the concerted action of central banks.”
He told the convention of the decision, disclosed yesterday at a meeting of the Common Market finance ministers in Hamburg, to narrow the margins of fluctuation of the Common Market currencies against one another to 1.2 percent, from the present 1.5 percent, starting “this summer.”
Third, Mr Barre said an international agreement is needed on the total evolution of monetary reserves, including the dollar component of reserves. He said it was “very important to limit progressively the share and rate of increase of dollar balances in the international monetary system.”
He added that if an agreement could be reached, then United States payment deficits should be financed “by normal methods of conditional credits through international monetary institutions instead of unlimited and unconditional accumulation of dollar balances by foreign central banks.”
PEFCO’s First Major Loan Goes to Taiwan Power Co
The New York Times, June 23, 1971
The Private Export Funding Corporation, which was organised by a consortium of major American banks to promote the sale of “big ticket” exports from the United States, announced yesterday its first major financing - a $27 million medium-term loan to cover a portion of the cost of a $104 million nuclear power development by the Taiwan Power Company.
In addition, The Export-Import Bank which guaranteed the PEFCO financing, gave Taiwan Power $46.7 million in long-term loans while a group of banks - led by the Irving Trust Company in New York - extended short-term credits totalling $19.7 million that were also backed by the Eximbank.
The New York Times, January 30, 1974 - P45
Paul E Wallendorf, who will retire as vice president and treasurer of the General Electric Company at the end of this week, has been named president of the Private Export Funding Corporation. The Corporation, established three years ago by a group of commercial banks and industrial corporations, supplements loans by the Export-Import Bank of the United States with private capital.
The New York Times, February 2, 1972
John A Deuchler, former chief of the investment division of the Federal Home Loan Bank Board, has been named vice president-finance for the Private Export Funding Corporation.