Bechtel and the Export-Import Bank
Bechtel and the Export-Import Bank
It was Steve senior, though, who got the choicest plum: appointment to the advisory committee of the US Export-Import Bank, a job that during the Nixon years added billions to Bechtel’s bottom line.
The credit - or blame - for this development rested with the bank’s Nixon-appointed president, an ebullient, pudgy 59-year old former car salesman named Henry Kearns.
That Henry Kearns would play so central a role in Bechtel’s financial fortunes - not to mention those of the countries in which it operated - was, to put it mildly, an improbable happenstance. Kearns was a fervent anti-Communist, a trait he had in common with Richard Nixon when the two met whilst Nixon was still a young California politician. They became friends, and it was by this friendship that Kearns eventually ended up in the position of head of the Export-Import Bank.
It was not an appointment that went down well with everyone - and Kearns himself was highly defensive about his limited background and even more limited qualifications.
Nixon informed Kearns that he wanted to greatly increase US exports, and that in order for him to do this, he needed Kearns to increase Eximbank loans to $10 billion - a sum more than three times the total of all the bank’s outstanding loans when Kearns assumed office. If he was going to meet Nixon’s goal, Kearns, who had no lending experience, needed advice. He decided to seek it from Steve Bechtel, Sr.
Kearns and Bechtel had met in 1955, and had stayed in touch ever since. In May 1969, Kearns asked Bechtel to serve on the bank’s six-member advisory committee and Steve accepted. Kearns boasted to friends that in signing on Steve Bechtel, he had acquired not just an advisor, but instant credibility.
Bechtel, for his part, had acquired entrée into the US vault. Through the years, below-market, federally guaranteed loans like those provided by the Export-Import Bank had been one of the keys to his company’s overseas success - and Bechtel had been a master in securing them. But for all of Bechtel’s financial finesse - and the billions that accrued because of it - never had the company enjoyed such free access to no-risk, low interest capital as Kearns was offering now. It was a unique opportunity, and while it lasted, Bechtel made the most of it.
Steve Bechtel started by flattering Kearns ego - congratulating him on the fine job he was doing, and offering to help in any way possible. He took every opportunity to do Kearns and his bank favours, and also helped Kearns fill vacancies on the bank’s advisory committee, with the result that before long it was dominated by Bechtel friends and customers. There was nothing, apparently, that Steve Bechtel, Sr. wouldn’t do for Henry Kearns and his bank, including flying to Washington to testify before Congress on their behalf - and doing so with such effectiveness that Congress increased Eximbank’s lending authority to $20 billion, double what Nixon had requested. In turn, there was very little, if anything, that Harry Kearns wouldn’t do for the Bechtel Corporation, and there was more than one occasion that loans to Bechtel were cleared where under normal circumstances they would not have been.
With so much available, and Kearns seemingly so willing to dispense it, the friendship between the builder and the banker deepened. They talked by phone at least once a week, Kearns passing along such helpful information as which countries the bank considered credit risks, and ever soliciting Bechtel for ideas about new loan possibilities. Bechtel was never shy in providing them - he had all manner of notions about where the bank could put its cash - always to the huge benefit of his own corporation.
Kearns also opened doors for Bechtel with important members of the Nixon administration. At Kearns invitation, Treasury Secretary John Connally , Commerce Secretary Maurice Stans , Labour Secretary George Shultz , Office of Management and Budget Director Caspar Weinberger and Peter G Peterson, executive director of the president’s cabinet-level Council on International Economic Policy, all dropped by the bank for lunch and the chance to meet the remarkable Steve Bechtel.
Nor was that the end of Kearns helpfulness. When Bechtel complained about the slowness of the bank’s lending procedures, warning that such delays might cost US companies valuable business, Kearns persuaded the administration to drop the requirement that loans be approved by a committee consisting of the head of the bank and the secretaries of State, Treasury and Commerce. From here on, Kearns proudly told Bechtel, he could personally approve any request of $30 million or less.
Under Bechtel’s careful tutelage, Kearns also became an apostle and financial backer of international nuclear power and within 2 years; the bank had passed the $1 billion mark in nuclear financing. The Company who got the lion’s share of the work – Bechtel!
With Nixon’s re-election in 1972, it appeared that Bechtel would be tapping the bank’s coffers for even more funds. Shortly after beginning his second term, Nixon declared his intention of boosting US exports from their current level of $30 billion to $50 billion by 1976. The principal means of accomplishing that goal, the president stated, would be loans granted by the Export-Import Bank.
Various actions were undertaken to put everything in place for huge development in the Soviet Union, financed by loans by the Export-Import Bank. All that remained was for Congress to grant the Soviets most-favoured-nation trading status - that is, offering them repayment terms equal to the best offered any nation. And that, it turned out, was the rub. “You must be out of your cotton-pickin’ mind to dream up something like that,” an astonished Senator Henry Jackson told an administration official after he heard of the financing for the Russian deal. In March 1974, Bechtel received more bad news when the General Accounting Office, the investigative arm of Congress, unexpectedly announced that $315 million in pending Eximbank loans and credits for the Russian projects were illegal, since the president had failed to stipulate that each of them was in the national interest. At a hearing called by the Senate subcommittee on multinational corporations to investigate the deal, Chairman Frank Church of Idaho told his colleagues:
What bothers me about this process is how things germinate. We start with large multinational corporations that are looking for profitable investments abroad. They are the initiators of these proposed projects, and, having worked out an arrangement that is to their satisfaction, they come to the US government and apply for a large federal subsidy through the Export-Import Bank or federal guarantees of private capital outlays. It is at this point that the government is asked to make a decision, and if the project is not already fait accompli , it is at least sufficiently well advanced and worked out by the company and the Soviet government that a very plausible case can be made for it.
The companies say this is a splendid deal because they don’t have to assume any risk; they don’t have to put out much capital. That is all done by the federal government, our government, which comes in well along in the process when a lot of vested interests are already behind the proposal....Now is this really a wise way to formulate a national economic policy?
The Eximbank’s policies were also drawing fire from European suppliers, who were finding it hard to get contracts, not to speak of making a profit, given the edge the bank’s low-interest loans gave companies like Bechtel.
The controversy over the Eximbank was still mounting, when, on October 8, 1973, Kearns suddenly resigned.
The reason for his departure didn’t become apparent until a few weeks later, when it was discovered that during his administration the bank had made a number of loans to companies in which Kearns had substantial blocks of stock. The Justice Department launched an investigation to determine whether Kearns had violated any criminal statutes. Bechtel’s relationship with the bank and its loans was also questioned, but Bechtel just pleaded ignorance and non-involvement with the Bechtel Corporation’s operations since 1960. Meanwhile, unknown to those making such enquiries, he had just personally financed Henry Kearns in his new consulting firm.