Key U.S. Senator Doubts Ex-Im Bank Deserves Long-Term Renewal

Senator Richard Shelby, a Republican from Alabama, speaks to reporters in the U.S. Capitol Building basement before voting in Washington, D.C., U.S., on Tuesday, Dec. 9, 2014.

Photographer: Andrew Harrer/Bloomberg

The future of the U.S. Export-Import Bank was cast into further doubt Tuesday when the chairman of the Senate Banking Committee said he wasn’t convinced that the lending institution deserves long-term renewal.

Senator Richard Shelby, an Alabama Republican, opened the first of several congressional hearings this week on the Ex-Im bank by saying he had backed previous efforts to revamp its operations and wasn’t persuaded that enough had been done to reduce risk and hold management accountable for problems.

Once renewed regularly without controversy, Ex-Im has become a target of conservative Republicans who say it benefits only a few large corporations that don’t need government assistance. Before Tuesday’s hearing, Shelby was silent on his views.

“I’m not convinced the bank has made enough progress to warrant a long-term reauthorization,” he said.

The committee’s top Democrat, Senator Sherrod Brown of Ohio, said reauthorizing Ex-Im before its charter expires at the end of the month is “essential.” He said, “It should be easy. It should be bipartisan.”

Five public U.S. companies -- General Electric Co., Boeing Co., Caterpillar Inc. and units of General Dynamics Corp. and United Technologies Corp. -- had overseas customers who received about $10 billion in loan authorizations or long-term guarantees from the bank last year.

Financial and industry analysts who follow the affected companies reject the idea that ending the bank would devastate them.

‘That’s Nonsense’

“In the here-and-now impact, would this be the end of civilization as we know it, would it be raining cats and dogs? No, that’s nonsense,” said Richard Aboulafia, vice president of Teal Group, an aviation advisory firm based in Fairfax, Virginia. “It helps out on the margins in terms of profits or market share.”

Ex-Im “levels the playing field” for U.S. companies because 59 other countries have similar agencies, said Howard Rubel, a managing director with Jefferies LLC who covers Boeing, General Dynamics and United Technologies.

“Killing the bank is like telling an athlete he has to spot a competitor 10 yards in a race -- maybe he makes it up, maybe he doesn’t,” he said.

“Could there eventually be a way around this? Sure,” Rubel said. “But is it stupid business policy to kill the bank? Absolutely.”

Republican Constituencies

Because Ex-Im pits two Republican constituencies -- big business and small-government conservatives -- against each other, its prospects are unclear in a Congress led by that party.

Boeing is by far the bank’s biggest beneficiary: its customers received more than $7 billion of the $10.8 billion in long-term guarantees Ex-Im issued last year. Those guarantees were used to help companies, including China Southern Airlines, Air Canada and LatAm Airlines Group SA, buy Boeing’s commercial aircraft, according to Ex-Im’s annual report.

Chicago-based Boeing is also the only one of the five U.S. companies that specifically cites the loss of Ex-Im as a risk in its annual report.

While the report notes Boeing has other ways to finance deals, that’s not a long-term fix, Tim Neale, a Boeing spokesman, said.

‘Real Limits’

“We can provide some financing in the near term, but there are real limits as to how much we could do of that before it starts to impact our ability to develop new airplanes,” Neale said.

Boeing’s chief rival, Blagnac, France-based Airbus Group SE, can tap export-credit agencies in three countries -- Germany, France and the U.K. -- to help provide financing for customers, he said. Airbus is using Ex-Im’s uncertainty to seek sales, telling customers “you better buy from us because Ex-Im might not be there for you in the future,” Neale said.

From 2008 through 2013, Ex-Im supported deliveries of 789 Boeing large commercial aircraft, according to the U.S. Government Accountability Office. European export credit agencies supported deliveries of 821 large Airbus planes.

For General Dynamics, Ex-Im has been especially helpful as its Gulfstream unit competes with airplane companies such as Canada’s Bombardier Inc. and Brazil’s Embraer SA, said Lucy Ryan, a spokeswoman. Those businesses have governments that provide financing alternatives for their customers, Ryan said.

Gulfstream customers in Turkey, China and Azerbaijan altogether received at least $839 million in backing from the bank, according to Ex-Im’s 2014 report.

Sikorsky Unit

Similarly, Irish and Brazilian businesses tapped more than $376 million of Ex-Im’s long-term guarantees to purchase helicopters from United Technologies’ Sikorsky unit, the report said.

Caterpillar, which has been one of the bank’s biggest beneficiaries, also sees the reauthorization as a “significant priority,” said company spokesman Matt Lavoie.

Its foreign buyers received at least $652 million in loans and guarantees last year, according to Ex-Im’s report.

Yet the bank’s demise wouldn’t crush Caterpillar because it would find “alternative sources” of financing, Ted Grace, an analyst with Susquehanna Financial Group, said.

“I would venture a guess that it wouldn’t have any impact on Caterpillar and if it were to have impact it would be completely immaterial,” Grace said.

GE, Ex-Im’s second-biggest beneficiary, has sent hired lobbyists and Russell Stokes, the president of its transportation division, to Capitol Hill to press the bank’s case.

Credit Assistance

Last year GE’s overseas customers received more than $973 million in credit assistance from the bank.

GE and Boeing executives have recently said they might move production overseas if Congress doesn’t reauthorize Ex-Im.

Jeb Hensarling, chairman of the House Financial Services Committee and one of the bank’s staunchest opponents, called such threats “a bit of bluster” during a press conference last month.

Hensarling is one of several top Republicans in Congress, including House Majority Leader Kevin McCarthy and Senate Majority Leader Mitch McConnell, who’ve said they’re against Ex-Im.

While opponents liken the bank to “corporate welfare,” Bank Chairman Fred Hochberg told a House subcommittee last month that it sent $675 million to the U.S. Treasury for deficit reduction in 2014.

June Vote

Despite his personal opposition to the bank, McConnell has provided some hope to its backers: He agreed to allow a June vote on whether to reauthorize Ex-Im as part of a deal to advance trade legislation.

In the House, the bank’s future is murkier. Speaker John Boehner has been vague about how the chamber will handle its charter, saying in May that “the House would be allowed to work its will” on Ex-Im.

Boehner should let the House vote on the bank legislation “notwithstanding Hensarling’s opposition,” Representative Steny Hoyer of Maryland, the second-ranking House Democrat, told reporters Tuesday.

Almost all, if not all, of the 188 House Democrats and at least 60 Republicans would support extending the bank’s charter, Hoyer said. That would be more than the 217 votes required to pass the legislation in the chamber.

“Clearly a majority of members in the House support it,” Hoyer said.

Peter Cohn, an analyst with Height Securities LLC in Washington, said he thinks most Republican leaders want the bank to be re-authorized, but they don’t want to be seen as saving Ex-Im, which conservative organizations such as the Club for Growth oppose.

“They don’t want to carry the load, but they’d love for it to kind of just happen and be able to wash their hands of it,” he said.

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