Questions

Ex-Im Bank to Seek Private Investors To Aid in Guarantees, Risk Insurance

By MICHAEL M. PHILLIPS
Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- In a leap across the line between government and business, the official U.S. export-finance agency is seeking private investors to help it provide billions of dollars in loan guarantees and risk insurance for American companies.

The U.S. Export-Import Bank, which supported almost $17 billion in U.S. sales overseas last year, Wednesday will ask investment banks, commercial banks, insurance companies and other financial institutions for proposals on how they might share the risks and rewards from future Ex-Im Bank financing deals.

"Investing in the developing world is a very important part of ... the next 20 years," Ex-Im Bank Chairman James A. Harmon said in an interview. "No major entity, whether it's Merrill or Citicorp, can exclude the developing world from its plan. This is one way to participate in a very creditworthy manner."

In essence, Ex-Im Bank wants to sell to one or more partners a stake in future export-financing deals, in the hopes of making its own resources go further at a time when the U.S. trade deficit is piling on the records.

The agency is leaving it up to the private financial institutions -- American or foreign -- to come up with a creative way to structure the deal. The idea is for a private partner to put a certain amount of money or credit at Ex-Im Bank's disposal, and then share in Ex-Im Bank's fees. The financial institution might limit how that investment can be used -- perhaps setting a dollar limit for a particular country -- but not approve or reject individual Ex-Im Bank decisions.

"How much they'll be willing to do and on what terms remains to be seen," Mr. Harmon said. While not setting a target for the amount he hopes to raise, he spoke of figures of perhaps $1 billion or more.

In an unusual move, the agency will put 1,500 pages of its own financial and institutional information on a Web site to make it easier for potential investors to perform due-diligence research. Hoping for quick action, Ex-Im Bank will hold a pre-proposal conference on March 7.

Ex-Im Bank officials first conceived of the idea about three years ago. Private institutions showed interest, but pulled back soon after the Asian financial crisis sent U.S. banks and investors fleeing the developing world. Ex-Im revived the concept after the crisis subsided.

"Now we've moved into a period of time where people are willing to take greater risk," Mr. Harmon said.

Questions:

1. What is the role of the Export-Import Bank in International Finance?  (Use the Bank's website, http://www.exim.gov/, to research this question.)  Why is it necessary to have governmental participation in this market?
2. Why would the Ex-Im Bank look for private participation in loan guarantees and risk insurance?
3. If these parties are willing to participate, why would they not have done so on their own?
4. Do you think there might be advantages of improved monitoring of loans with private sector participation?  How would this relate to the Ex-Im Bank's suggestion that these financial institutions cannot approve or reject individual bank decisions?
5. Could private participation lead to greater liquidity in the market for these loan guarantees and insurance policies, and perhaps even securitization and broader holding of these risks?
6. The Ex-Im bank currently has fee schedules in place for its loan guarantees (http://www.exim.gov/isp/feelgmti.html).  How might these fee structures survive private participation?  If you were redesigning the fee structure, how would you go about it, if you had several private institutions willing to participate?