What Is the Export-Import Bank?

by Dan Burrows | August 5, 2014 6:15 am

The Export-Import Bank — it’s a term making the rounds today, but many investors are wondering … what the heck is it?

[1]Unless you run Caterpillar (CAT[2]) or Boeing (BA[3]) or another company that relies heavily on exports, there’s little reason to know what the Export-Import Bank is or does. After all, it mostly operates in the background as it facilitates trade between the U.S. and foreign countries.

It’s an important but hardly a sexy job, and so the Export-Import Bank only finds itself in the news because of political threats to shut it down.

Congress is threatening to let the charter for Export-Import Bank lapse, in which case it will be forced to close at the end of September. That would be a blow to big companies like CAT and Boeing, as well as any smaller firms that rely on trade.

Conservative Republicans decry the Export-Import Bank as a form of crony capitalism, but it does serve a key purpose in supporting foreign trade.

How the Export-Import Bank Backs Trade

Founded in 1934, the federal credit agency provides loans, loan guarantees and credit insurance to help U.S. companies export goods overseas. For example, when a loan from a private bank can’t be lined up for commercial or political reasons, the Export-Import bank could provide credit to a foreign buyer of a U.S. product.

As such, the Export-Import Bank helps U.S. companies be competitive in foreign markets. Supporters say the loss of the Export-Import bank will make it harder for U.S. companies to compete against rivals in Europe, Japan and China.

That’s why corporate America is lining up to support the Export-Import Bank. General Electric (GE[4]) Chairman Jeff Immelt warned that closing the Export-Import Bank would damage trade between the U.S. and Africa.

China, Japan and the European Union all have booming trade ties to the vast continent. The U.S. is far behind, and needs the help of the Export-Import Bank to catch up. As Immelt said to the Financial Times: “We are basically making a statement as a country that we do not think that exports are important.”

Indeed, a closure of the Export-Import Bank would be a serious blow to U.S. companies generally, according to the Washington Post.

Boeing is the biggest recipient of Export-Import Bank financing, receiving $8.3 billion in backing in fiscal 2013 — or about 30% of the bank’s total financial assistance provided that year, the Post said[5], citing a private report.

The most important thing to know about the Export-Import Bank is that if it goes away, it will leave everything from American blue-chip companies to small business at a big disadvantage at winning overseas trade.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/08/export-import-bank/

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