As Good As It Gets for US EXIM
As the Academy Awards draw near, just a few months after the news of U.S. Export-Import Bank’s (“EXIM’s”) reauthorization, I had cause to think of the film As Good as It Gets starring the award-winning pair of Jack Nicholson, as Melvin Udall a gifted writer beset with OCD and an obnoxious temperament and Helen Hunt as Carol Connelly, a saintly waitress coping to care for her sick child. In James Brooks’ Oscar-nominated script, the two somehow manage to lift each other up from their burdensome realities.
Only a film-obsessed advisor, with close ties to EXIM and a penchant for making off-beat connections to finance topics would ever make this association, but the various meanings of the title phrase “As Good As It Gets” do convey useful insights about the reauthorization and future of the U.S. export credit agency (“ECA”), whose resurrection from political limbo gives EXIM renewed life.
The title conveys at least three valid levels of meaning. First, on the surface those just seeing the trailers might expect the title to mean that the film’s central relationship is a tale fraught with comedic moments but an ultimately happy ending that is “as good as it gets”.
While valid, that perspective overlooks the phrase’s darker, second meaning as it is literally used in the film’s key thematic moment in which Melvin is sent home from his psychiatrist’s office because he didn’t schedule a visit. As he storms out, Melvin vindictively turns on the vulnerable patients in the waiting room and asks “what if this is as good as it gets”? What if we are all stuck with the woes that have driven us to psychiatry and it’s downhill from here?
Again, while valid that meaning misses the title’s deeper redemptive meaning played out on screen. In spite of Melvin’s obvious flaws and Carol’s terrible circumstances, the two can find love and even the possibility of happiness in a flawed world, which ultimately is as “good as it gets.”
These same three meanings have valid parallels for EXIM.
First, on the surface and objectively speaking, compared to most expectations and given the bank’s prior reauthorizations that have heaped burdensome requirements on EXIM, the reauthorization was “as good as it gets” – it addresses the key issues that have plagued EXIM since 2015.
To start with, there was a reauthorization. Many potential borrowers had stayed away from EXIM because they feared reauthorization might not happen. While JLS Capital considered that fear irrational, that perception existed and presented a barrier to the bank that no longer exists. That it happened without a lengthy delay not only removed a reason to shy away from EXIM now, but it should reduce market skepticism about future reauthorizations.
Furthermore, the reauthorization will last EXIM seven years, whereas JLS Capital hoped for only five years, long enough to take EXIM out of election cycles to ease EXIM”s political vulnerability. Marco Poisler, chairman of the Exporters Competitive Maritime Council and COO of global energy and capital projects at UTC Overseas had impressively “pushed for 10 [years], but (was) . . . very pleased (with) . . . seven,” adding that he hoped the lengthy authorization period would boost confidence in the bank. It should. EXIM won’t need to face reauthorization again until 2026. This is a great accomplishment for bank supporters and a big victory for EXIM and U.S. exporters.
Finally, the reauthorization largely removed the requirement for a Senate-confirmed Board quorum that a few Senators were able to exploit to block EXIM financing for deals over $10 million without a quorum on its Board of Directors from 2015 through 2019. Under the new re-authorization, if EXIM lacks a sufficient number of directors to constitute a quorum for 120 consecutive days, temporary board members (from USTR, Treasury, and State) will fill the gaps. A few Senators will no longer be able to shut down large loans that historically accounted for 80% of EXIM’s business. While a possible 120-day lapse in EXIM’s ability to make large deals is not ideal, given that larger deals take time, such a delay may not be overly injurious. Moreover, that any future lapse would inevitably be brief means that bank opponents will not likely try to orchestrate a lack of quorum in the future. Again – as good as it gets.
But before bank supporters become giddy from these impressive accomplishments, one need not look far to find a second meaning and be reminded of the bank’s liabilities. Just as Melvin and those in the waiting room may be stuck with their woes and perceive it’s all downhill from here, so too may EXIM be stuck in its less-than-perfect reality. A world fraught with limitations may be as good as it gets for the bank.
As JLS Capital has reported last Fall, EXIM bears the burden of content, shipping, and economic impact policies that competing ECA’s do not, meaning EXIM cannot truly level the playing field for U.S. exporters. Not only did the recent reauthorization not ease these burdens, it added new requirements. Two relate to China: (1) a new “Program on China and Transformational Exports” with a goal for EXIM to reserve 20% of its exposure for exports directly competing with China and for certain technology exports; and (2) a requirement for EXIM to consult with State and other agencies to assess risks to the national interests of any deal over $25 million where EXIM believes the end-user, obligor or lender is a Chinese entity.
Another provision directs Treasury to study the potential adverse effects of its current “expected credit loss model for loan loss accounting on regulatory capital”, which could be a step towards fair value accounting, which would impose incorrect, artificially high costs on EXIM’s risk ratings and convert its current contributions to the U.S. Treasury into taxpayer costs.
Other new provisions were “softer” involving only targets rather than requirements. The target threshold for small business-financed exports, which had recently increased from 20% of total authorization to 25%, will increase further to 30% starting in 2021. Congress also established a target of 5% of EXIM’s total exposure for renewable energy, energy efficiency, and energy storage technology exports.
Given that EXIM has long been handicapped, even relatively minor new requirements are like another small brick in the wall for exporters, another straw that could break the exporting camel’s back. True, none of these provisions are bad per se. China’s failure to play by the rules has hurt U.S. exports and employment, small businesses and clean energy are obviously good, and a sensible study of credit losses should produce results that make fair value accounting less likely. But given EXIM’s history , EXIM and U.S. exporters can’t be faulted for asking – is a politically burdened EXIM “as good as it gets”?
But just as Melvin and Carol manage to pull through, perhaps this question as articulated represents a small but important amount of hope for EXIM’s longer-term future. Additional burdens imposed this time were less numerous and smaller. It could have been worse. There was discussion of barring EXIM from supporting any deals with even a small level of Chinese participation, which would have given China the perverse incentive to invest a little in lot of foreign ventures – just to keep EXIM out of the picture. The battle between fossil fuel supporters and environmentalists who were unhappy with limitations that the reauthorization did not contain threatened to delay the entire reauthorization. But EXIM supporters persevered, better than they had in the past.
More critically, this reauthorization’s new requirements were arguably more than offset by its previously mentioned good features – its timely occurrence, the longer term, and new Board quorum reforms. Thus, just as Melvin and Carol have their Flaubertian ending of a renewed possibility of happiness, EXIM leadership and staff now have a better chance to succeed – more time and a safer political environment in which they can to restore the bank and make it even more relevant.
There is a lot to do. EXIM should consider performing the review of its domestic content policy for medium- and long- term transactions, stipulated in the 2012 Reauthorization that – to the best of JLS Capital’s knowledge – has never really been done, which could increase U.S. exports by increasing flexibility. EXIM could also revive its agreement with MARAD to find ways to make shipping requirements less injurious, including increasing MARAD thresholds from $10 million to $25 million to correspond to recent change in delegated authority. EXIM legal and credit staff can rebuild skills and expertise that once made EXIM a leading global financier. Its policy experts who were instrumental in ending an environmental race to the bottom that had characterized ECA lending and create a more level regulatory playing field that protects the environment without hurting U.S. exports.
Even this partial list is long, but EXIM will have the chance to do it. That is indeed “as good as it gets”.