\ PANAMA CANAL TREATY RAMIFICATIONS

Part 2

HEARINGS

BEFORE THE

SUBCOMMITTEE ON THE PANAMA CANAL

OF THE

COMMITTEE ON
MERCHANT MARINE AND FISHERIES
HOUSE OF REPRESENTATIVES

NINETY-FIFTH CONGRESS

FIRST SESSION
ON

THE ECONOMIC AND FINANCIAL RAMIFICATIONS OF THE
PROPOSED PANAMA CANAL TREATIES AND THE ROLE THE
SUBCOMMITTEE WOULD PLAY IN IMPLEMENTING THE

TREATIES

APPENDICES A THROUGH J

INTERNATIONAL BANKING INTERESTS RELATING TO
PANAMA, AND OTHER TREATY-RELATED MATTERS

NOVEMBER 30, DECEMBER 1, 1977

Serial No. 95-21

Printed for the use of the Committee on Merchant Marine and Fisheries

26-608

COMMITTEE ON MERCHANT MARINE AND FISHERIES

JOHN M. MURPHY, New York, Chairman

THOMAS L. ASHLEY, Ohio
JOHN D. DINGELL, Michigan
PAI L G. ROGERS, Florida
WALTER B. JONES, North Carolina
ROBERT L. LEGGETT, California
MARIO BIAGGI, New York
GLENN M. ANDERSON, California
E (KIKA) db la GARZA, Texas
RALPH H. METCALFE, Illinois
JOHN B. BREAUX, Louisiana
FRED B. ROONEY, Pennsylvania
BO GINN, Georgia
GERRY E. STUDDS, Massachusetts
DAVID R. BOWEN, Mississippi
JOSHUA EILBERG, Pennsylvania
RON de LUGO, Virgin Islands
CARROLL HUBBARD, Jr., Kentucky
DON BONKER, Washington
LBS ArCOIN, Oregon

NORMAN E. D'AMOURS, New Hampshire
JERRY M. PATTERSON, California
LEO C. ZEFERETTI, New York
JAMES L. OBERSTAR, Minnesota
WILLIAM J. HUGHES, New Jersey
BARBARA A. MIKULSKI, Maryland
DAVID E. BONIOR, Michigan
DANIEL K. AKAKA, Hawaii

Carl L.
Ernest J

PHILIP E. RUPPE, Michigan
PAUL X. McCLOSKEY, Jr., California
GENE SNYDER, Kentucky
EDWIN B. forsythe. New Jersey
DAVID C. TREEN, Louisiana
JOEL PRITCHARD, Washington
DON YOUNG, Alaska
ROBERT E. BAUMAN, Maryland
NORMAN F. LENT, New York
DAVID F. EMERY, Maine
ROBERT K. DORNAN, California
THOMAS B. EVANS, Jr.. Delaware
PAUL S. TRIBLE, Jr., Virginia

Perian, Chief of Staff
Corrado, Chief Counsel
Frances Still, Chief Clerk
W. Patrick Morris, Chief Minority Counsel

Subcommittee on Panama Canal
RALPH H. METCALFE, Illinois, Chairman

GENE SNYDER, Kentucky
ROBERT K. DORNAN. California
PHILIP E. RUPPE, Michigan
(ex officio)

ROBERT L. LEGGETT, California
DAVID R. BOWEN, Mississippi
CARROLL HUBBARD, Jr., Kentucky
BO GINN, Georgia
LEO C. ZEFERETTI, New York
JOHN M. MURPHY, New York
(ex officio)

Terrence W. Modglin, Professional Staff
Coleman Conrot, Professional Staff
Bernard Tannenbaum, Consultant
w. Merrill Whitman, consultant
Nicholas T. Nonnenmacher. Professional Staff, Minority

(ID

CONTENTS

Pago

Opening statement of Mr. Snyder, November 30, 1977 3

Subcommittee note: A report entitled, "International Debt, the
Banks, and U.S. Foreign Policy," was issued in August 1977 by Sen-
ator Frank Church, chairman, Subcommittee on Foreign Economic
Policy, Senate Committee on Foreign Relations. Mr. Snyder's state-
ment referred at some length to that report, and is reprinted here as
background for his questions.

Appendix A: Questions of Mr. Snyder on various treaty-related matters for:

I. Governor of the Canal Zone 7

II. Secretary of the Army 10

Appendix B: December 30, 1977, response of the Department of Treasury

to Mr. Snyder's questions on "International Banking Interests Relat-
ing to Panama" based on the following items:

I. Article by Cheryl Payer, Bankers magazine, spring 1977, "Will

the Government Have to Bail Out the Banks?" 11

II. Article by Sidney Wise, The Times of London, April 25, 1977,

"Freedom Proves Lure To The Big Banks" 14

III. Article by Paul A. Fisher, Twin Circle, October 9, 1977,

"Panama Canal Treaty: A Money Deal— But Not For You"_ 63

IV. Letter of Leopoldo Aragon to President Carter, August 28,

1977 74

V. Article by Desmond Wettern, London Daily Telegraph,
March 3, 1977, "Britain Once Ruled Sea and So Must

Approve Panama Transfer" 74

VI. Article by Hobart Rowen, Washington Post, December 14,

1976, "Other Nations' Debts May Plague U.S." 95

VII. Memorandum of Nicolas Arditto Barletta, Planification

Minister of Panama, 1976 105

VIII. Article by H. J. Maidenberg, New York Times, February 5,

1974, "The Gnomes of Panama are Creating A Mushroom-
ing 'Latindollar' Market" 106

IX. Article by Murray N. Rothbard, Inquiry, December 5, 1977,

"The Treaty That Wall Street Wrote" 108

X. Agreed Minute to proposed Panama Canal Treaty 118

XI. Article in Wall Street Journal, May 5, 1977 118

XII. Article in West Watch, November 1977 120

Appendix C: January 20, 1978, followup response of the Department of
Treasury with further answers to Mr. Snyder's questions based on:

II. The Times of London 123

III. Twin Circle 124

IV. Aragon letter 124

IX. Inquiry 125

Appendix D: February 27, 1978, second followup response of the Depart-
ment of Treasury with further answers to Mr. Snyder's questions
based on:

V. Daily Telegraph 208

VIII. New York Times 207

XII. West Watch 207

March 17, 1978, third followup response of the Department of Treasury
with further answers to Mr. Snyder's questions based on:

XII. West Watch 208

Appendix E: January 30, 1978, response of the Department of State to
Mr. Snyder's questions on "International Banking Interests Relating to
Panama," based on the following items, and to other questions on
various treaty-related matters:

I. Editorial by Charles Bartlett, Washington Star, February 25,
1977, "Why Some Panamanians Are In No Rush On
Canal" 209

(in)

II. Article by Christopher Lydon, Atlantic Monthly, July 1977, Page
"Jimmy Carter Revealed: He's a Rockefeller Republican". 211

III. Article by Alan Howard, Nation, October 15, 1977, "The

Real Latin American Policy" 213

IV. Article by Jeremiah Novak, Atlantic Monthly, July 1977,

"The Trilateral Connection" 215

V. Memorandum from U.S. Embassy in Panama to Department

of State, October 20, 1£76 217

VI. Foreword by Senator Henry M. Jackson to committee print.
Permanent Subcommittee on Investigations, Senate Com-
mittee on Governmental Affairs, "The Rising Soviet and
East European Debt to the West" 217

VII. Article by Charles N. Stabler, Wall Street Journal, April 14,
1977, "Developing Debts — Poorer Countries Face Test of
Their Ability to Repay Bank Loans — Total Due Continues to
Rise: Big Banks Are Confident, But Some Doubts Persist". 218
VIII. Article by Linda Charlton, New York Times, December 8,
1969, "Carlino Sent on Panama Mission; Rockefeller Envoy
Advised General on Coming Elections," and article by
Tad Szulc, New York Times, December 9, 1969. "Carlino
Mission Puzzles Capital; State Department Declines Com-
ment on Panama Trip" 219

IX. Article by George Nicholas, Spotlight, October 3, 1977,

"Rocky's CIA Switched Signals on General Torrijos" 228

X. The Declaration and Programme of Action on the Establish-
ment of a New International Economic Order, and the Char-
ter of Economic Rights and Duties of States, United
Nations, 1974 235

XI. Article by Don Shannon, Philadelphia Inquirer, November 13,

1977, "Four Rich Nations Cancel Debts of Poorer Ones"__ 235
XII. Article in Panama Star and Herald, April 21, 1977, on Pan-
ama-Libya Cooperation Pact 237

XIII. Article in Newsweek, April 25, 1977, on the results of Omar

Torrijos' visit to Libya's Chief, Gen. Muamar Kaddafi 237

XIV. Article by Marlise Simons, Washington Post, June 3, 1977,

"Canal Treaty Seen Leaving Political Vacuum in Panama". 238
XV. Article by Hobart Rowen, Washington Post, December 15,

1977, "Central Bank Role Is Urged for IMF" 239

XVI. Article by Mark Allan and Tracey Ehre, Spotlight, June 20,
1977, "Financial Triumvirate Lured Russians to Panama,"
and article by Mark Allan, same issue, "Soviet Foothold in

Panama Raises Serious Questions" 240

XVII. Article in La Estrella de Panama, August 29, 1977, on a
meeting of the Panama Banking Association and three
Panamanian treaty negotiators 244

XVIII. News story in Panama Star and Herald, December 5, 1977,

"R.P. Envoy Sees Treaties As 'Insurance Policy"' 245

XIX. Additional questions of Mr. Snyder on treaty-related matters. 246
Appendix F: March 7, 1978, followup response of the Department of State
with further answers to Mr. Snyder's questions based on :

X. Declaration and Programme of Action on the Establishment of

a New International Economic Order 250

XV. Washington Post article, "Central Bank Role Is Urged for IMF". 251
Appendix G: March 23, 1978, second followup response of the Department
of State with further answers to Mr. Snyder's questions based on:

V. Memorandum from the U.S. Embassy in Panama 254

XVII. La Estrella de Panama 255

XIX. Treaty-related matters 256

Appendix II: Questions of subcommittee minority member, Mr. Dornan,

asked independently of the Department of State, December 6, 1977, and
referenced in question 14, appendix E, item XIX, additional questions of

Mr. Snyder 259

Appendix I: Speeches of U.S. Senators containing memoranda referenced
either in Mr. Snyder's questions or in answer to them:

A. "Appointment of Ambassador Sol Linowitz." Statement of Senator
JohniSparkman of Alabama and accompanying exhibits, March
10, 1977 269

B. "Sol Linowitz: Banker And Treaty Negotiator — A Conflict?" Page
Statement of Senator Jesse Helms of North Carolina and

accompanying exhibits, February 22, 1977 273

Appendix J: Background on Panama as an offshore banking center:

I. "U.S. Banks Abroad, Introduction." Chapter 1 of "International
Banking" — Part 4 of the FINE Study — Financial Institutions
and the Nation's Economy, House Committee on Banking,
Currency and Housing, 94th Congress, 2d session, June 1976 *_ 284
II. Selected Excerpts from "International Banking" 287

III. "What Makes An Offshore Financial Centre?" Chapter 1 of

"Offshore Investment Centres," published by the Banker
Research Unit of the Financial Times, Ltd., London, England,
1975. Reprinted with permission 290

IV. "Panama". Excerpt from chapter 5, "Panama, Bermuda, The

Bahamas and the Caribbean." Ibid 292

1 Tables have not been reproduced.

INTERNATIONAL BANKING INTERESTS
RELATING TO PANAMA

And Other Treaty-Related Matters

APPENDICES A THROUGH J

Questions of Subcommittee Ranking Minority Member, Mr. Snyder,
For Various Witnesses Pursuant to the Hearings

(l)

OPENING STATEMENT OF MR. SNYDER,
NOVEMBER 30, 1977

Is the Panama Caxal Vulnerable — To International Bankers?

Mr. Snyder. Mr. Chairman, I am looking forward to these hearings
as a primary source of information for the American people as to ex-
actly what the proposed Panama treaties will cost them.

I suspect the cost is far higher than the administration spokesmen
would have us believe. I welcome the opportunity to put questions to
them and other knowledgeable expert witnesses. It is my conviction
that the taxpayers will end up footing another very unwelcome bill
costing millions should these Panama treaties be ratified.

The last time this committee met the treaty negotiators on August
17. the treaties had not been published, and I found those gentlemen
quite unwilling to answer some very simple, elementary questions
concerning the~ security of the United States under the proposed
agreements.

Perhaps they will be more forthcoming at this time in regard to
those few questions.

My position is well known as urging the defeat of the proposed
treaties.

As far as the security of the United States is concerned, our pos-
session of the Panama Canal in peace and war is vital. I see no sense
in our global conflict with the Soviet Union in throwing in our hand —
our top cards — and I think the American people agree with me.

Many Americans, including Members of Congress, suspect the bank-
ing interests may be behind the canal giveaway. I have no knowledge
as to whether or not they are. but there have been numerous allega-
tions in the press. For example, an article in Bankers Magazine for
spring 1977, flatly says of the banks, and I quote :

They want the taxpayers of the creditor countries to pay the bad debts with
the money passing — in theory only — through the hands of the debtor governments
on its way to repay bank loans.

An article in the London Daily Telegraph. March 3, 1977, states :

Apart from political considerations the Carter Administration is also believed
to be under pressure from American banking interests to hand the canal over
to Panama.

If there is substance to these allegations, the American people should
know of it. If there is none, the allegations should be laid to rest.

This past August, Senator Frank Church issued a staff report titled
"International Debt, the Banks, and U.S. Foreign Policy/'

I'd like to ask a number of questions based on some things that have
appeared in this report and in the press.

Let me set the background in a few excerpts from the Church
report.

(3)

The Senator sets the problem in his introduction as follows :

But what we have been dealing with since the oil price increase of 1973 are
not temporary deficits but a structural defect in the world economy in which
enormous financial surpluses are concentrated in the hands of a very few coun-
tries which cannot spend them for goods and services. They are thus deposited
in the ••strong" industrial countries. The "weak" oil deficit countries then borrow
from the major financial institutions in the strong countries. And there is no end
in sight to this cycle of a few permanent financial surplus oil producer countries
and burgeoning international indebtedness by weaker oil importing countries.

The central theme of the Church report, written by Ms. Karen Lds-
sakers of the subcommittee staff, is that the world/s major interna-
tional banks have become more and more overextended in lending to
the debtor oil importing nations and their financial positions are be-
coming more and more precarious.

Mention is made of the Basle, Switzerland, agreement in July 1971
of the Board of Governors of the Bank for International Settlement.-,
the "central bankers' central bank."

The United States, though not a member of the BIS. subscribed to
the Basle accord at the annual International Monetary Fund meeting
in AVashington in October 1974.

The report states that under the agreement. "Consortium banks
which have multinational bank participation will be bailed out on a
pro-rata basis by member parent banks, again backed by their own
central banks."

Xote the words, "will be bailed out."

Key to the background I am setting is this statement in the report :

It is worth noting that the central banks asked nothing from the private
banks in return for their guarantee, at least officially . . . Commercial bank<
can continue to compete on the euromarket at margins which do not insure
profitability, to take on deposits and external credits without Adequate capital
reserves and to roll over hundred million dollar loans to underdeveloped coun-
tries who have little or no hope of ever being able to pay them back, without
interference from any governmental authority. And if such practices lead to
disaster, the governments are pledged to come to the rescue.

Discussing the nature of the use underdeveloped countries make of
these loans just to maintain a given level of domestic consumption,
the report states :

Doubts are therefore raised about the ability of some countries to ever repay
their foreign loans, or, in the long run. even to continue to meet interest pay-
ments on those loans.

Toward the end of the report Lissakers cites the Citibank loan to
Zaire which had fallen behind in its repayments. Zaire agreed to pay
up back interest only if Citibank committed itself to a new $250 mil-
lion loan.

Lissakers sums up the incident with this amazing sentence:

The Zaire Government is thus holding the money it oices the bonis hostage for
a $250 million ransom.

She goes on :

The Zaire case raises some interesting questions about just who has the great-
est leverage at this stage of international debt buildup — the creditor banks, or the
debtor countries? Was Citibank's willingness to understake the task of raising
another large loan to Zaire a prudent and sensible response to restore the credit-
worthiness of a borrower, or a desperate attempt to avoid as long as possible
having to write off a substantial loss on an international loan, and perhaps
thereby set a precedent for other debtor countries to follow suit?

Wrapping up the overall international activity, Lissakers asks
"whether this process of deficits, recycling, borrowing, and debt re-
scheduling can go on indefinitely," and answers it in a way that is, I
believe, quite worrisome :

The viability of the whole international financial system is premised on the
assumption that all the players stay in the game ; that the banks continue lend-
ing, and the borrowers keep repaying the interest, so that although the principal
may be refinanced or "rolled over" for individual borrowers, the money con-
tinues to circulate. The biggest threat to the system lies in the possibility that
one of the passengers on this merry-go-round will decide to get off — that one
of the large debtors finally decides to repudiate its debts, or one of the lenders
says "no more" and calls in the chits. Other lenders then follow in order to
protect their interests and a domino effect sets in. As the crisis created by the
collapse of Herstatt and Franklin National several years ago illustrates, even
the disappearance of a relatively minor player can set the multinational bank-
ing system teetering.

Finally, in conclusion, Lissakers asks the $64 question :

The question arises of how prudent the banks have been in their lending . . .
Has the profitability of this activity blinded them to the underlying risks? Or
has the banks willingness to lend to foreign countries for balance of payments
purposes been premised on the unstated assumption that in the event of a real
debt repayment crisis, the governments of the wealthy industrial countries will
have to come to the rescue because they cannot afford to see either the debtor
countries or their own large banking institutions go under?

Mr. Chairman, Panama is a debtor nation with almost 40 percent
of its annual budget now dedicated just to debt service.

American and foreign banks have been coming to the rescue.

I hope we can find out in these hearings if the American people are
being set up to bail out the banks, and if, perhaps, the canal giveaway
just might play a role in this bailout.

My questions all relate to my central concern here: Is the Panama
Canal vulnerable — to international bankers ? 1

I repeat, I don't know if the many allegations that such is the case
have substance. If they do, the people should know it. If such allega-
tions are without merit, they should be laid to rest.

I am a firm believer in the free enterprise system and have no desire
to worsen the banking climate with untoward fear, but news stories
on which my questions will be based reflect growing concern in banking
and government circles.

The witnesses may have to obtain some answers from other agencies
and submit them in writing, and I hope this can be done expeditiously.
Of course, any proprietary information I may request should be sub-
mitted without identifying the individual bank involved.

1 For background on Panama as an offshore banking center, see Appendix J.

Questions of Subcommittee Ranking Minority Member, Mr. Snyder, fob
Various Witnesses Pursuant to Hearings on the Economic and Financial
Ramifications of the Proposed Panama Canal Treaties

APPENDIX A

I. questions for the governor of the canal zone

Question 1. What is the estimate of the combined payroll of the Panama Canal
Company and Canal Zone Government for FY 1978?

Answer. The combined payroll of the Panama Canal Company and Canal Zone
Government, including personnel benefits, is estimated in the 1978 President's
Budget at $223.0 million.

Question 2. What percentage of the total cost of operation of the Canal under
the new treaty would be represented by payroll costs? (Please furnish figures
used in calculation ) .

Answers. It is estimated that payroll costs, including personnel benefits, will
represent about 58 percent of the cost of operation of the Canal under the new
treaty, exclusive of first-year transition costs. The figures used are as follows :

Millions

Estimated payroll costs for fiscal year 197S under the new treaty $165. 5

Total operating expenses for fiscal year 1978 under the new treaty,

exclusive of transition costs 285.

Ratio payroll to total costs (perfect) 58

Question 8. (a) In estimating the cost of operation of the Canal under the new
treaty, what is the base rate used for setting wages ?

Answer. No major change from current practice is contemplated at this time.
Current plans call for continuation of the District of Columbia pay base for
policemen and fire fighters, Tennessee Valley Authority rates for power system
employees, Corps of Engineers rates for floating plant personnel, U.S. Merchant
Marine rates for steamship personnel, the General Schedule for clerical, adminis-
trative, and fiscal jobs, and the CSC overseas schedule for manual type occupa-
tions. In the latter two groups, we expect to continue the current pay cutoff lines
between the levels of skill required to be recruited from off-the-Isthmus and
those available locally. The latter will be paid on a scale ranging upward from
the Fair Labor Stnndards Act Minimum Wage that is applicable in the United
States on the effective date of the treaty.

Question 8.(o) In estimating the cost of operation of the Canal under the new
treaty, what additional renumeration will be paid to U.S. nationals employed
prior to the effective date of the treaty ?

Answer. Current plans call for continuation of the Tropical Differential for
those individuals currently receiving it. Current employees will also continue to>
be eligible for the usual Premium Pay Benefits such as Night Differential, Hazard-
ous Duty Pay, and Overtime.

Question 3.(c) In estimating the cost of operation of the Canal under the new
treaty, what additional renumeration will be paid to personnel recruited outside
the Republic of Panama ?

Answer. Individuals recruited off-the-Isthmus will be eligible for the Tropical
Differential as well as Premium Pay generally authorized for other employees.

Question 8(d). In estimating the cost of operation of the Canal under the new
treaty, will there be an adjustment in wages because of the difference in income
tax rates in the U.S. and Panama?

Answer. Whether there will be an adjustment in wages because of the differ-
ence in income tax rates in the U.S. and Panama will be a matter for decision by

(7)

the Panama Canal Commission. For planning purposes, however, it is being as-
sumed in the interest of conservation that there will be no change in the wage
rates of U.S. citizens and that those non-U.S. citizens paid on a U.S. pay base will
receive an increase in wages because of the elimination of the Tax Allowance au-
thorized in the Memorandum of Understandings accompanying the 1955 Treaty
with the Republic of Panama. The amount of the tax factor varies with the rate
of pay of the individual and ranges from 1 cent an hour to $2.50 an hour for a
weighted average of 18 cents an hour.

Question 3(c). In estimating the cost of operation of the Canal under the new
treaty and in comparison to 1978 payroll costs, what will be the effect on cost of
operation of the Canal of the actions taken to effectuate the wage practices indi-
cated by your answers to (a) through (d) ?

Answer. If the Tax Factor were to be eliminated, the additional annual cost for
employees remaining with the Panama Canal Commission would approximate
$610,000 per year.

Note. — It is pertinent to note that although the agency does not currently con-
template any major change in wage bases or amount of Tropical Differential,
treaty provisions permit payments by the Panama Canal Commission of addi-
tional remuneration, or the provision of other benefits, such as home leave bene-
fits, to United States nationals employed prior to entry into force of the treaty,
or to persons of any nationality who are thereafter recruited outside of the Re-
public of Panama. Thus, if the Panama Canal Commission finds itself unable to
recruit and keep the necessary skills to keep the canal operating at the currently
contemplated rates of pay, they can be augmented.

Question 4- What is the estimated depreciation accrual on Canal Zone Govern-
ment capital assets in fiscal year 1978?

Answer. Depreciation of Canal Zone Government capital assets is estimated
at $2,681,000 for fiscal year 1978.

Question 5. In reference to capital assets of the Panama Canal Company,

a. What is the estimated depreciation accrual in fiscal year 197S?

b. What is the estimated depreciation accrual in the first year of operation
of the treaty?

c. What is the estimated depreciation accrual for fiscal year 1978 on assets to
be transferred to the Republic of Panama on the effective date of the treaty?

Answer, a. Depreciation of Panama Canal Company capital assets is estimated
at $18,467 thousand for fiscal year 1978.

b. Depreciation in the first year of operation under the treaty is estimated
at $18 million for the capital assets retained by the Commission, including
$600 thousand pertaining to former Canal Zone Government assets.

c. The estimated depreciation in fiscal year 1978 on assets to be transferred to
the Republic of Panama on the effective date of the treaty is approximately
$4.0 million of which $900 thousand pertains to Canal Zone Government capital
assets.

Question 6. In the operating statement on page 11 of the answers furnished to
questions previously submitted, there is a reference to "capital outlay expendi-
tures in excess of depreciation" shown as $7,133,000 for 1978 and as zero for
1978 with treaty changes.

0. Why is the entry limited to capital expenditures "in excess of depreciation"?

b. How does the entry reconcile with your answer to question 3(d) showing
capital costs of about $20 million in the first year of operation after ratification
of the treaty (1979)?

Answer, a. The Company has programmed for FY 1978 some $26.0 million
of capital outlay expenditures. The $7,133 thousand represents the additional
resources required to meet this program over and above funds to be provided
from operations of which depreciation is the primary source.

b. The answer to question 3(d) addresses the obligational requirements of the
Panama Canal Company for fiscal years 1978 and 1979 and not the cash outlay
requirement.

Question 7. The 1978 budget estimates show $12,749,000 as the cost of Company
sponsorship for its employees and dependents of fire protection, education and
hospital services provided by the Canal Zone Government.

a. What is the breakdown of the total figure between the three types of

services?

b. What would the comparable costs be for the Canal Zone Government's
sponsorship of these services for its employees and dependents?

c. How will these costs be affected by the treaty?
Answer (see table below) :

[In thousands of dollars]

Education

Hospital

Fire

Total

(a) Fiscal year 1978 estimate for Panama Canal Company.

(b) Fiscal year 1978 estimate for Canal Zone government.

6, 868

3,712
7,738

3, 652
712
2,774

2,229
(0
1,211

12, 749
4, 424
11,723

i Not allocated.

Question 8. Please supply the figures for fiscal year 1977 and fiscal year
1978 to bring up to date the traffic statistics shown in table 6 of the 1976
annual report.

Answer. Traffic statistics for fiscal year 1977 are attached. Fiscal year 1978
figures are not available.

PANAMA CANAL TRAFFIC, FISCAL YEAR 1977

Traffic assessed tolls
Traffic assessed tolls on displacement
Total traffic on net tonnage basis tonnage basis

Number Number Number Displace-

of Long tons of Panama Canal of ment

transits Tolls of cargo transits net tonnage transits tonnage

Commercial ocean traffic » 11,896 $163,826,571 122,978,785 11,868 133,353,132 28 108,642

U.S. Government ocean traffics... 88 805,983 212,677 59 577,483 29 165,148

Free ocean traffic »2 13 380 8 21,252 5 10,380

Total ocean traffic i 11,997 164,632,554 123,191,842 11,935 133,951,867 62 284,170

Small commercial traffics 759 39,960 2,820 751 48, 717 8 1, 108

Small U.S. Government traffics 277 12,851 22 953 255 16,769

Small free traffic 2 s 54 10 50 2,840 4 466

Total Panama Canal traffic. 13, 087 164,685,365 123,194,672 12,758 134,004,377 329 302,513

i Ocean traffic includes ships of 300 net tons and over, Panama Canal measurement, or of 500 displacement tons and
over on vessels paying tolls on displacement basis (dredges, warships, etc.).

2 Free traffic includes ships of thj Colombian and Panamanian Government and ships transiting for repairs at the
Company-operated yards.

s Includes vessels under 300 net tons, Panama Canal measurement (or under 500 displacement tons for vessels as-
sessed on displacement tonnage).

Question 0. What is your estimate of U.S. Government transits, tonnage and
tolls for fiscal year 1978 and fiscal year 1979?

Answer. U.S. Government traffic and tolls as estimated in the fiscal year
1979 budget are as follows :

1978

1979

Transits:

100

250

100
250

Total

350

Tolls credits (thousands):

$994

$994
6

Total

1, 000

1,000

Vessel tonnage (thousands):
Oceangoing:

Panama Canal net tonnage

Displacement tonnage.

Small:

Panama Canal net tonnage

Displacement tonnage

- 645

185

- 1

645
185

Total:

Panama Canal net tonnage

Displacement tonnage.

646

193

646
193

Question 10. How will the payment to Panama under paragraph 4(a) of the
treaty be calculated for U.S. government vessels paying tolls on displacement

tonnage?

Answer. It is assumed that for vessels assessed tolls on a displacement tonnage
vessel, Panama will be paid at a rate per ton which takes into account the re-
lationship between the toll rate applied to Panama Canal net tons and that ap-
plied to displacement tonnage.

The relationship of current tolls assessed on a Panama Canal net ton basis
(laden) to tolls assessed on a displacement tonnage basis is .$1.29 to $0.72, the
displacement rate being 56 percent of the laden P.C. net rate. Applying the
56 percent to the $0.30 per P.C. net ton annuity to Panama yields $0.17 per
displacement ton.

Question 11. Paragraph 1 of Article XIII of the new treaty provides that on
termination of the treaty, the Panama Canal shall be turned over to Panama
"free of liens and debts, except as the two Parties may otherwise agree". The
1976 annual report of the Panama Canal Company showed year-end liabilities,
exclusive of the U.S. investment in the canal, of some $92 million. On its face,
the cited treaty provision appeal's to require the U.S. to pay off all such liabilities
before transfer to Panama. What is the estimated amount of such liabilities at
the termination of the treaty and how would the payments necessary to liquidate
such liabilities be financed?

Answer. It is our understanding that the requirements under paragraph 1 of
Article XIII of the new treaty that the Panama Canal shall be turned over to
Panama "free of liens and debts" relates to real property, non-removable im-
provements thereon, and equipment that is to be transferred to Panama upon
termination of the treaty as set forth in paragraph 2(d) of said Article. There-
fore, all other assets, such as cash, accounts receivable and inventories will re-
main the property of the United States and will be available for settlement of
the liabilities of the Commission existing at the termination of the treaty.
Based on the financial condition of the Panama Canal Company at June 30, 1976,
there would have been available under a treaty termination situation sufficient
assets to cover those liabilities requiring an expenditure of funds.

With respect to estimating the financial condition of the Panama Canal Com-
mission at the termination of the treaty, we have no way to do this.

II. QUESTION FOR THE SECRETARY OF THE ARMY

Question. Article X of Treaty indicates that everyone employed by the
Panama Canal Commission will not lose any compensation. Teachers, how-
ever, will not be covered since Article XVIII of the Agreement in implementation
of Article IV of the Panama Canal Treaty says the United States Forces
may furnish educational, sanitary, and medical services. According to what
plan (or plans) are teachers, who will have been transferred from the Canal
Zone Government to the Department of Defense, to be or likely to be paid
and given periodic raises? Submit estimated costs of this plan or alternative
plans.

Answer. It is our desire to protect Canal Zone school teachers from any
loss of pay resulting from a transfer to the Department of Defense. At the
same time we want to assure them of periodic pay increases. On the other hand.
I certainly recognize the need of the Department of Defense Overseas Depend-
ent School System to establish equality of pay among its teachers. In order
to balance these competing requirements, we have proposed that Canal Zone
teachers retain their current wages and receive one-half the dollar amount
of all future DOD teacher wages increases until they reach the DOD wage
scale. We are now awaiting the comments of national and Canal Zone labor
representatives regarding this plan. Since future pay increases are unknown,
specific costs cannot be provided ; however, we can say that in the long term
this plan will be somewhat less costly for United States Government agencies
than continuation of the current pay system.

APPEXDIX B

response of the department of treasury to mr. snyder's questions on
international banking interests relating to panama

Department of the Treasury,
Washington, B.C., December 30, 1977.

Hon. Ralph H. Metcalfe,

Chairman, Subcommittee on Panama Canal, Committee on Merchant Marine and
Fisheries, House of Representatives, Washington, D.C.

Dear Mr. Chairman : In your memorandum of December 14, the Subcommittee
requested that I respond to a series of follow-up questions relating to my testi-
mony on the Panama Canal treaties on November 30, 1977.

Attached are responses to most of those questions. Unfortunately it has not
been possible to answer all of the questions within the time period requested.
Where indicated, additional information will be supplied as soon as possible.
With respect to the questions concerning narcotics (West Watch article series
of questions), we will shortly provide information that is available from the
Customs Service. We have referred your request to other appropriate agencies
for information which they may be able to provide.

I hope this information is of use to the Subcommittee.
Sincerely,

Arnold Xachmanoff.

Attachments.

Bankers Magazine, Spring 1977 carried an article by Cheryl Payer entitled
• Will the Government Have to Bail Out the Banks
I quote the opening and several later paragraphs :

"American banks with large loan exposures to third world countries are like
the person astride the tiger : The dangers of continuing the ride are matched only
by fears of what will happen if an attempt is made to dismount. Although most
bankers would clearly prefer lending to better credit risks than the deficit-ridden
less-developed nations, they are into a number of countries so deeply that a failure
at this point to roll over previously extended loans could precipitate the crisis
which everyone is trying to avoid. To extricate themselves from their dilemma,
the banks are looking toward Washington.

*******

"The cross-default clause is a technique now used also to give private lenders a
kind of guarantee on projects that they co-finance in conjunction with the World
Bank or Export-Import Bank. While this technique reflects the cooperation and
solidarity of associated lenders, a more important phenomenon of the late 1970s
will surely be the competitive struggle among creditors when a debtor country is
virtually bankrupt and cannot meet all its obligations. The first public sign of
such a struggle came last August when Citibank filed suit against the Export-
Import Bank, claiming that Ex-Im was arranging a preferential position for itself
in prescribing repayment procedures on a new loan to Zaire — which has not made
any payments to its commercial bank creditors since mid-1975.

"Citibank filed on behalf of itself and ten other banks involved in a 1972
syndicated loan, charging that Export-Import Bank was attempting to channel
Zaire's foreign trade earnings into a special account that would bypass prior
claims on the country's foreign exchange. Ex-Im's President, Stephen Dubrul, Jr.,
promptly rejected the accusation on a technicality, but in turn pointed a finger at
the World Bank which, according to Dubrul, has an arrangement which 'borders
on being a security pledge.'

"As more countries fall into arrears on their loan repayments, such squabbles
among creditors will become common."

Question 1. Submit for the record details and the status of the complaint men-
tioned above, the response of Stephen Dubrul, Jr., to Citibank, and his charge
against the World Bank.

(11)

2.J-60.") — 7S 2

Answer. On August 9. 1976, and August 13, 1976, suits were filed in the Southern
District of New York against Exinibank and Manufacturers Hanover Trust Com-
pany by Citibank and Bankers Trust Company, each for itself and on behalf of a
consortium of banks all of whom had made loans to the Republic of Zaire. The
object of the suits was to prevent Eximbank from entering into an agreement with
the Republic of Zaire, the purpose of which was to establish a mechanism whereby
proceeds from the sale of Zaire's copper ore would be applied directly to the
repayment of past and future loans by Eximbank to SXEL. Zaire's electric utility.

A settlement of the suit was reached when Eximbank agreed to limit this repay-
ment mechanism to future financial assistance. Both suits were terminated in
October 1976; Citibank did so by a Stipulation and Discontinuance. Bankers
Trust by a Notice of Dismissal.

The World Bank only seeks security on its loans to private borrowers, and
then only in the manner that a private lender would. The Bank thus assures
that it will not compete with the private sector (by extending security-free
financing), and that its chances of repayment are not jeopardized by priorities
accorded to other lenders.

Question .?. Submit information on any other squabbles of this nature that
have occurred or seem likely to occur among creditors of foreign nations.

Answer. The Treasury is not aware of any additional legal actions of this
nature that have occurred or seem likely to occur.

I quote the article further :

"The bankers who are willing to admit that they are in deep trouble because
of their Third "World exposure are also nearly unanimous about the solution
they expect. They propose that the governments of the creditor countries (pri-
marily the U.S., of course) come to the aid of their Third World dependents and
their own capitalists by increasing official aid programs, bilateral and multi-
lateral, by massive amounts. The banks also hope that governments will bear
the main burden of debt rescheduling as they did in the previous wave of Third
World debt crises in the 1960s, when private debt was mainly in the form of
suppliers' credits. That is. they want the taxpayers of the creditor countries
to pay the bad debts, with the money passing — in theory only — through the
hands of the debtor governments on its way to repay bank loans. If this does
not happen, they warn, we risk a 1930s-style collapse of the banking system
when the defaults become numerous. The executive director of Chase Manhattan
(London) gave clear expression to this hope and threat in the pages of Euro-
money :

" 'On the one hand, a purely technical analysis of the [Non-Oil Developing
Countries] current financial condition would suggest that defaults are inevitable ;
yet on the other hand, many experts feel that this is not likely to happen. The
World Bank, the IMF. and the governments of major industrialized nations, they
argue, would step in rather than watch any default seriously disrupt the entire
Euromarket apparatus with possible secondary damage to their own domestic
banking systems, which in many cases are already straining under their own
credit problems. 5 ' "

The Executive Director of Chase Manhattan (London), David Rockefeller's
bank, feels the governments of mapor industrial nations would step in rather
than see the banking systems go down.

Question 3. How might governments do this?

Ourxtion n. Discuss various alternative government actions and what their
impact would be on the taxpayer.

Answer. Following a number of bank failures in 1974, central bank governors
of the major industrial countries discussed the existing safeguards of the inter-
national banking system and issued the following statement:

"The Governors also had an exchange of views on the problem of the lender of
last resort in the Euro-markets. They recognized that it would not be practical
to lay down in advance detailed rules and procedures for the provision of tempo-
rary liquidity. But they were satisfied that means are available for that purpose
and will be used if and when necessary."

3 David I. Levine, "Developing Countries and the $150 Billion Euromarket Financing
Problem," Euromoney at 14 (Dec. 1975).

The principal defense against significant problems arising in the banking
industry is appropriate supervisory and regulatory measures to assure that
individual banking institutions are sound and are conducting their business in
a prudent and stable manner.

As a regulated industry in the United States, commercial banks must conform
to strict guidelines related both to the structure of bank management and to
operations (domestic and international). In fulfilling their supervisory responsi-
bilities, the U.S. bank regulatory agencies closely monitor developments through-
out the system and in individual banks. While particular banks have from time
to time run into difficulties, these instances are relatively rare and do not
signify any systemic weaknesses. Moreover, the established bank insurance net-
work in the U.S., funded predominantly by the banks themselves, assure that
almost all depositors will not be jeopardized in the event of bank problems.

Question 4. Name some of the experts to whom Rockefeller's London man re-
ferred and submit for the record their statements on this subject.

Answer. Since David J. Levine, the Executive Director of Chase Manhattan
(London) did not specify which "experts" he was referring to, it is not possible
for the Treasury to identify and submit statements by these experts. There are a
number of experts who have taken the position that defaults by the non-oil de-
veloping countries are not inevitable, and that intervention by governments or
multilateral institutions will not be necessary to avoid default. Included among
these are Robert Solomon of the Brookings Institution (see Brookings Papers on
Economic Activity, 2 :1977 "A Perspective on the Debt of Developing Countries"),
Dr. Irving S. Friedman of Citibank (see "The Emerging Role of Private Banks in
the Developing World," Citicorp, 1977), and Robert S. McNamara, President,
World Bank (see Address to the Board of Governors, Washington, D.C., Septem-
ber 26, 1977).

Question 6. Spell out briefly how the taxpayers in the United States are in-
volved with the World Bank, the International Monetary Fund, and other gov-
ernment, quasi-government, and multinational lending institutions.

Answer. The United States is a member of the World Bank and several other
multilateral lending institutions such as the Inter-American Development Bank
and the Asian Development Bank. The financial obligations of membership in-
clude capital subscriptions and contributions to the hard and soft loan windows
respectively of these institutions. The involvement of the average U.S. taxpayer
derives primarily from the use of general revenues to help meet these obligations.

The benefits from U.S. membership in these institutions are considerable. The
banks contribute to many U.S. economic, humanitarian and political objectives.
In the economic area alone the banks are extremely important as institution
builders. They are a powerful integrating force, encouraging constructive coop-
eration to help increase world output and prosperity. Their emphasis on helping
poor people and poor countries is fully in accord with the priorities of the Carter
Administration. Besides these broad interests which serve the taxpayer, many
U.S. taxpayers derive individual benefits from these banks in the form of pro-
curement, investment income, employment, and increased international trade.

The International Monetary Fund's Articles of Agreement constitute the basic
rules for a cooperative and smoothly operating international monetary system.
In addition, the IMF is the principal official multilateral source of balance
of payments financing. Access to IMF financing is available to members in
support of sound and internationally responsible programs of adjustment, and is
designed to encourage borrowers to initiate needed corrective measures. Access
to IMF resources enables the borrowers to adopt adjustment measures that are
compatible with maintenance of a liberal system of international trade and
payments. Without such financing, member countries might feel compelled to take
recourse to unduly restrictive domestic economic measures, harsh trade and
capital restrictions, or aggressive exchange rate practices in order to reduce
their financing needs. The IMF, therefore, benefits U.S. taxpayers through
promoting an improved international environment, a stronger monetary system,
and an expanding world economy that benefits all segments of the American
economy.

The U.S. quota in the IMF is equivalent to about $7.9 billion and will increase
to approximately $9.9 billion when the sixth quota increase comes into effect,
now anticipated to be in early 1978. The U.S. quota determines U.S. rights to
draw foreign exchange from the IMF, U.S. obligations to provide financing to
the IMF, and U.S. voting power in the IMF. When the U.S. provides financing

to the IMF, it receives in exchange a highly liquid international reserve asset,
usable to meet U.S. balance of payments financing needs.

Question 7. Is the author's statement that "they want the taxpayers of the
creditor countries to pay the bad debts, with the money passing — in theory only —
through the hands of the debtor governments on its way to repay bank loans"
an accurate summarization of the situation?

Answer. It is not the understanding of the Treasury Department that banks
expect or anticipate the taxpayers of creditor countries to bear the risks atao-
dated with the banks' lending decisions. The only exception to this might arise
in the case of loans which are guaranteed by agencies of the U.S. Government.
For a complete statement of government policy toward international lending
by banks, the Committee's attention is directed to the September 20. 1977, testi-
mony of Under Secretary Solomon before the Subcommittee on International
Trade, Investment and Monetary Policy of the House Committee on Banking,
Finance and Urban Affairs.

The Times of London, April 25, 1977, carried a special report on Panama.
Among several articles written by Sidney Wise one was entitled '"Freedom proves
lure to the big banks". This article below gives rise to the following questions :

Freedom Proves Lure to the Big Banks

Besides having a shipping canal, Panama has a money canal through which
flows a stream of offshore funds from most of the world's biggest banks estab-
lished in this rapidly growing international finance centre.

Like the ships that pass through the canal, very few of which stop for un-
loading, most of the money that flows in and out of the foreign banks located in
Panama is in transit.

Behind the attractions which continue to draw banks to open branches in
Panama is the attitude of the Government, which provides unusual freedom of
action.

There is no sign that this attitude will change. On the contrary, although regu-
lations to prevent questionable banking practices have been tightened, the Gov-
ernment is convinced of the benefits which the offshore banking boom has brought
to the country.

Few of the giant international banks are absent from Panama, and it also has
a surprising number of imaginative medium-sized banks. Bank of America, with
$l,S94m, was the biggest in assets at the end of 1975, followed by the First Na-
tional Bank of Chicago with $l,286m and Banco do Brasil with $l,134m.

United States banks are the dominant force, with 13 of the 75 licensed foreign
banks. A total of 24 countries are represented. Spain, Germany, Switzerland and
Canada have four banks; France has three; and Britain two — Standard Char-
tered and the Bank of London and South America, a subsidiary of Lloyds Inter-
national.

Panama's banking boom began shortly after July. 1970, when a new law was
adopted to create a solid, confidence-inspiring banking system while granting
attractive incentives for Panama-based financial operations.

One result of Decree Number 238, the title of the new banking law, was the
cancellation of operating permits of 248 doubtful banks, many of which were non-
operative. This reduced the number of banks to 21. At the same time, a banking
commission was created to supervise a more tightly controlled system of financial
operations.

Panama jealously guards the now internationally recognized image of banking
safety which it has established since the law was adopted. Applications to open
banks are carefully screened and it may be a year or more before permission is
granted.

Only four permits were granted last year. This was a result not only of the
strict requirements of the commission but also of the aftermath of the world
recession and because Panama may be reaching a temporary saturation point
in attracting banks.

Tax incentives have been one of the most powerful stimulants of Panama bank-
ing. Almost total tax exemption in foreign operations is granted to banks estab-
lished in the republic. Tax exemptions also apply to interest earned from savings
accounts and long-term deposits, as well as the interest gained on loans and other
financial transactions originating in Panama with people outside the country.

In addition, foreign loans and deposits are not required to have a cash or legal
reserve.

Rapid growth followed the new banking law. The number of banks rose from
21 to 75, and the total assets of the banking system have increased by almost 3,000
per cent since 1967. Nine years ago total assets were $346m ; now they exceed
S10,000m.

It took more than just tax incentives to accomplish this kind of growth. For
banks with international operations, particularly those in Latin America, it
would be difficult to find a place with more attractions than Panama.

There are no controls over the free flow of capital in or out of the country.
There are no exchange problems since the United States dollar is the legal
tender of Panama, which also eliminates fears of currency devaluation.

Another strong incentive for bank location in Panama is the long-established
record of political and economic stability which the nation has enjoyed.

Moreover, English is the working language of the country, rapid telephone
and cable communications are available and Panamanians, including even Gov-
ernment officials, are surprisingly prompt and punctual for the Latin-American
country.

Domestic loans by all banks in Panama totalled only $233m in 1967. By
1975, they increased sixfold to exceed $l,435m. Since neither Panama's economy
nor credit capacity has grown at more than a small fraction of such a rate of
increase, it seems clear that the banks have made a disproportionate allocation
of local credit.

The presence of so many large foreign banks doing multi-million dollar opera-
tions annually has made it possible for Panama to receive credits to develop
local industry, agriculture and the economy to an extent far beyond what it
might be able to obtain otherwise.

There are three types of banking licenses in Panama. A general license permits
banks to carry out both domestic and international operations. At the end of
last June there were 47 such banks. An international license limits banks to
only foreign operations. There were 19 such financial institutions. A third cate-
gory of license permits only representative banking work. There were five such
licenses.

The fact that Panama has a bank secrecy law and permits numbered accounts
has inspired a description of this tiny nation as "a Latin Switzerland", but it is
clear that Panama grants incentives and privileges to banks operating in its coun-
try of which banks in Switzerland can only dream.

That does not mean that questionable banking practices are allowed, but that
the Government is willing to provide additional attractions to transform Panama
into an increasingly important world trade banking centre.

The very process of expanding Panama as an international banking centre
helps to stimulate its growth as a trading centre and vice versa.

The banks in Panama can have almost unrestricted freedom to carry out au-
thorized financing operations while paying taxes only on domestic profits. There
are no exchange controls, nor is there a central bank, and freedom of capital
transfer and investment is almost unhampered.

Another seemingly logical extension of the present concentration of so many
important banks in Panama is a proposal to create a Latin American multina-
tional foreign trade bank. Exports of manufactured goods from Latin America are
expected to reach $17,000m by 1980.

The proposal is sponsored by Panama and was favourably received at a meet-
ing last September of the Latin American Central Bank governors.

Steps are being taken to increase further the volume and kind of services per-
formed by Panama's financial centre.

On Wednesday Panama's first international banking convention will be held.
Representatives of the international financial community will meet for three days
to discuss future possibilities of the country's banking centre with special regard
to loan syndications, money brokerage, foreign exchange, money management,
bankers' acceptances and investment banking.

Questions 1, 2, 10, and 12. Is it true that "most of the money that flows in
and out of the foreign banks located in Panama is in transit"? If it is true, why
is it necessary for those funds to pass through foreign banks located in Panama?
What special tax advantages may be gained by U.S. commercial banks operating
through Panama branches? What special advantages does Panama offer to com-

mercial banks with regard to loan syndications, money brokerage, foreign ex-
change, money management, bankers' acceptances and investment banking?

Answer. As of end-December, 1976, external liabilities of all banks in Panama
amounted to nearly $8.6 billion while their external assets totalled almost $7.S
billion. That is, over 90 percent of the foreign funds obtained by banks operating
in Panama were in effect relent to residents outside of Panama. While detailed
information on the operations of all foreign-owned banks operating in Panama
is not available, the bulk of the claims and liabilities are on the books of the
foreign-owned banks in Panama.

Regional money or financial centers tend to improve the efficiency of interna-
tional capital markets, for example, by placing banks closer to their exporters
and borrowers. The choice of location depends upon a wide variety of factors,
including the legal environment in the foreign country.

For information concerning tax advantages and other benefits of Panama as
an offshore banking center, please refer to the supplementary information sup-
plied with Deputy Assistant Secretary Xachmanoff's testimony.

Question S. Please submit annual figures dating from January 1970 for total
U.S. dollars going to the Republic of Panama and the number of those dollars
in turn going on to third countries. Break down each category by amounts,
sources of those amounts, country of destination, whether recipient was a gov-
ernment or private entity, and other related information on this flow of funds.
Do the same for Eurodollars.

Answer. Attached are aggregate data on sources and uses of funds of the
Panamanian banking system, 1973-1976. While the Comptroller of the Currency
may have some material possibly relevant to answering some detailed aspects of
this question it does not now have the comprehensive information necessary to
answer accurately the questions relating to geographical breakdown; currency
composition and the identity of borrowers. Also attached are data, published by
the Bank for International Settlements, which provide the information avail-
able on Euro-currency flows. Additional data on bank positions in Panama are
also provided in the answers to several of the other questions.

TABLE 1.-S0URCES AND USES OF FUNDS OF THE PANAMANIAN BANKING SYSTEM
[In millions of U.S. dollars)

1373 1974 1975 1976

I. Local sources:

A. Demand deposits:

Private .

Government

Total.

B. Private time deposits

C. Savings deposits .

D. Other local deposits

E. Other liabilities

F. Capital and reserves

Total, Panamanian sources.

II. External sources:

A. IPC deposits:

Demand

Time

Savings

Total, IPC deposits..

B. Bank deposits:

Demand

Time

Other...

Total, bank deposits.

C. Obligations

D. Other liabilities

Total, external sources...

III. Local uses:

A. Loans

B. Securities

C. Liquid assets in Panama...

D. Other assets

Total, local uses

See footnote at end of table.

5151

$191

$170

(')

250

259

216

$228

219

257

309

322

133

139

155

178

121

122

130

157

206

184

822

928

1.007

1,034

101

129

319

542

1,036

1,165

371

611

1.147

1,308

129

183

1,937

4, 508

5,839

6, 327

113

2, 134

4, 637

5, 904

6, 571

566

162

121

110

113

2, 739

5, 446

7,257

8,558

1,025

1,352

1,525

1,628

102

1,141

1,523

1,732

1,831

TABLE 1.— SOURCES AND USES OF FUNDS OF THE PANAMANIAN BANKING SYSTEM-Continued

1973 1974 1975 1976

IV. External uses:

A. Loans

B. Demand deposits

C. Time deposits

D. Securities

E. Other assets

Total, external uses.

Total assets (total liabilities)

Memo: Net funds supplied to Panamanian economy.

1,314

2, 980

4, 451

4, 743

142

192

335

361

686

1,161

1,198

1,938

197

446

452

626

2, 396

4,847

6,500

7,758

3, 537

6,370

8, 232

9, 589

319

595

725

797

1 Not available.

Source: "The Structure of the Panamanian Banking System," paper delivered by John J. McGuire, Security Pacific
Interamerican Bank, Panama (See appendix.)

Bank for International Settlements,

Monetary and Economic Department,

November 11, 1977.

Eurocurrency and Other International Banking Developments —
Second Quarter 1977

After a seasonal contraction at the beginning of the year, international bank-
ing activity, as measured by external assets of banks in group of ten countries
and of branches of U.S. banks in the principal offshore centers of the Caribbean
and Far East, showed a marked expansion in the second quarter of 1977, by
$26 billion to a total of $573 billion, bringing the increase over the year to
nearly $100 billion ( table 1).

Adopting a somewhat broader perspective and looking at the first half of
1977 as a whole, the rate of growth in the reporting banks' external assets, at
scarcely 5 percent, is seen to have been more moderate than the 8 percent
expansion recorded in the first 6 months of 1976. Apart from the fact that
the seasonal contractionary influences at the beginning of the year seem to have
been stronger than usual, this slow-down reflects primarily smaller increases in
foreign lending by banks in the United States and Canada and an actual decline
in external assets of banks in Japan. On the other hand, the growth of external
assets of banks in the narrowly defined Eurocurrency market accelerated.

Returning to the figure for the second quarter, the external assets of banks
in the eight reporting European countries rose by $17.8 billion, after a $1.7
billion decline in the first quarter. Of this increase, $4.9 billion represented
traditional foreign lending in domestic currency. Of the $12.9 billion growth
in foreign currency assets, about 60 percent was in dollars and 30 percent in
Deutsche mark; assets in sterling and Swiss francs showed no change (table 2).
The bulk of the growth in this Eurocurrency lending was accounted for by the
banks in the principal market centers, that is, in the United Kingdom, France,
Belgium-Luxembourg, and the Netherlands, whereas the external claims of banks
in Italy showed a further decrease (table 1).

TABLE 7.— EXTERNAL POSITIONS IN DOMESTIC AND FOREIGN CURRENCY OF BANKS IN GROUP OF 10 COUNTRIES
AND SWITZERLAND AND OF THE FOREIGN BRANCHES OF U.S. BANKS IN THE CARIBBEAN AREA AND THE FAR

EAST 1

[In millions of US dollars, end-March 1977 (revised)]

Liabil-

Liabilities/assets vis a vis ities Assets
Group of 10:

Belgium-Luxembourg (HCJU)... 22,379 27,074

France (HCJU) 27,522 25,610

Germany, Federal Republic

(HCJU) 20,982 27,555

Italy (HCJU) 9,062 16,743

Netherlands (HCJU) 17,983 11,906

Sweden (HCJU)... 2,432 5,593

Switzerland (CJU)2 61,073 11,276

United Kingdom (HCJU). 73,043 62,363

Canada (HJU) 13,334 10,516

Japan (HCU) 9,099 32,905

United States (HCJ) 59, 955 33, 566

Total 316,864 265,107

See footnotes at end of table.

Liabil-

Liabilities/assets vis a vis ities Assets

Other countries in Western Europe:

Andorra. 59 2

Austria (CU) 4,669 5,162

Cyprus.. 299 122

Denmark (CU) 1,973 5,307

Finland (CU) 855 3,694

Gibraltar 60 5

Greece (CJU)__ 3,038 2,990

Iceland 108 217

Ireland (C) 1,547 1,766

Liechtenstein... 241 318

Malta.. 513 4

Monaco 22

Norway (CU) 2, 038 5, 358

Portugal (CU) 774 1, 042

TABLE 7.— EXTERNAL POSITIONS IN DOMESTIC AND FOREIGN CURRENCY OF BANKS IN GROUP OF 10 COUNTRIES
AND SWITZERLAND AND OF THE FOREIGN BRANCHES OF U.S. BANKS IN THE CARIBBEAN AREA AND THE FAR

EAST'— Continued

[In millions of US dollars, end-March 1977 (revised)— Continued

Liabilities/assets vis a vis

Liabil-
ities

Other countries in Western Europe-
Continued

Spain (CU).. 5,491

Turkey (CJU) 455

Vatican 122

Yugoslavia (CJU) 1,700

Residual (HCJU) 5,817

Total 29, 781

Other developed countries:

Australia (CU) 794

New Zealand (C)... 268

South Africa (CU)... 656

Residual (HCJ) 305

Total 2,023

Eastern Europe: 3

Albania... 91

Bulgaria... 307

Czechoslovakia 414

German Democratic Republic... 609

Hungary 935

Poland (U) 558

Rumania 210

Soviet Union (CU) 2,054

Residual (HCJU) 401

Total 5, 579

Caribbean area:

Bahamas (JU) 16,695

Barbados 68

Bermuda (JU) 3,550

Cayman Islands (U)<_ * 8, 286

Cuba(JU).. 145

Dominican Republic. 6

Haiti.. 10

Jamaica 35

Netherlands Antilles (U) L 657

Panama (JU) 4,695

Trinidad and Tobago (U) 591

West Indies (UK)(U) M73

Residual (HCJU). 3,084

Total 39, 295

Latin America:

Argentina (JU) 3,169

Belize 20

Bolivia 112

Brazil (JU) 5,320

Chile(JU) 700

Colombia (JU) 1,180

Costa Rica. 82

Ecuador (JU) 561

El Salvador 120

Guatemala 160

Guyana 25

Honduras 87

Mexico (JU) 4,557

Nicaragua 128

Paraguay 44

Peru(JU) 454

Surinam 136

Uiuguay(U) 661

Vene?uela(JU) 7,599

Residual (HCJU) 5,261

Total 30,376

Assets

8,139
2,311
62
2,349
5,136

Liabilities/assets vis a vis

Liabil-
ities

Assets

43, 984

2,693
855
6, 962
1,524

12, 034

1,961
1,044
3,719
2,976
5, 945
798
9, 425
2,581

28, 449

36, 051
38
924
5 9,981
993
160
19
338
1,516
7, 749
43
5 217
5, 833

63, 862

3, 315
10
353
20, 540
1, 100
1,662
243
979
121
164
82
164
18, 141
362
45
3,006
13
188

5, 292

6. 039

61,819

Middle East:

Oil-exporting countries (J): *

(a) Low absorbers: Ku-

wait, Qatar, Saudi
Arabia, and United

Arab Emirates 30,917 2,396

(b) High absorbers: Bah-

rain, Iran, Iraq,

Libya, and Oman 12, 875 7, 409

Other countries:

Egypt(JU) 2,027 1,298

Israel(JU). 2,983 1,997

Jordan.... 493 88

Lebanon (U) 2,983 473

Syria (U) 459 250

Yemen 659 25

Yemen People's Democra-
tic Republic 193 9

Residual (HCJU)' 9,212 2,648

Total 62,801 16,593

Other Africa:

Afars and Issas (French terri-
tory)... 29 6

Algeria (J). 2,383 1,835

Angola.. 108 40

Benin 42

Botswana/Lesotho 15 77

Burundi.. 23

Cameroon. 78 82

Canary Islands.. 8

Central African Empire 16 2

Chad 12 6

Congo. 54 68

Ethiopia 298

Gabon.. 100 310

Ghana (U).. 161 92

Guinea 9 33

Ivory Coast... 519 363

Kenya (J) 506 89

Liberia (JU) 1,339 4,625

Malagasy.. 57 3

Malawi 50 55

Mali 13

Mauritania 71 23

Mauritius 32 3

Morocco (U) 1,020 629

Mozambique 93 1

Namibia. 13

Niger 33 19

Nigeria (J) 559 322

Rhodesia 45 7

Rwanda 67 3

Senegal 75 59

Sierra Leone 46 16

Somalia 72 4

Sudan.... 142 322

Swaziland 57

Tanzania.. 203 12

The Gambia 8 3

Togo 34 24

Tunisia 241 93

Uganda 57 18

Upper Volta 15 4

Zaire (U) 370 806

Zambia (J) 164 391

Residual (CU) 1,090 1,619

Total 10, 306 12, 088

Sea footnotes at end of table.

TABLE 7.— EXTERNAL POSITIONS IN DOMESTIC AND FOREIGN CURRENCY OF BANKS IN GROUP OF 10 COUNTRIES
AND SWITZERLAND AND OF THE FOREIGN BRANCHES OF U.S. BANKS IN THE CARIBBEAN AREA AND THE FAR

EAST 1 — Continued

[In millions of US dollars, end-March 1977 (revised)— Continued

Liabilities/assets vis a vis

Other Asia:

Afghanistan..

Bangladesh

Brunei

Burma

Cambodia

China (U)

Fiji- ..—

French Polynesia

Hong Kong(JU).

India (JU)

Indonesia (JU)

Korea, North

Korea, South (JU)

Malaysia (JU)....

Nepal

New Hebrides

Pakistan (JU)

Liabil-

ities

Assets

912

2,015

301

5,919

7, 688

1,292

444

1, 829

3, 506

140

396

2,411

4, 036

1, 639

1.08O

100

391

174

Liabil-

Liabilities 'assets vis a vis ities

Other Asia— Continued

Papua New Guinea 101

Philippines (JU) 1,703

Sikkim/Bhutan. 7

Singapore (HJU) 7,541

Sri Lanka 49

Taiwan (JU) 2,624

Thailand (JU) 1,053

Vietnam 150

Residual (CU) 1,102

Total 31,280

International institutions (U) 3, 495

Unallocated HCJU 10, 131

Grand total 541,931

Memorandum item: Oil-exporting

countries (HJU) 66,953

Assets

132
2, 432
15
9, 437
19
2,717
1,561
59
983

35, 217
1, 534
6,414

547, 101
25.415

1 Foreign branches of U.S. banks in the Bahamas, Cayman Islands, Panama, Hong Kong, and Singapore.

2 The positions vis a vis the BIS are included under Switzerland, except for the U.S. banks v.hich report them under
the residual for "Other countries in Western Europe."

» Excluding positions of banks located in Germany vis a vis the German Democratic Republic.

* Figures for the U.S. banks' liabilities and assets vis a vis the Cayman Islands ate estimates based on other statistical
raports.

5 Revised.

• Includes positions of Japanese banks vis a vis Kuwait, Saudi Arabia, United Arab Emirates, Iran, Iraq, and Libya only.
' Includes partly on an esiimated basis the positions of U.S. banks vis a vis Middle Eastern countries other than Egypt,

Israel, Lebanon, Syria, and Libya (which is included under the residual for "Other Africa").

Note: A full country breakdown of the reporting banks' liabilities and assets is available only for banks in Belgium-
Luxembourg, France, Germany, Italy, the Netherlands, Sweden and the United Kingdom, and for the branches of U.S.
banks in the Caribbean area and the Far East. For banks in the other reporting countries— Canada, Japan, Switzerland
and the United States— the country breakdown is less than complete and its extent is indicated by the use of the letters
C (Canada), J (Japan), H (Switzerland) and U (United States). The liabilities of banks in the United States exclude U.S.
Treasury bills and certificates held in custody by the banks on behalf of nonresidents.

Excluding the double-counting resulting from the redepositing of funds be-
tween banks within the reporting area but allowing for the use of Euro-currency
funds for domestic lending, the second-quarter growth of the narrowly defined
Euro-currency market may be estimated to have amounted to about $12 billion
(Table 5). This raised the total volume of Euro-credit to $267 billion, or 22 per
cent above its year-earlier level. On the uses side of the market, the most notable
feature during the second quarter was the continued strength of demand for
Euro-currency funds from within the reporting European area itself. The absorp-
tion of funds inside the area rose by nearly $7 billion, the bulk of which repre-
sented direct foreign currency lending to the non-financial sector. The largest
single item was an expansion by $2.8 to $7.8 billion in foreign currency credits
extended to domestic borrowers by banks in Italy (Table 4). The counterpart of
this domestic Euro-currency lending was a further increase of $2.9 billion in the
Italian banks' net external borrowing in foreign currency. As a result, the Italian
banks' net external position has shifted from balance at the end of 1975 to net
liabilities of $6.9 billion, thereby financing considerably more than the whole of
the Italian current-account deficit during this 18-month period. In the second
quarter of 1977, moreover, there were sizable increases in the reporting banks'
Euro-currency credits to the non-bank sectors of most of the other countries
inside the area, notably Sweden.

Outside their own area the European banks' claims dropped by $3.2 billion
vis-a-vis Japan, but rose by about $8.5 billion vis-a-vis the rest of the world.
Of this, $2.1 billion was channelled to offshore centres. In addition, credits to oil-
exporting countries rose by $1.5 billion, for the third quarter in succession ; lend-
ing to developed countries outside the Group of Ten also went up by $1.5 billion
and lending to eastern Europe by $1.2 billion. Claims on non-oil developing coun-
tries, which had remained flat during the first quarter, also showed some increase.

On the sources side of the market, about half of the new funds were supplied
from within the reporting area itself. Direct deposits by non-banks inc reased by
$1.5 billion and deposits by official monetary institutions rose by $2.3 billion, the

remaining $2.2 billion being provided by other financial institutions and the
reporting banks themselves.

From outside the reporting area the main sources of new funds were the
United States (+$3.7 billion), the oil exporters (+$3.2 billion) and the offshore
centres of the Caribbean and Far East (+$1.4 billion). There was, moreover,
a further substantial increase of $1.4 billion in deposits by developing countries,
which raised the total amount of funds received by the market from this group
of countries to $24.8 billion, or $7.7 billion above the year-earlier level. As claims
on these countries went up by only $4.2 billion over the same twelve-month
period, the Euro-banks' net asset position vis-a-vis developing countries has
dwindled from $4.2 billion to only $0.7 billion.

On the other hand, deposits by Japan declined by $1.8 billion during the second
quarter and there were some withdrawals of funds from the market by Canada
and by eastern European countries. Reflecting the weakness of balanee-of-pay-
ments positions, deposits by "other developed countries" showed no increase.

Turning to other international financial centres, the external assets of banks
in the United States, after a $3.4 billion drop in the first quarter of the year,
went up again by $5.4 billion (Table 1). The resultant $2 billion increase in the
first half of the year compares with a $8.4 billion expansion in the first six months
of 1976. This slowdown has to be seen in the context of the deterioration of the
US balance-of -payments position which tends both to reduce balance-of-pay-
ments financing requirements in the rest of the world and to add. largely in the
form of official deposits, to the supply of funds to the Euro-currency market. The
greater part of the second-quarter increase in the US banks' external assets was
recorded vis-a-vis other Group of Ten countries. Claims on the offshore centres
of the Caribbean and Far East went up by $1.5 billion and direct claims on non-
oil developing countries by only $0.4 billion, while there was little increase
elsewhere.

The rate of growth of the external assets of the US banks' branches in the
offshore centres of the Caribbean area and Far East dropped from 25 percent
in the first half of 1976 to about 12.5 percent in the first half of 1977. In absolute
figures the slowdown was. however, much less pronounced and growth remained
rapid by any standards. Roughly half of the $6.3 billion second-quarter expan-
sion in the external assets of these branches were lent directly to developing
countries and oil exporters. Claims on the United States edged up by only $0.3
billion, whereas liabilities to the US bank and non-bank sectors rose by $2.7
billion.

The introduction as from June 1977 of a reserve requirement on their short-
term external liabilities tended to induce banks in Japan to shift their foreign
business to their affiliates abroad. This may. in fact, have been a major influ-
ence behind the second-quarter drop in external assets and liabilities by $2.S
and 3.4 billion respectively reported by banks in Japan. Moreover, the $0.6 billion
decline, from $7.8 to 7.2 billion, in the banks' net. external debtor position seems
to have been related to the strong Japanese balance-of-payments position and
official encouragement given to the banks to increase gradually the yen com-
ponent in the financing of Japanese imports.

Looking again at the broadest available measure of international bank lend-
ing, about $14 billion of the second-quarter growth in the external assets of banks
in Group of Ten countries and of branches of US banks in the offshore centres
represented claims within this wider reporting area, a figure which is inflated
by a substantial amount of double-counting due to redeposits between the report-
ing banks themselves. Claims outside this area rose by about $12 billion (Table
6). The largest item In the increase was $4 billion of new lending to western
European countries outside the Group of Ten, with Spain. Denmark and Norway
the largest takers of new funds (Table 7). In fact, at the end of June total claims
on non-Group of Ten western European countries exceeded their year-earlier
level by $13 billion, whereas over the same period liabilities to these countries
edged up by only about $1 billion. This clearly illustrates the important role that
the banks in the international markets have been playing in financing the cur-
rent-account deficits of this group of countries.

Claims on oil-exporting countries, which had already expanded rapidly in pre-
ceding quarters, rose by another $3.5 billion to $29.6 billion, or 71 percent above
their mid-1976 level. Liabilities to oil-exporting countries went up by $4.4 billion
to a total of $72.4 billion. Venezuela and — perhaps somewhat surprisingly — the
Middle Eastern "high absorbers" were the largest suppliers of new funds, but
also the largest borrowers. Deposits received from the "low absorbers" showed
only a relatively modest increase.

Claims on developing countries went up by $2.4 billion, or by $0.3 billion less
than the deposits obtained from those countries. As in the case of the European
countries outside the Group of Ten, the year-on-year increase in gross claims
totalled $13 billion, but virtually the whole of this amount had as a counterpart
an increase in the reporting banks' liabilities to the developing world, a develop-
ment which reflects the very substantial improvement in the international re-
serve position of this group of countries over the last year or so. The second-
quarter expansion in claims on developing countries was spread over a fairly
large number of countries, with Brazil and Mexico together accounting for only
about $0.9 billion of new takings. Similarly, the supply of new deposits came
from quite a broad range of countries, the largest individual item being $0.5
billion of new funds received from China.

Claims on eastern Europe, which had declined by $0.6 billion during the first
quarter, went up by $1.4 billion. At the same time, withdrawals of deposits by
eastern European countries, after amounting to $2.1 billion in the first quarter,
slowed down to $0.1 billion, which meant that the increase in eastern Europe's
net indebtedness to the reporting banks, at $1.5 billion, was the same as in the
first quarter.

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TABLE 6. — EXTERNAL POSITIONS, IN DOMESTIC AND FOREIGN CURRENCY, OF BANKS IN THE GROUP OF 10 COUN-
TRIES AND SWITZERLAND AND OF THE FOREIGN BRANCHES OF U.S. BANKS IN THE CARIBBEAN AREA AND
THE FAR EAST i

[In billions of U.S. dollars]

1976 1977

1975,

Decern- Septem- Decem-

ber June ber ber March June

Banks' claims on:

Group of 10 countries and Switzerland

Of which:

Reporting European area

United States

Canada

Japan

Offshore banking centers 2

Other countries in Western Europe

Australia, New Zealand, and South Africa.

Eastern Europe -.

Oil-exporting countries

Nonoil developing countries

Of which:

Latin America 3

Middle East

Other Asia

Other Africa

Unallocated 4

Total

Banks' liabilities to:

Group of 10 countries and Switzerland

Of which:

Reporting European area

United States

Canada

Japan

Offshore banking centers 2

Other countries in Western Europe

Australia, New Zealand, and South Africa-
Eastern Europe

Oil-exporting countries

Nonoil developing countries

Of which:

Latin America 3

Middle East

Other Asia

Other Africa

Unallocated *

Total

235 1

241.0

248.8

270.2

265. 1

274.7

165.4

166.0

170.8

193.4

188.1

199.7

30 7

32 1

33 8

33 3

33 6

7.1

8.' 6

9.3

9.' 4

10.' 5

io!s

31.9

34.3

34.9

34. 1

32.9

30.2

61.9

72.5

76.7

83.5

84.8

89.0

31.8

35.0

38.3

42.7

44.0

48.0

9.0

10.7

11.4

11.8

12.0

12.3

21.6

25. 1

26.8

29.0

28.4

29.8

14.3

17.3

20.0

24. 1

26. 1

29.6

63.0

70.2

73.5

80.9

80.8

83.2

43.5

49.6

51.8

57.4

57.1

58.1

3 3

3 2

3. 5

4 4

4 1

12.9

13.9

14.3

14.7

15.1

16.1

3.3

3.5

3.9

4.4

4.6

4.9

5.0

4.9

4.6

5.4

5.9

6.2

441.7

476.7

500. 1

547.6

547. 1

572.8

270. 1

284. 3

294. 4

320. 5

316. 9

332. 6

209.1

210.6

216.5

241.4

234.5

247.6

42.0

51.9

54.2

56.3

60.0

65.7

9.9

11.8

12.6

13.3

12.2

9.1

10.0

11.1

10.2

9.1

7.1

40.8

49.4

51.4

56.0

57.0

61.8

31.1

29.4

31.1

32.6

29.8

30.5

2.1

2.2

2.1

2.4

2.0

2.4

6.3

6.2

6.1

7.7

5.6

5.5

51.8

54.6

59.1

64.2

68.0

72.4

37.0

41.8

43.5

49.8

51.8

54.5

16.3

17.6

17.7

22.3

22.1

22.6

6.0

6.9

7.3

7.6

8.2

10.6

12.6

13.7

14.9

16.0

17.8

4.1

4.7

5.2

5.3

6.1

5.9

7.9

8.8

8.4

10.4

10.8

11.4

447.1

476.7

496.1

543.6

541.9

571.1

1 Foreign branches of U.S. banks in the Bahamas, Cayman Islands, Panama, Hong Kong, and Singapore.

2 Bahamas, Barbados, Bermuda, Cayman Islands, Hong Kong, Lebanon, Liberia, Netherlands Antilles, New Hebrides
Panama, Singapore, West Indies.

3 Including those countries in the Caribbean area which cannot be considered as offshore banking center?.
Including! nternational institutions

Note: The figures in this table are partly based on estimates.

TABLE 7.— EXTERNAL POSITIONS IN DOMESTIC AND FOREIGN CURRENCY OF BANKS IN GROUP OF TEN COUNTRIES
AND SWITZERLAND AND OF THE FOREIGN BRANCHES OF US BANKS IN THE CARIBBEAN AREA AND THE FAR EAST ■

[Amounts in millions of US dollars end-June 1977J

Liabilities/assets vis-a-vis

Liabilities Assets

Group of 10:

Belgium-Luxembourg (HCJU). . 22, 643 28, 178

France (HCJU). 30,774 27,614

Germany, Federal Republic

(HCJU) 22,267 29,103

Italy (HCJU) 8,784 17,633

Netherlands (HCJU) 20,158 14,333

Sweden (HCJU).... 2,852 6,746

Switzerland » (CJU). 65,185 12,367

United Kingdom (HCJU) 74,916 63,687

Canada (HJU) 12,238 10,840

Japan (HCU). 7,068 30,162

United States (HCJ) 65,675 33,997

Total 332,560 274,660

Other countries in Western Europe:

Andorra. 74 1

Austria (CU) 4,983 5,460

Cyprus.... 377 126

Denmark (CU) 2,173 6,345

Finland (CU) 811 3,702

Gibraltar... 53 4

Greecd(CJU) 3,091 3,142

Iceland 119 244

Ireland (C)_... 1,608 1,852

Liechtenstein... 274 64

Malta 529 9

Monaco... 44

Norway (CU) 2,279 5,894

Portugal (CU) 773 1, 180

Spain (CU) 5,242 8,946

Turkey (CJU) 531 2,407

Vatican. 130

Yugoslavia (CJU) 1,632 2,503

Residual (HCJU) 5,820 6,161

Total 30,543 48,040

Other developed countries:

Australia (CU) 876 2,993

New Zealand (C) 271 827

South Africa (CU) 774 6,883

Residual (HCJ) 466 1,612

Total 2, 387

Eastern Europe: *

Albania 70

Bulgaria. 308

Czechoslovakia 425

German Dem. Rep 626

Hungary... 748

Poland (U).. 538

Rumania 134

Soviet Union (CU) 2,259

Residual (HCJU). 397

Total 5,505 29,817

Caribbean area:

Bahamas (JU) 18,907 38,318

Barbados 32 13

Bermuda (JU) 3,541 898

Cayman Islands (U)<... 9,970 11,471

Cuba(JU). 215 1,085

Dominican Republic 9 163

Haiti. 9 15

Jamaica" 68 321

Neth. Antilles (U) 1,770 1,438

Panama (JU). 4,844 7,829

Trinidad and Tobago (U) 560 64

West Indies (French) 12

West Indies (United KingdomXU) 455 333

Residual (HCJU). 2,903 5,128

Total 43,295 67,076

Liabilities/assets vis-a-vis

Liabilities Assets

12,315

23
2,068
1,131
3,799
3, 121
6, 148
903
9, 968
2,656

Latin America:

Argentina (JU) 3,493

Belize 20

Bolivia 172

Brazil (JU).. 5,452

Chile (JU)... 694

Colombia (JU). 1,212

Costa Rica. 99

Ecuador (JU). 515

El Salvador 198

Guatemala 151

Guyana. 34

Honduras 89

Mexico (JU). 4,507

Nicaragua... 93

Paraguay 90

Peru (JU) 350

Surinam.. 127

Uruguay (U).. 547

Venezuela (JU) 8,908

Residual (HCJU) 5,387

Total 32,138

Middle East:

Oil-exporting countries (J): *

(a) Low absorbers: Kuwait,

Qatar, Saudi Arabia,
and United Arab

Emirates 31, 290

(b) High absorbers: Ba-

hrain, Iran, Iraq,

Libya, and Oman 15, 124

Other countries:

Egypt (JU) 2,381

Israel (JU) 3,039

Jordan 491

Lebanon (U) 3,051

Syria (U).. 615

Yemen 736

Yemen People's Democra-
tic Republic 240

Residual (HCJU) 6 9,157

Total 66, 124

Other Africa:

Algeria (J) 2,221

Angola 161

Benin 42

Botswana/Lesotho 13

Burundi. 29

Cameroon 72

Canary Islands 1

Central African Empire 21

Chad 8

Congo 64

Djibouti 38

Ethiopia 333

Gabon 103

Ghana (U)._. 145

Guinea 8

Ivory Coast... 443

Kenya (J) 689

Liberia (JU) 1,217

Madagascar Democratic Repub-
lic 52

Malawi 76

Mali 14

Mauritania 44

Mauritius 20

Morocco (U) 682

Mozambique 92

Niger.... 36

Nigeria (J) 621

Rhodesia 45

Rwanda 70

Senegal 77

3, 360
8

375
20, 845

1,220
L 543
259
1,182
132
160
43
152
18, 726
353
54
3,083
7

176
6, 383
6, 107

64, 168

3, 085

8, 470

1,295
1,971
103
457
307
30

2, 726

18, 453

1,925
42
3
41

93
7
1
6

62
1
2

354
85
40
416
111
,745

59
1

541

16
368

53
2

TABLE 7. — EXTERNAL POSITIONS IN DOMESTIC AND FOREIGN CURRENCY OF BANKS IN GROUP OF TEN COUN-
TRIES AND SWITZERLAND AND OF THE FOREIGN BRANCHES OF US BANKS IN THE CARIBBEAN AREA AND THE FAR
EAST i— Continued

[Amounts in millions of US dollars end-June 19771

Liabilities/assets vis-a-vis Liabilities Assets

Liabilities/assets vis-a-vis

Liabilities Assets

331
10

6
26
80
16

812
389

Sierra Leone 55 12

Somalia.... 76

Spanish North Africa 53 .

Sudan.. 151

Tanzania 231

The Gambia 23

Togo 35

Tunisia 200

Uganda 63

Upper Volta. 11

Zaire (U)___ 455

Zambia (J).... 181

Residual (CU). 1,249 1,881

Total. 10,220 12,669

Other Asia:

Afghanistan. 90 9

Bangladesh 66 12

Brunei - 1,035 22

Burma. 24 13

China (U) 2,456 379

Fiji. 25 19

French Polynesia... 10 61

Hong Kong (J U)... 6,053 8,064

India (JU). 1,522 441

Indonesia (JU)

Kampuchea Democracy..

Korea, North

Korea, South (JU)..

Malaysia (JU)

Nepal.

New Hebrides

Pakistan (JU)

Papus New Guinea

Philippines (JU)

Sikkim/Bhutan

Singapore (HJU)..

Sri Lanka

Taiwan (JU)

Thailand (JU)...

Vietnam.

Residual (CU)

Total

International institutions (U).
Unallocated (HCJU)

Grand total...
Memorandum item:
countries (HJU)...

Oil-exporting

2, 151

3, 540

415

2,643

4, 479

1,862

1, 334

119

450

208

150

223

1,699

2, 367

8, 423

9, 654

2,865

3,091

1,099
88

1,618

1,520

1,121

34, 558

37, 287

5, 235

1,779

8, 524

6,577

571, 089

572, 841

71, 37S

28, 857

1 Foreign branches of U.S. banks in the Bahamas, Cayman Islands, Panama, Hong Kong, and Singapore.
1 The positions vis a vis the BIS are included under Switzerland, except for the U.S. banks which report them under
the residual for "Other countries in Western Europe."
a Excluding positions of banks located in the Federal Republic of Germany vis a vis the German Democratic Republic.

* Figures for the U.S. banks 'liabilities and assets vis a vis the Cayman Islands are estimates based on other statistical
reports.

6 Includes positions of Japanese banks vis a vis Kuwait, Saudi Arabia, United Arab Emirates, Iran, Iraq, and Libya only.

• Includes partly on an estimated basis the positions of U.S. banks vis a vis Middle Eastern countries other than Egypt,
Israel, Lebanon, Syria, and Libya (which is included under the residual for "Other Africa").

Note: A full country breakdown of the reporting banks' liabilities and assets is available only for banks in Belgium-
Luxembourg, France, Germany, Italy, the Netherlands, Sweden, and the United Kingdom, and for the branches of U.S.
banks in the Caribbean area and the Far East. For banks in the other reporting countiies— Canada. Japan. Switzerland
and the United States— the country breakdown is less than complete and its extent is indicated by the use of the letters
C (Canada), J (Japan), H (Switzerland) and U (United States). The liabilities of banks in the United States exclude U.S.
Treasury bills and certificates held in custody by the banks on behalf of non-residents.

Question 4. Submit names of the 13 (or more) U.S. banks operating in
Panama. List total assets of those banks and assets of the branches in Panama,
if permissible. Do the same for the other 62 (or more) foreign commercial
banks operating in Panama, if available.

Answer. The list of U.S. branches operating in Panama is provided in re-
sponse to Question 14, below. The total assets of most of the U.S. and foreign
banks which operate in Panama are shown on the attached table (excerpted
from The Banker 1 , June, 1977). While the Comptroller of the Currency may
have some material concerning the assets of the Panamanian branches of indi-
vidual U.S. banks, it does not now have the comprehensive information neces-
sary to answer the question accurately.

1 Subcommittee note : The Banker "Top 300" list of the World's leading commercial banks.
Assets of those U.S. and foreign banks which operate in Panama (Answer to Question 14)
possibly may be found in this compilation.

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Question 5. Please submit a copy of decree No. 238, the July 1970 Banking

Law of Panama.
Answer. Attached is a copy of decree No. 238.

Cabinet Decree Number 238

[July 2, 1970]

Whereby the banking system is amended and the National Banking Commis-
sion is established.

The Provisional Board of Government
Decrees :
Preliminary Title
chapter i

Scope of its Application and Definitions.

Article (1) — This Cabinet Decree shall apply to Banks organized in accord-
ance with Panamanian laws engaged in banking business in Panama, or abroad
and to Banks organized abroad engaged in banking business in Panama.

Paragraph : Only juridical persons may engage in the banking business.

Article (2) — For the purposes of this Cabinet Decree, the terms hereinafter
set forth, shall have the following meaning :

(a) "Bank": Every juridical person engaged in the banking business, other
than the Savings and Loan Associations authorized according to the laws;

(b) "Banking Business": Primarily the act of obtaining financial resources
from the public through the acceptance of demand or time deposits of money or
through any other means authorized by the pertinent law T ; and the use, on ac-
count and risk of the bank, of such resources for loans, investments, or any
other transactions authorized by law or banking practices.

(c) "Establishment": Any office, branch or agency of a Bank conducting all
or any of the banking activities or businesses ;

(d) "Commission": The National Banking Commission;

(e) "Commissioners" : The Members of the National Banking Commission;

(f) "Demand Deposits" : All those payable on demand;

(g) "Time Deposits": All those which are not payable on demand. They are
divided into two categories : Fixed Time Deposits and Savings Deposits ;

(h) "Local Deposits".

1. Deposits payable to natural persons residing in Panama ;

2. Deposits payable to juridical persons organized in accordance with Pana-
manian laws and which earn taxable income in Panama, excepting only from
this definition juridical persons whose income is derived from sources outside of
the national territory; and

3. Deposits payable to foreign juridical persons with branches qualified to
operate in Panama and whose deposits are in fact under the control of the
Panamanian branch;

(i) "Foreign Deposits" : All those which are not "local deposits";

(j) "Unsecured Credit Facilities": Those granted without real collateral or,
if collateral is furnished the value thereof is lower than the sum owed;

(k) "Assigned Capital" : That part of the paid-in capital stock which any bank
organized under foreign laws, attributes, assigns or pledges to its banking busi-
ness in Panama, through its Panamanian branch:

(1) "Productive Assets": The loans and investments placed economically in
the Republic of Panama ;

(in) "Capital Reserve": That which is created from funds originating from
profits made or from other sources, which are accumulated in order to strengthen
the financial condition of the Bank;

(n) "Representativt Office": Those established to act as representatives of
Banks, but which do not engage in banking business on their own account;

(o) "Mortgage Bank": A Bank whose i>ortfolio of loans consists of at least
seventy five (75%) percent of mortgage loans with a term of not less than five
(5) years:

(p) "Contingent Credit": That which is granted to Banks engaged in banking
business in Panama, by another Bank outside of Panama or in the case of

Branches or Agencies of foreign Banks, by their Home Office. This credit must
be granted in accordance with the terms and conditions established by the
Commission ;

(q) "Interest" : The sum or sums which in any form or under any other name
are collected or paid for the use of money.

Title L — National Banking Commission

CHAPTER I. GENERAL PROVISIONS

Article (3) — The National Banking Commission is created and assigned to
the Ministry of Planning and Economic Policy.

Article (4) — The Commission shall have the following objectives, aside from
those assigned by this Cabinet Decree :

(a) To insure that the solidity and efficiency of the Banking System is main-
tained so as to promote monetary and credit conditions conducive to the stability
and sustained growth of the national economy.

(b) To strengthen and promote the proper conditions for the development of
Panama as an international financial center.

CHAPTER II. ORGANIZATION

Article (5) — The Commission shall be composed of seven (7) members with
a right to speak and vote, as follows :

(a) The Minister of Planning and Economic Policy who will preside over it;

(b) The Finance and Treasury Minister.

(d) Three (3) representatives of the Banks, who must be Panamanian citi-
zens, domiciled in the Republic and Bank officials.

They shall be appointed by the Executive Body from a list of three (3) names
to be submitted by the Panama Banking Association, and

(e) One member appointed by the Executive Body who cannot be a Bank
director, officer or employee.

Article (6) — The Commission shall have a Technical Secretariat that shall
be headed by a Secretary and shall be staffed by the personnel deemed necessary
to dicharge its duties. The Secretary shall attend the meeting of the Commission
with a right to speak only.

The personnel, the records, the files and property of the Technical Secretariat
of the National Banking Commission shall be transferred to the Ministry of
Planning and Economic Policy.

Article (7) — The alternates of Minister of Planning and Economic Policy, the
Finance and Treasury Minister and the General Manager of the National Bank
of Panama shall be the Economic Planning and Policy Vice Minister, the Finance
and Treasury Vice-Minister and the General Manager of the Savings Bank,
respectively.

Article (8) — Each representative of the Banks shall have an alternate ap-
pointed in the same manner as his principal.

Article (9) — The Commissioner appointed according with paragraph (e) of
Article 5 shall have an alternate appointed in the same manner as his principal.

Article (10) — The Commissioners as well as their respective alternates, shall
be appointed for a period of three (3) years by the Executive Body and with
adhonorem status.

Transitory Paragraph : The terms of the first Commissioners proposed by
the Banking Association of Panama and their alternates will be of 1, 2 and 3
years respectively, so that the terms of a Commissioner and his alternate ends
each year. The term which corresponds to each one of them will be determined
by casting lots at the first meeting of the Commission.

Article (11) — The Commissioners may be removed only by the Executive
Body at the request of five (5) Commissioners, if any of the following circum-
stances occur:

(a) They are permanently disabled to discharge their duties ;
(l>) They are declared bankrupt or are found in an evident state of in-
solvency ;

(d) They no longer meet the requirements which were established for their
appointment. In case of removal of any of the appointed Commissioners, the

vacancy shall be filled by his alternate until a new principal be chosen and
appointed for the remainder of the term of the removed Commissioner

Article (12)— In case of temporary and permanent absences and until such
time as a new appointment is made, the Commissioners shall be replaced bv
their respective alternates. 1 :

Article (13)— The Commissioners referred to in Paragraph (d) of Article 5
shal be disqualified from acting when the Bank of which they are Officers is
involved m the issues to be considered by the Commission.

Article (14)— The functions of the Commission, in addition to those other
specifically assigned in this Cabinet Decree, are the following :

(a) To meet at least every two months and, also whenever convened by the
President of the Commission or at the request of at least three commissioners •

(b) To decide on such matters as are submitted by the President the Sec-
retary or any of the members of the Commission ;

(d) To assist the Executive Branch in regulating the provisions of this
Cabinet Decree and to establish its own internal bylaws, subject to the approval
of the Executive Body ;

(e) To recommend to the Executive Body the appointment of the subordinate
personnel which the Commission may need to properly discharge its functions •
and

(f) To determine, within the administrative sphere, the interpretation and
scope of legal provisions on banking matters.

Article (15) — The decisions of the Commission shall be adopted by an ab-
solute majority, except in those cases especially covered by this Cabinet Decree.

The presence of at least five (5) commissioners shall be required to constitute
quorum.

Title II. — The Banking System

CHAPTER I. — QUALIFICATION

Article (16) — Except for the Official Banks, no person shall engage in banking
business without previously having obtained the proper authorization from the
Commission, through the issuance of the respective license.

Three (3) types of licenses shall be issued, to wit :

General License : Which shall be issued to Banks organized under Panamanian
laws and to authorized branches of Banks organized under foreign laws to
engage in banking business both within or outside of Panama ;

International License: Which shall be issued to Banks organized in accord-
ance with Panamanian laws and to authorized branches of banks organized
under foreign laws to conduct, exclusively, from an office established in Panama,
transactions which are completed, accomplished or are intended to take effect
outside of Panama.

License of Representation : Which shall be issued to the Banks organized
in accordance to foreign laws to establish exclusively representative offices in
Panama.

Paragraph: The Commission shall extend to every Bank currently operating
in the Republic and which is duly authorized by the Commission, the license
appropriate to its activities according to those mentioned in the preceding
paragraphs.

Article (17) — At the time this Cabinet Decree becomes into effect, the licenses
to engage in banking business which are in force at such time will be considered
valid for a period of up to one (1) year, a term that may be extended for an ad-
ditional year when, in the judgment of the Commission, there exist justifiable
causes therefor. Within this period, the holders of the aforementioned licenses
must comply with the provisions of Article 30 and 31, in order that they be
issued a license in accordance with the present Cabinet Decree. Notwithstanding
the foregoing, the banks organized in accordance with Panamanian laws, the
75 percent of the stock or shares of which, at least, are owned by natural persons
who are citizens of Panama or foreigners with more than five (5) years of resi-
dence in Panama, will have a period of five (5) years, within which they must
comply with the provisions of the aforementioned Articles 30 and 31 of this
Cabinet Decree.

Article (18) — With the exception of national institutions or associations which
are exclusively engaged in humanitarian or charitable activities, no person who
is not an authorized Batik shall use in its name, corporate name, description or
denomination, in invoice headings, letter paper, notices, announcements or in

any other form, the word "bank" or derivatives thereof, in any language, which
may lead to believe that it is engaging in banking business.

Paragraph : Notaries are forbidden ito authorize public documents or copies
thereof, acts, statements or instruments proper to their office and to authenticate
signatures which violate the provisions of this article. The Public Registry Office
is forbidden likewise, as far as its recordings are concerned. At the time this
Cabinet Decree becomes effective, companies already registered, organized ac-
cording to Panamanian laws, or qualified to do business in the Republic, and
whose denomination or corporate name violates the provision of this Article, shall
have a period of 90 days within which to dissolve voluntarily, secure a license
from the Commission to engage in banking business, or amend their charter to
change their denomination or corporated name. Once this period has expired,
the Commission shall so notify the Director General of the Public Registry so
that he will proceed to add a marginal note in the registration of any company
which may have not complied with what has been hereinabove provided, to the
effect that the said company has been dissolved as a matter of law T , or its authori-
zation to conduct business in Panama has been revoked, depending on whether
it is a Panamanian or a foreign company.

Article (19) — Whenever it is known or there are reasonable grounds to be-
lieve that a natural or juridical person is engaging in banking business in viola-
tion of the provisions of this Cabinet Decree, the Commission shall be empowered
to examine their books, accounts and documents in order to determine whether it
has violated or is violating any provision of this Cabinet Decree. Refusal to ex-
hibit these books, accounts and documents, shall lead to presume that it is engag-
ing in banking business without the required license, in which case the Commis-
sion shall be empowered to so inform the Public Registry Office in order that the
marginal notation referred to in the previous Article may be entered and the
appropriate penalty is imposed.

Article (20) — In the case of new banks which are to be organized in accord-
ance with Panamanian laws, the Commission will issue a temporary permit, for
a term of ninety (90) days for the sole purpose that the organization of the com-
pany using the word "bank", or any of its derivatives might be recorded in the
Public Registry Office while the issuance of the respective license is being proc-
essed. If the period expires, and all the requirements for the issuance of the
license have not been met, the Commission shall so inform the Director General
of the Public Registry so that the marginal note referred to in Article 12 may
be made.

Article (21) — The license to engage in banking business must be requested in
writing from the Commission, enclosing :

(a) An authenticated copy of the Charter and By-Laws with their respective
amendments if there are any. If these documents are written in a foreign lan-
guage, the corresponding translation made by a legally authorized translator
must also be enclosed.

(b) A copy of the Financial Statement, with a closing date within the ninety
(90) days prior to the date of the request, duly certified by a firm of certified
public accountants.

(c) A certified check to cover the costs of the investigation referred to in
Article 23 of this Cabinet Decree in favor of the National Treasury for the sum
of B/.500.00 in the case of a bank organized according to the laws of Panama,
and for the sum of B/.1,000.00 in the case of a bank organized under foreign
laws.

( d) Any other requirement established by the law or the Commission.

Article (22) — In any case in which the Commission notifies the Director Gen-
eral of the Public Registry to make the marginal note mentioned in Articles 18,
19 and 20, the Commission shall publish such notification for three (3) consecu-
tive days in one daily newspaper with wide circulation throughout the Republic,
and once in the Official Gazette.

Article (23) — When an application for a license is under consideration by the
Commission, the Commission will conduct or order to be conducted the investiga-
tion it may deem necessary, so as to ascertain the authenticity of the documents
filed, the financial status and the background of the applicant, the reputation
and experience of its officers, the adequacy of its capital, and any other data
which may be necessary for the proper enforcement of this Cabinet Decree.

Article (24) — Within ninety (90) days after receiving the application, the
Commission by means of a resolution, must issue or refuse to issue the license,
serving notice of said resolution on the applicant.

Article (25) — In order that they may never be without representation, the
banks organized under foreign laws must appoint at least two (2) general attor-
neys-in-fact, both of whom must be natural persons with residence in Panama
and one of whom, at least, must be a citizen of Panama.

Article (26) — The Commission shall revoke the license of any bank for any of
the following reasons :

( 1 ) It has ceased to engage in banking business ; or

(2) It does not begin operations within the six (6) months following the is-
suance of the license. The Commission may also, by a resolution adopted by a
majority vote of five (5) commissioners, revoke said license when a bank does
not comply with any of the provisions of this Cabinet Decree. Before revoking the
license, the Commission shall serve notice on the Bank advising it its intention
to revoke, giving it the pertinent reasons to do so, and the Bank shall have a
term of twenty-one (21) calendar days, beginning on the day it was served
notice, to explain the reasons why it considers that its license should not be
revoked, attaching to such explanation the evidence available before the action,
which it deems applicable. Once said term expires, the pertinent decision shall be
issued by the Commission by means of a resolution.

Article (27) — Once the resolution whereby a license is revoked becomes final,
the Commission shall immediately proceed as follows :

(1) Communicate the measure to the Director General of the Public Registry,
so that the corresponding marginal note may be made, and

(2) Publish the resolution in a newspaper of wide circulation for three (3)
consecutive days and once in the Official Gazette.

Article (28) — No bank may open a new establishment without previous notice
to the Commission. When a bank deems that is is necessary to close or to trans-
fer an existing establishment, it must obtain previous authorization from the
Commission, merely to enable the Commission to be able to oversee that the
closing is performed in an orderly fashion and in a such manner that interests
of the depositors of said establishment are protected.

Article (29) — No bank engaging in banking business in Panama may merge or
consolidate, nor sell all or part of the assets it possesses in Panama, when such
an action is equivalent to a merger or a consolidation, without prior authoriza-
tion from the Commission.

CHAPTER II. — CAPITAL

Article (30) — Every bank engaging in banking business in Panama must have
a paid-in capital or an assigned capital, as the case may be of not less than one
million Balboas ( B/.l, 000,000.00 ) . The paid in or assigned capital must consist
of assets free from encumbrances, kept at all moments within the Republic of
Panama.

Paragraph 1. Every bank organized according to Panamanian laws and which
engages exclusively in banking business outside of Panama, must maintain at
all time in Panama, in assets free from encumbrances, of such types as the
Commission authorizes, a sum of not less than Two-Hundred and Fifty Thousand
Balboas (B/. 250,000.00), in order to guarantee that its obligations will be fully
met.

Paragraph 2. Every bank organized according to Panamanian laws, a seventy-
five percent (75%) at least, of its shares is owned by natural persons who are
citizens of Panama, or foreigners with more than five (5) years of continuous
residence in Panama, may start operations with a paid-in capital of Two-Hundred
and Fifty Thousand Balboas (B/.250.000.00) . This capital must be increased
periodically up to the minimum capital required referred to in this Article,
within a maximum period of ten (10) years.

(a) Forty Thousand balboas (B/.40,000.00) per year during the first five (5)
years : and

(b) Seventy-five thousand balboas (B/.75,000.00) per year during the last
five (5) years.

The balance, if there is any, must be capitalized before the above mentioned
term expires.

Article (31) — Every bank engaging in banking business in Panama must
maintain a capital reserve, so that its paid-in or assigned capital, as the case
may be, plus said capital reserve, is at no time less than the percentage that
from its productive assets is set forth by the National Banking Commission.

The paid in or assigned capital plus the capital shall not be at any time, less
than four percent (4%) of the productive assets.

No bank shall declare, credit or pay dividends nor distribute or transfer any
part of its profits without first accumulating the reserves referred to in this
article.

Article (32) — Every bank shall maintain assets within Panama equivalent
to a percentage of its local deposits. Said Percentage shall be determined by the
Commission, according to the national economic and financial conditions. It
shall be the same for all banks, and must not exceed one hundred percent
(100%) of such deposits.

Paragraph : Upon this Cabinet Decree becoming effective and until the Com-
mission determines otherwise, the percentage referred to in this Article shall be
eighty five percent (85 percent) .

Article (33) — Banks, other than Mortgage Banks, operating within the coun-
try, which receive local savings deposits, shall be bound to invest within a term
of not less than ten (10) years, in housing mortgage loans, in the Republic of
Panama, a minimum of 50 percent of such deposits ; or to invest in interest earn-
ing mortgage, warrants, certificates or bonds issued by the National Mortgage
Bank of the Republic of Panama.

The Commission shall determine periodically, in consultation with the Min-
istry of Housing, the portion of the 50 percent which will be invested in housing
loans for social interest, or in warrants, certificates or bonds earning interest,
issued by the National Mortgage Bank.

The Commission shall establish the terms and conditions under which the non-
mortgage banks shall adjust their operations to the provisions of this article.

Paragraph : Banks are forbidden to invest their savings deposits in their own
mortgage certificates, bonds or securities.

CHAPTER EEL CONTINGENT CREDITS

Article (34) — Every bank, in order to maintain its license, must be the bene-
ficiary of a contingent credit in dollars of the United States of America, granted
by a foreign bank, or by its own Head Office abroad in the case of branches of
foreign banks (approved by the Commission), for an amount of not less than ten
(10 percent) percent of the total of its productive assets as of December 31st or
the previous 30 June, as the case may be. The Commission may, nevertheless, de-
mand a revision at any other date. The terms and conditions of this credit shall
be established by the Commission.

When for any reason, any bank of the system cannot obtain or renew the
stand-by credit referred to in Articles 34 and 35, the Commission shall be em-
powered to enter into negotiations with the bank in question and the other
banks of the National Banking System regarding the granting of a special short-
term credit by the latter in favor of the former, this credit shall be distributed
proportionally among the other banks of the system according to the minimum
amount of the contingent credit to which each of them is bound. Before receiving
such a special credit, the bank in question must prove that it has not been able to
obtain or renew the aforementioned contingent credit.

Article (35) — The contingent credit shall be utilized by the beneficiary bank
upon withdrawal from the national banking system within a period of six ((*>)
months, of sums in excess of ten percent (10 percent) of the total of its deposits
employed or invested in Panama. In such a case, the Commission may require the
banks to use such credits, total or partially, and to maintain the proceeds thereof
within Panama. Each bank, at its free discretion, shall determine the use of
the funds thus obtained.

When any bank of the system encounters itself with liquidity difficulties due
to a decrease in its deposits, the Commission shall be empowered to enter into
negotiations with the bank in question and the other banks of the national bank-
ing system regarding the granting of a special short-term credit by the latter in
favor of the former. This credit shall be distributed proportionally among all
the other banks of the system, according to the minimum amount of the con-
tingent credit to which each one of them is bound.

Before being able to receive such a special credit, the bank in question must
exhaust its own contingent credit.

CHAPTER IV. — LEGAL RESERVE

Article (36) — Every hank must maintain a legal reserve consisting of cash
assets, of not less than five (5) and not more than twenty-five (25) per cent of

the total amount of its local deposits. Within such minimum and maximum, the
legal reserve shall be fixed periodically by the Commission, by written notice
thereof shall be given to each bank.

Article (37) — Not less than 30 percent of the legal reserve must consist of
currency of legal tender in Panama, maintained by each bank in its own
possession.

The excess may consist in demand deposits in Banco Nacional de Panama or
in National Treasury Bills, which shall not earn more then three percent (3 per
cent) interest per year with maturity of not more than ninety (90) days. Such
deposits shall be subject to verification by the Commission.

Paragraph 1 : At the time this Cabinet Decree becomes into effect and until
the Commission determines otherwise, the legal reserve shall be twelve per cent
(12 per cent) for demand deposits and six per cent (6 per cent) for time deposits
and the minimum percentage of this legal reserve which must consist of currency
of legal tender in Panama shall be thirty (30 per cent) per cent.

Paragraph 2: The banks shall have thirty (30) days, beginning on the effec-
tive date of this Cabinet Decree, to comply with the provisions of this article.

Paragraph 3 : The Commission may authorize that the excess up to seventy
percent (70 percent) may consist of other assets, provided that said authoriza-
tion is adopted by the affirmative vote of five (5) of its members. Said assets
must have sufficient liquidity so as to serve the purposes of the legal reserve.

Article (38) — The legal reserve shall be uniform for all banks, but the Com-
mission may fix different legal reserve for the different types of deposits.

Article (39) — The banks must file a report with the Commission, promptly
in the form and as periodically as the Commission may prescribe, in order to
assure proper compliance with the provisions of this Chapter.

Article (40) — The Commission shall give any bank which ceases to comply
with the provisions of this Chapter, three (3) working days notice to correct
this deficiency. Once said term has expired, if the deficiency has not been
corrected the Commission shall impose a fine equivalent to two percent (2 per-
cent) of the amount of the deficiency in the legal reserve, and shall grant the
bank fifteen (15) calendar days to correct such deficiency.

Article (41) — Non-compliance after the expiration of the fifteen (15) days
referred to in the previous article, or repeated violations of the provisions of
this Chapter shall give the Commission the power to revoke the license or to
follow the procedure established in Chapter XI, in so far as it is applicable.

CHAPTER V. BANKING LIQUIDITY

Article (42) — Every bank which engages in banking business in Panama must
always maintain a minimum balance of liquid assets, equivalent to the percent-
age of the gross total of its deposits as may be determined from time to time by
the Commission. Said percentage shall not exceed thirty-five percent (35 per-
cent), except in the case of mortgage banks for which it shall not exceed twelve
l>ercent (12 percent). With this exception, the percentage shall be the same
for all banks.

Paragraph : If a bank which operates within Panama receives credits or
deposits from its Head Office, Branch, Subsidiary or Affiliated Company outside
of Panama, such credits or deposits shall be excluded from the gross total of its
deposits for the purpose of figuring the percentage of liquidity.

Article (43) — The changes in the percentage of liquidity must be complied
with within the term indicated by the Commission, which shall not be less than
thirty (30) calendar days. Upon this Cabinet Decree becoming effective and until
the Commission determines otherwise, the percentage of liquidity applicable shall
be of ten percent (10 percent) for mortgage banks and thirty percent (30 per-
cent) for all other banks. Banks presently authorized to operate shall have a
period of ninety (90) days, as of the date this Cabinet Decree becomes effective,
to comply with said percentages of liquidity.

Article (44) — For the purposes of the previous articles, the assets hereinafter
specified shall be considered liquid, provided they are free from all liens or en-
cumbrances and are freely transferable :

(a) Cold or currency of legal tender in Panama :

(b) Net balances in the Clearing House in the Republic of Panama ;

(c) Net balance in any bank in Panama, payable on demand or within a term
of not more than ISfi dnys and obligations payable in Panama on demand or within
a term of not more than 1S6 days ;

(d) National Treasury Bills or other securities issued by the State with a
maturity of not more than one year ;

(e) Net balances in any banks abroad approved by the Commission payable
on demand or within a term of not more than 186 days and in currencies which,
in the judgment of the Commission, are freely convertible and transferable, up
to a maximum of 30 percent of the required percentage of liquidity.

(f ) Unmatured bills of exchange bearing at least the signatures of two sub-
stantially solvent persons, as drawer and acceptor, and payable within 186 days in
any place and currency approved by the Commission, in accordance with the
requirements of paragraph (e) ;

(g) Treasury bonds issued by a foreign government or international financial
organizations in accordance with the requirements established in paragraph (e)
of this article, up to a maximum of 5 percent of the required percentage of
liquidity.

(h) Other assets which this Commission may authorize by a majority vote of
five (5) of its members.

Paragraph : Subject to the above mentioned percentage limitations and to the
other requirements provided for by this Cabinet Decree, the distribution among
the different types of liquid assets referred to in this article, shall remain at the
discretion of each bank.

Article (45) — Violations of the provisions of this chapter, shall be sanctioned
by the Commission with a fine of not less than B/.l, 000.00 and not more than
B/.10.000.00.

Article (46) — It shall be assumed that a bank has violated the provisions of
this chapter and the previous chapter if it has not furnished within the required
period the documents and reports requested by the Commission in order to as-
certain compliance with the provisions of Articles 36, 37, 42 and 43.

CHAPTER VI. BANKING INTEREST

Article (47) — The provisions of Law No. 4 of 1935 shall not be applicable to
banks authorized in accordance to the present Cabinet Decree. Whenever it may
be necessary to accomplish the objectives mentioned in Article 4, the Commission
may by means of a resolution adopted by a favorable vote of five (5) of its mem-
bers, fix the maximum rate of interest which, directly or indirectly, may be
charged by the bank on the local loans or credits they grant, that is to say, those
economically invested or utilized within the Republic of Panama. Interest shall
be computed on balances owed.

Article (48) — Any bank may pay whatever interest it deems fit on its foreign
deposits and on the local time deposits. Nevertheless, in order to establish a dif-
ference in the rate of interest which may be paid on local "savings deposits" by
mortgage banks in comparison to the other banks, the Commission shall, by
means of a resolution adopted by an affirmative vote of five (5) of its members,
fix the maximum rate of interest payable by the former and the latter, with a
minimum differential of not less than one percent (1 percent) in favor of the
mortgage banks, in connection with the aforementioned "local savings deposits".
No interests may be paid on local demand dej>osits.

Paragraph : For the purposes of this article, the Commission shall determine
the maximum amount, below which a time deposit shall be considered a "savings
deposit - '.

Article (49) — The violations of the provisions of this chapter shall be sanc-
tioned by the Commission with a fine of not less than B/.1,000.00 and not more
than B/.10,000.00, without affecting the obligation to return the interest charged
in excess.

CHAPTER VII. DOCUMENTS AND REPORTS

Article (50) — Within the three (3) months following the close of each fiscal
year, banks organized in Panama with regards to all of their operations, and
organized abroad with regards to the operations of their Panamanian establish-
ments, must file with the Commission the corresponding balance sheet and profit-
and-loss statements, signed by the Legal Representative or bv one of the Bank's
Ceneral Attorney-in-fact. The Financial Statements mentioned in this article
shall be filed and audited in the manner prescribed bv the Commission

Article (51)— The banks shall exhibit throughout the vear, in a prominent
place of each one of their establishments in Panama, a copy of their last audited
Balance Sheet, and shall publish it in a newspaper of wide circulation in the
Republic within three (3) months following the close of each fiscal year

CHAPTER VIII. PROHIBITIONS AND LIMITATIONS

Article (52) — No bank shall declare, credit or pay any dividends, nor distribute
or transfer all or part of its profits, until having totally amortized or created
sufficient reserves to amortize all deferred expenses, including their preliminary
expenses, organization expenses, commissions paid on the sale of shares, broker-
age fees, losses incurred and any other expenses not represented in the Bank's
tangible assets, or while there exists a loss of capital.

Article (53) — Banks are forbidden to grant loans or credits, to any one, natural
or juridical person, or to grant any collateral or incur in any other obligation in
favor of such a person, the total of which exceeds at any given moment five per-
cent (5 percent) of the bank's deposits, capital and reserves. The limitation
provided for in this article shall not be applicable to transactions which :

(1) Consist in the negotiation of :

(a) Bills of exchange drawn or promissory notes issued in good faith as a
consequence of an underlying transaction having a collateral security, or secured
bankers acceptances or by

(b) Other commercial paper, which the Commission may authorize and which
are owned by the person who negotiates same with the bank, by means or a
blank endorsement without recourse.

(2) Are secured either by bank "avals" or collateral deposits or by collateral
fully secured for its total value which has ascertainable market value or other-
wise has a value as collateral according to a bona fide determination made by an
officer of such bank, of at least fifteen percent (15 percent) over the amount of
the obligations secured thereby.

(3) Represent loans to the State, its autonomous or semi-autonomous institu-
tions or Municipalities or are guaranteed by the Nation or any foreign State
approved by the Commission.

Article (54) — Banks are forbidden to :

(1) Grant or obtain loans or credits with their own shares as collateral.

(2) Grant loans or credits without collateral, in excess of fifteen percent (15
percent) of their capital and capital reserves in favor of:

(a) One or more of its directors, whether these are granted to them jointly
or severally ;

Cb) Any juridical person of which one or more of its directors is a director or
officer or a guarantor of the loan or credit facility ;

(c) Any juridical person, or association of individuals in which the bank, or
one or more of its directors or officers have individually or jointly a majority
interest.

(3) Grant loans or credits without collateral or without having a third party
as guarantor, to any of its employees, for an amount in excess of the salaries,
wages and other yearly emoluments earned by the said employee.

Article (55) — When applying the prohibitions specified in Articles 53 and 54,
the Commission may determine if the interests of a group of natural or juridical
persons are interrelated in such manner that they should be considered as a sin-
gle person. Nevertheless, it shall not be deemed that the bank has violated the
provisions of these articles even though the debts of the group does exceed ap-
plicable limits at the moment of their computation, provided that the bank adopts
the necessary measures to correct the excess within the period of time fixed by
the Commission.

Article (56) — Banks are forbidden to acquire or possess shares or interest in
any other types of enterprises, except in trust, for more than twenty five percent
(25 percent) of the bank's paid-in or assigned capital plus its capital reserve.
Exception is made of the interest or shares which the bank acquires in payment
of siims owed thereto, in which case they must be liquidated at the earliest op-
portunity consistent with the economic interests of the bank, as judged by the
Commission, which may set a term for this purpose.

Article (57) — The provision of the previous article does not forbid the pur-
chase or sale of shares at the request and for the account of a client

It neither forbids, upon the previous authorization obtained from the Commis-
sion, the acquisition or sale of shares of any corporation organized for the pur-
pose of insuring bank deposits, promoting the development of a money or secu-
rities market in Panama, or improving the financing facilities for economic
development.

Article (68) — Banks are forbidden to buy. acquire or rent for themselves, real
estate properties, except in the following cases :

(a) When it is necessary for their operational requirements or for housing or
recreational needs of their personnel ;

(b) When acquiring land in order to promote land or housing developments
for sale, provided that the sale is effected in accordance with the provisions of
Article 56 ;

Paragraph : Nevertheless the banks that have accepted real estate properties
as collateral, may however in case of default, acquire such properties in order to
sell them at the earliest opportunity, consistent with the economic interests of
the bank, in the judgment of the Commission.

Article (59) — Any bank that, prior to the date this Cabinet Decree become
effective, has participated in any transaction incompatible with the provisions of
this Chapter, shall, within three (3) months following said date, file with the
Commission a report of such transactions and within the three (3) following
years liquidate them totally, unless the Commission grants extensions due to
exceptional circumstances.

Article (60) — Banks are forbidden to receive deposits while they are in a state
of insolvency, they are forbidden likewise to receive any other type of assets
from any person who has not been previously advised by the bank of said state
of bankruptcy. No official, director or officer who has, or should have knowledge
of said bankruptcy, shall accept or authorize receipt of deposits or any other
assets in violation of the provisions of this Article.

Article (61) — The violations or the provisions of this chapter shall be pun-
ished by the Commission with fines of not less than one thousand balboas
(B/.1,000.00), and not more than ten thousand balboas (B/. 10,000.00).

CHAPTER IX. BANKING INSPECTION

Article (62) — All banks must file with the Commission in the manner pre-
scribed thereby :

(1) At the latest on the twentieth (20th) day of each month, a statement
showing the assets and liabilities of their establishments in Panama at the close
of their operations on the last working day of the previous month and

(2) Before the last working day of the month following the quarters which
end on March 31, June 30, September 30 and December 31, a statement contain-
ing an analysis of the credit facilities and other assets at the disposal of their
establishments in Panama at the close of operations of each quarter.

Paragraph : Notwithstanding the above the Commission is authorized to re-
quest any bank or any enterprise operating in Panama in which the bank has a
majority interest or effective control, any documents and reports concerning the
operations and activities of its establishments.

Article (63) — When the reports furnished pursuant to the previous article,
are of a confidential nature in accordance with Article 74, the Commission may
only publish consolidated data with overall figures.

Article (64) — At least every two (2) years, the Commission must conduct
one or more inspections of each bank, to determine if its financial situation is
solvent and if in the course of its operation it has complied with the provisions
of this Cabinet Decree. Such inspections will include all establishments and
enterprises in Panama in which the banks have a majority interest or effective
control. The total cost of the inspection and its incidental expenses shall be
paid by the bank.

Article (65) — When requested in writing, every bank shall be obliged to
show the inspector, authorized by the Commission for such a purpose, the ac-
counting books, minutes, cash currency securities owned by the bank, docu-
ments and vouchers, as well as the reports and documents relative to its
operations.

Nevertheless, in order to protect the interests of the bank's clients and the
confidentiality that its operations require, the examination by the Commission's
Inspectors may not include any type of deposit accounts, nor the securities in
custody, nor the safe-deposit boxes, nor the documents derived from credit
transactions which clients maintain with the bank, unless there is a judicial
order issued in accordance with Article 89 of the Code of Commerce.

Article (66) — Every refusal of a bank to submit to the inspection provided
for in the previous article, shall be punished by the Commission with a fine
not to exceed one thousand balboas (B/.1,000.00) , without prejudice to the

application of the provisions of Article 26 of this Cabinet Decree. If any of the
documents or reports furnished turn out to be false in any respect, the bank
shall be punished by the Commission with a fine of not less than one thousand
balboas (B/.1.000.00) and not more than ten thousand balboas (B/.10,000.00) r
without prejudice of the applicable penal sanctions.

Article (67) — If in the judgment of the Commission, the inspection proves
that the operations of the bank are conducted in an illegal or negligent manner,
or that its capital has suffered loss, or that it lacks solvency, the Commission
shall require the bank to immediately adopt the necessary measure indicated
to that effect, to correct the deficiencies, and may designate a person of proper,
training and experience to advise the bank concerning the measure that it should
take to correct the deficiency determining the compensation the bank shall pay
him.

Article (68) — Each bank shall designate annually, at its own expenses, certi-
fied public accountants who in the judgment of the Commission are profession-
ally qualified, whose duty shall be to render a report concerning the fiscal year,
to the shareholders or partners of each bank organized under the laws of
Panama, and to the Head Office, in case of banks organized under foreign laws,
and in the report said accountants shall certify if, in their opinion the Balance
Sheet and the Profit-and-Loss Statement are complete, accurate, and show the
true and correct state of the bank's operations. The reports of the certified pub-
lic accountants shall be read, together with the bank's board of directors report,
at the annual meeting of the shareholders or partners of each bank organized
under the laws of Panama, and shall be forwarded to the Head Office of each
bank organized under foreign laws. A copy of the report shall be filed with the
Commission.

Article (69) — If the bank does not make the appointment referred to in the
previous article, the Commission shall make it. determining therefor the com-
pensation to which the certified public accountants thus designated, shall be
entitled. Said compensation shall be paid by the bank.

Article (70) — Xo certified public accountant or firm of certified public ac-
countants may act as auditor of a bank, if said public accountant or any mem-
ber or employee of the firm is or has been an employee, director or officer, or is
or becomes a shareholder or partner of said bank.

(Article (71) — Without prejudice to the provisions of the Commercial Code
or any other laws in force, every person who is a director or officer of a bank,
and all other persons to whom its administration is entrusted, shall cease in
their functions :

(1) If they are declared in bankruptcy or find themselves in insolvency pro-
ceedings ; or

C2) If they are condemned for any offense against property or public faith.

Said persons may never again hold such offices or functions in any bank, with-
out the Commission's express authorization.

Article (72) — No person who has been a director or officer, or who has par-
ticipated in the administration of a bank which has been compulsorily liquidated
may, without the Commission's express authorization, act as director or officer
or participate in the Administration of another bank.

Article (73) — The Commission shall be immediately notified of any civil or
criminal action filed, because of a violation of any provision of this Cabinet
Decree, committed by a bank or any other person.

Article (74) — The Commission is forbidden to conduct or order investigations
concerning the private affairs of any bank's clients. The information obtained by
the Commission in the exercise of its functions may not be revealed to any per-
son or authority, except if Judicially requested in accordance with the legal pro-
visions in force or if they were consolidated data in terms of global figures. The
violation of this stipulation shall be sanctioned in accordance with the provisions
of Article 101 of this Cabinet Decree.

Paragraph : The Commission may not publish any information acquired pur-
suant to this Cabinet Decree, unless it has previously obtained the consent in
Writing of the bank or client concerned.

Article (75) — The Official Banks remain in every instance subject to the in*
sjkh'I ion and su]>orvision of the office of the Comptroller General of the Republic,
in accordance with the provisions of the Constitution and the law. Therefore, the
provisions of Articles 64 and 68 of the present Cabinet Decree shall not be appli-
cable to the Official Banks.

;>/

CHAPTER X. — VOLUNTARY LIQUIDATION

Article (76) — In order to proceed to its liquidation or dissolution, every bank
must obtain previous authorization from the Commission, which shall grant it
when the bank is solvent, that is to say, when the bank possesses sufficient liquid
assets to reimburse its depositors and to pay its creditors.

Article (77) — Once the authorization is granted, the bank will immediately
cease operations and its powers are limited to those which are necessary to carry
out its liquidation, collect its credits, reimburse its depositors, pay its creditors
and to settle its businesses.

Article (78) — Within thirty (30) days following the authorization, the bank
must mail to each depositor, creditor, interested party in funds held by the Bank
as trustee, leaseholder of safe-deposit box, or depositor of assets in custody, a
notice of liquidation which shall include whatever information the Commission
may specify. Said notice shall also be posted in a visible place of each of the
bank's establishments and shall be published in the manner indicated by the
Commission.

Article (79) — The authorization to liquidate will not prejudice the rights of
the depositors or creditors to receive the total amount of their credits, nor the
rights of the owners of funds or other assets to have them totally reimbursed. All
legitimate credits of the bank's creditors and depositors must be paid, and all
funds and other assets which the bank holds in any other capacity, shall be reim-
bursed to their owners within the period of time fixed by the Commission upon
authorizing the liquidation.

Article (80) — No distribution of assets can be made to the shareholders or
partners, until having previously satisfied all the depositors and creditors, ac-
cording to the liquidation plan approved by the Commission.

In connection with credits under litigation, the Bank shall deliver to whomever
may be appointed therefore by the Commission, an amount sufficient to cover
such credits; and he shall hold it in his possession until thereon decided by
law.

Article (81) — Upon completion of the liquidation, if there remains unclaimed
funds or credits, the bank shall deliver to whom the Commission designates, the
necessary sum to satisfy them. The unclaimed assets and securities shall simi-
larly be delivered to whom the Commission designates, along with the corre-
sponding certified inventory. The funds thus deposited will be transferred to the
State at the end of five (5) years. Furthermore, the assets and securities may be
sold by its depositary, with the prior authorization of the Commission, at the
end of the first year, and the proceeds of their sale shall be transferred to the
State at the end of the fifth year, if they remain unclaimed by their proprietors.

Paragraph : The provisions of this article will be interpreted without prejudice
to the right granted by Article 103.

Article (82) — During the cause of the voluntary liquidation, the receivers
must :

(1) Furnish the Commission as regularly as it may determine, the reports it
may request concerning the process of liquidation ; and

(2) Inform the Commission immediately should they become aware that the
marketable assets shall be insufficient to reimburse the depositors and to pay the
creditors.

CHAPTER XI. — INTERVENTION, REORGANIZATION AND COMPULSORY LIQUIDATION

Article (83) — The Commission, by means of a motivated resolution approved
by the vote of five (5) of its members, may intervene a bank, taking possession of
its assets and assuming its administration in accordance with the provisions of
Article 85. in any of the following cases :

(a) If its capital or capital reserve has suffered loss or lacks solidity;

(b) If it conducts its operation in a illegal, negligent or fraudulent manner ;

(d) If once requested, it refuses to show the accounting records for operations
carried out, or has in some way hindered the inspection of the bank ;

(e) If the assets of the bank are not sufficient to satisfy the total of its liabili-
ties :

(f) If the Commission deems it convenient, because the voluntary liquidation
has been unduly delayed.

Article (84) — Upon intervening, the Commission will order a notice stating so
to be placed in the bank's offices, indicating the hour in which the intervention
became effective, which in no case may be prior to the posting of the notice.

Article (85) — When the Commission resolves to intervene a bank, it shall ap-
point the interventor or interventors it deems necessary, in order to exercise
exclusively, the administration and control of the bank, with the powers the Com-
mission may determine, and which shall include the following :

(a) Suspend or limit the payment of its obligations ;

(b) Employ the necessary auxiliary personnel ;

(d) File, defend or prosecute on its behalf, any action or proceeding to which
it might be a party.

Once the intervention has been carried out, the interventor or interventors
sliall make an inventory of the assets and liabilities and file a copy thereof with
the Commission, which will make it available to the interested parties who may
so request it.

Article (86) — The resolution by which the intervention of a bank is ordered
implies the authority to order its reorganization, request its compulsory liquida-
tion or to desist from the intervention, for which purpose the Commission shall
have sixty (60) calendar days from the date on which the notices mentioned in
Article 84 are posted, or if the appeal referred to in the following article is
tiled, than sixty (60) days after judgment thereon is rendered.

Article (87) — The resolution by which the intervention of the Bank is ordered,
may be proceeded against only by means of a contentious-administrative re-
course of full jurisdiction, ("recurso contencioso administrativo de plena juris-
diceion"). The term within which to file such an appeal shall be a maximum of
thirty (30) working days, from the date on which the notice referred to in
Artile S4 is posted.

The Court may not suspend provisionally, in any case, the effects of the
intervention decreed, but in order for the Commission to order the reorganiza-
tion or to request the compulsory liquidation of the bank in question it shall
be necessary for the Court to have decided on the pending appeal.

Article (88) — When the Commission intervenes a bank, all prescription of
limitations relative to any of the bank's rights or causes of action, and the
terms relative to lawsuit and proceedings to which the bank is a party, shall
be suspended for up to six (6) months.

Article (89) — If within the term specified in Article 86, the Commission
should decide that the reorganization of the bank is in order, after hearing the
opinion of the bank in question, it shall draw up a reorganization and shall
publish it during three (3) consecutive days in a daily newspaper of general
circulation in the Republic.

Article (90) — No bank asset shall be subject to attachment, embargo or
withholding while the bank is intervened or in process of reorganization.

Article (91) — If so authorized therefor by the Commission the interventors
may be able to obtain loans in the name of the Bank and offer the properties
thereof as a guarantee for such loans.

Article (92) — All necessary expenses caused by the intervention, the reorgani-
zation or the liquidation, shall be paid from the bank's assets.

Article (93)— No reorganization plan shall be drawn up unless it meets the
following requirements :

(a) That it be feasible and equitable to all the depositors, creditors, share-
holders or partners, as the case may be ;

(b) That it provides for the dismissal of any director, official or employee
responsible for the situation which make the reorganization necessary, because
of his negligent, fraudulent or illegal actions;

(c) That any anticipated merger or consolidation meet the requirements of
this Cabinet Decree and other legal provisions in force.

Article (94)— Whenever circumstances arise during the process of the re-
organization, which make the plan unfair or its execution inconvenient, the
Commission may modify it, or request the liquidation of the bank as hereinafter
provided. . .

Article (95)— If the Commission decides that the liquidation of a bank is in
order, it shall serve personal notice thereof upon its legal representative and
notify its shareholders or partners, depositors and creditors, by publishing the
resolution to said effect during three (3) consecutive days in a newspaper of
general circulation, and will request the dissolution and liquidation of the bank
to the competent court according to the legal provisions in force.

Article (96) — Once the liquidation is requested, the Commission shall see
that a notice of the petition for liquidation is sent by mail to each depositor,
creditor, leaseholder of safe-deposit box or bailor of assets, to the address
which appears in the books of the bank. A copy of this notice shall be posted
in a visible place of the establishments of the bank. This notice should include
a statement indicating the sum which, according to the books of the banks,
appears as a credit balance of the depositors or creditor.

Article (97) — The safe-deposit boxes the contents of which have not been
withdrawn thirty (30) days after the date of the judicial resolutions by which
the liquidation is decreed, shall be opened by the competent Court and its con-
tents as well as the unclaimed assets which are held by the bank shall be
subject to the procedure provided for in Article 81.

CHAPTER XII. — VARIOUS PROVISIONS

Article (98) — The classification of each bank provided for in Article 1010 of
the Fiscal Code, shall be made by the Commission according to the criteria that
it will establish therefor.

Article (99) — By priorly informing the public to such effect, the Commission
shall establish the days on which the Bank cannot carry out business for the
public ; such days do not have to coincide necessarily with the holidays.

Article (100) — The Commission shall determine the days of the week and
hours during which the banks shall be open to the public. The Commission, for
causes it deems justifiable, may authorize exceptions to the general rule.

Article (101) — Any person who furnishes information in violation of this Cab-
inet Decree, or who violates any of the prohibitions established in it for which no
specific punishment is provided for shall be subject to a fine from B/.500.00 to
B/.l, 000.00, imposed by the Commission, without prejudice to the applicable
criminal and civil liabilities.

Article (102) — Every bank must advise the Commission with regards to any
assets, funds and securities held by it which remain inactive for five (5) years
and which belong to persons whose whereabouts are unknown. The Commission,
after ascertaining this fact, shall order its net value to be transferred to the
National Treasury.

Article (103) — The State will be obliged to return to its owner the funds men-
tioned in the previous article, if they are claimed within ten (10) years after
the date on which they have been transferred to the State, but the restitution
will be made without charging interest.

Article (104) — Without prejudice to the provisions of the Fiscal Code, all the
establishments of a bank in Panama, shall be considered as one bank, for the
purposes of this Cabinet Decree.

Title III. — Final Provisions

Article (105) — With the exception provided for in Article 87, resolutions passed
by the Commission shall only be subject, within the administrative jurisdiction,
to a petition for reconsideration filed before the commission itself by the inter-
ested party within five (5) working days from the date of notification.

Article (106) — In every case of voluntary or cumpulsory liquidation of a bank,
the obligations of said bank, including the deposits must be satisfied according to
the order of priority established by the laws in force. Notwithstanding, in case
the special credit referred to in article 35 has been granted to the Bank to be
liquidated, this credit shall have priority over any other of the bank's obligations.

As far as the deposits are concerned, the priority among them will be as
follows :

(a) Local deposits of natural or juridical persons residents in the territory
under the jurisdiction of Panamanian authorities will be paid first.

(b) Once the reimbursement of the local deposits is completed, the deposits
which have physically entered the territory of the Republic of Panama and the
bank's patrimony belonging to persons domiciled outside of Panama, shall then
be considered and returned, as it may be possible ; and

(c) If there remains a balance after these reimbursements, it shall be dis-
tributed among the owners of foreign deposits that have not physically entered
the territory of Panama.

Article (107) — The banks already intervened and in process of liquidation on
the date this Cabinet Decree becomes effective shall be governed by Law 101
of July 8, 1941, and other provisions which modify it or complement it.

25-605 O - 78 - 5

Article (108) — The bank wishing to adopt a fiscal period different from the
calendar year and have been so authorized by the Finance and Treasury, shall so
notify the Commission.

Article (109) — Only the provisions contained in Chapters V, VII, VIII and
IX of Title II shall be applicable to the official banks, provided these provi-
sions are not in conflict with the laws concerning said banks.

Notwithstanding the foregoing, Chapters IV and VI and Articles 99 and 100
of Chapter XII shall in any case apply to the Official Banks.

Article (110) — This Cabinet Decree completely revokes Law 101 of July 8,
1941 and all other legal provisions inconsistent therewith.

Article (111) — This Cabinet Decree shall become effective on the date of its
publication in the Official Gazette. Let it be communicated and published.

Given in the city of Panama, on the second day of the month of July of the
year one thousand nine-hundred and seventy.

Demetrio B. Lakas, President of the Provisional Board of Govern-
ment ; Lie. Arturo Sucre P., Member of the Provisional Board
of Government; Juan Antonio Tack, Minister of Foreign Rela-
tions; Jose A. De La Rosa, Minister of Finance and Treasury,
("Ministro de Hacienda y Tesoro") ; Nidia M. De Quintero,
Minister of Education, In Charge ; Demostenes Vergara, Minister
of Public Works, In Charge; Carlos E. Landau, Minister of
Agriculture and Livestock; Fernando Mandredo, Minister of
Commerce and Industries; Romulo Escobar Bethancourt, Minis-
ter of Labor and Social Welfare ; Jose Renan Esquivel, Minister
of Health ; Juan Materno Vasquez, Minister of the Presidency.
Question 6. What were the nature and nationalities of the 248 banks whose
permits were cancelled by the new bank law?

Answer. Neither the Treasury Department or the State Department have the
information available to answer this question.

Question 7. Please list and explain the nature of each tax incentive granted to
international banks by decree No. 238.

Question 8. If it is true, as Wise wrote, that foreign loans and deposits are not
required to have a cash or legal reserve, please comment on the various effects
of such provisions.

Answer. We will attempt to provide this information for the record as soon
as possible.

See Appendix C for answers to Questions 7 and 8.

Question 9. If it is true that there are no controls over the free flow of capital
in and out Panama, and that Panama has a bank secrecy law permitting num-
bered accounts, what U.S. Government banking rules and regulations may be
avoided by U.S. commercial banks operating through Panama branches?

Answer. We have no evidence that U.S. commercial banks are using their
Panama branches to avoid U.S. Government banking laws and regulations. For
more detailed information concerning numbered accounts, please see Question 15
in the series of questions relating to the London Times article.

Question 11. Wise indicated the possible creation in Panama of a Latin Ameri-
can multi-national foreign trade bank. What would the role of U.S. commercial
banks be relative to this multi-national bank should it come into being? What
advantage might accrue to those banks? Would it be quasi-governmental? What
would its relationship be to U.S. taxpayers?

Answer. The Latin American Export Bank (Bladex), headquartered in Pan-
ama, will begin operations early in 1978. Bladex will be strictly a commercial
operation ; it will rediscount acceptances from Latin American commercial banks
and provide medium-term financing for capital goods exports from Latin Amer-
ican countries. U.S. and other foreign commercial banks with subsidiaries in
Panama will be invited to subscribe 40 percent of the initial capital ($20 mil-
lion) ; 40 percent will also come from Latin American commercial banks and
20 percent from Latin American central and state banks. The advantages to
participating U.S. and other commercial banks will be the opportunity to share
in the profits of Bladex. There is no relationship to U.S. taxpayers.

Question 13. Compare generally the international banking climate of The Ba-
hamas, The Caymans and any other offshore financial center in the Western
Hemisphere, with that of Panama, as to :

(a) Tax advantages,

(b) Currency exchange,

(d) Effective U.S. bank regulation, and inspection.

Answer. All established offshore financial centers in the Western Hemisphere
are characterized by the absence of income taxation on payments of interest on
deposits to foreigners, and for the most part, on dividends as well. It is our
understanding that each of the offshore centers has a bank regulatory body which
within permissible legal limits exercises discretionary authority in established
legal reserve requirements. To our knowledge, none of these centers imposes
reserve requirements on liabilities in foreign currencies at banks which operate
solely on an offshore basis. U.S. banks operating branch offices in these offshore
centers are regulated by federal and/or state authorities within the U.S. since
these branches are an integral part of the parent bank and are not legally distinct
entities under U.S. law.

Question 14. Name the United States banks operating under each of the three
classes of banking licenses in Panama.

Answer. Attached is a list prepared by the National Banking Commission of
Panama of all banks and the respective licenses under which they operate in
Panama as of September 1977. U.S. institutions are underlined for convenience.

SISTE.MA MffCARfO PANAMl":".0 TOR DANCO Y TIPO DE I.ICEflCIA SEGUH FF.CHA
DE IN1CIO DL CPEKACIONES Y r'kOCEDENCIA: lo. SEP. de 1977

LICENCIA OF.NtKAl

•incoi Of.cialc.-.

1. ' Binco Ntcioml dePuun
X. C«la dr AhnrroS

jiancoj Pr.vgd"i:*

L Cmh«nk. N A

2. 1 hr C >. . <c M.r.hatl.n IU.

3. YUwcp TaAtmTtf fag

4. Banco GructaJ. S. A.

-»ri-,nal. S. Aj.

VZrCro d* SawtaaaSrTy R
Primer llsncc dc Aborro'
E:nco ilc Colombia.. S. A.
B -.nl. »l Aft

■ lUCq V.crcantal QC Panama, S.
Banco Calclcm. S. A.
Banco dc Doroti. S. A.
Binco Fx tenor. S. A.
Bi--.ro dr! Comcreio. S. A.
RrpubEc "nill» il Bjnk. Ire.
T br Fata l Nj;,cr. d R.-.rJi of_Crue«£ft.
Banco interorc anieo de Pan.- mi. S. A.

» bv»7 brt cm tco na vzktrc:

DNlid TaHllaMlliWlllllM Lank. A. G.
AJrcni'i.r Dank Nederiond. N". V.
Banco Continental dc Pan.-una. S. A.
Eir.Cjue Anval. S. Jk.

Bank of Boston L South America. Ltd.
Pac;hc Atlantic BarJx. Inc.

Bir.co tata&jd C-!omUiano r> Panama. S. A.
The Bank of Tokyo. Ltd
Banco Intemacional de Tanini. S.A.
Trade Development Bank Overseas. Inc.
Banco Comcrci.il AntioQucno. S. A.
The Fir>' Nation': H>r.k_ol Boj.f.oa
Banc- Do UrlsC. S. A
VaMa dc Ba-cc:. S A (frubank.. Inc.)
.V.'.v n-nk. S..Y._

n.cncano uc L''>.-\rroUn. S. A.
Ctfac lr.:.tar.:< nca.n Bank. S. A.
linn.-vl CeMMCU Hank of Cruna
f Nova Sco-ia
ii. C A. dc Venezuela

Banco S
Securit.
1h- Int.

The Batt
lira i

I3U

S. A.

if Switzerland (Panama). S. A.

42. The Knval flank of Canada

43. Banco I— llllMlllll dc Panama. S A.

44. Banco dc hnnMn, S. A.

45. Banco Infrnacional de CoaTa fiiea
48. Me n" Lynch Ir.trrnat.ona l Bank, Inc .

Licencia Intemacional:

1. Bank of Commerce 4- RmM Inc.

2. Banco Airman Par vr.rii... S. A.

3. Bank of Imrttnirnl <m | Trade. Inc.

A. Hank Corporation <0»crva»). S. A.

i. Natinn.-lc de Tari$

C. El Bioeo Mrtr politano. S. A.

I. Wcitrm lnleironiincnt.il Hank. Corp.
>. Weston Bank.nt Corporation

9. Intcian.cncan Hank Corporation. S-r\.

10. The Bank of To«>o (r.,nnna). S. A.

II. Adela 111 until ITllllllll Co . S. A.

12. S«-c-irit> Tacific llank (fj..«n,j|J _A^_

13. BasaM I'ror- Dtor del Comrn.ii' l.atinoamcricana. S. A.

14. 5ta> StrerV.Bsi.k (r J .,.in. l. Corp

15. T.'rU I.He ran.cne a* U,rV. $, A

16. "lorrr.tcTb--mu.ion li.o.k \lc JVn.m*. S. A.

17. B A. I. I. (M. Ur EaU) Inc.

18. Standard Cn-rtcred Bank. Ltd. 1

19. Ilibeat llankjnt CoO'Cfation
23. Crrdity Lyonnait

31. Banco dc la Nac.nn Arcrntlna

32. Banco Kio de la Plata (Panama). S. A.

Licencia de Repre>enUci6n:

1. Banco Fapanol de Crcdilo

at Kniea tsehanre Bank

3. Dicd-ner Hank. A. C.

4. Iniontn Hi n.l.don Bank

tv. WnilJ llank.nl Corporation Ltd.

C. Ibeio— Amcilca Bank - Akllcnccsellacbafl

I. Banco NaclonaJ dc Cuba

Frcha

Inleio

Upera

ciunra

Procrdr ncla

Oct.

12-1 9f»4

Panama

Jun.

5-1*34

Panama

Ac...

17 inoi

K. 1'. A.

Mar.

I i nr.

r . I*. A.

Fi.e.

5 -10 in

Kr.nn.

Ahr.

i-isr.s

Pali.rn*

Aco.

20 -1957

t L A.

Mar.

10-19C2

Fspana

Sep.

16— 1SG3

Aro.

7—1964

Colombia

No».

24 — 1964

F U A.

Jun.

If, — igr.fi

FrancU

r>ic.

13 — I90C

C.'-.mbia

14-1907

Cili ■Mi

Feb.

22—1967

F.ipaiia

Max.

8-1967

Colombia

Abr.

14— 19G7

Ecuador

Sep.

28-1970

E. U. A.

Mar.

2—1971

E. L*. A.

Oet.

26 -1971

Panama

Die.

21-1971

Alcmania

Ene.

1—1972

llolanda

Jul.

17 — 1972

Oct.

1C— 1972 "

Bahamas

Feb .

1—1973

IncJatrrra

Feb.

2-1973

Itont Kon«

Abr.

23—1973

Col.mibia

Mar.

25-1973

Ja^.a

May.

28-1973

P.naml

Jul

27—1973

Ato.

C-1973

Colombia

A»o.

23-197.1

E. U. A.

Sep.

S-1973

Brasil

Sep.

10—1973

Multinacional

Oet.

1-1973

F-. L'. A.

Mar.

1H-1974

Venezuela

Jun.

7-1974

E. L\ A.

Ato.

1-1974

China

Nor.

11-1971

Canada

Die.

3 — 1974

VcnczvcU

May.

\a~ ' n^«!

Braid

May.

IB— 1979

Sui.-a

Jun.

• i 'f -i

f- I 1 . A.

tnin-^

Canada

J I

i?T_i

Mul'ovicionaJ

Oct

17 k-c

r i r 1 * ?' r4

Nov

ic nbn

It h i«

Ato

- 1 1.,'-,

Oct.

: i iwi

V.uili: ..ci.-n«l

Ato.

14 -1971

tmim

Abr.

9 - 1V73

Franria

Dir.

14 - i:n.i

Uruoiay

Ahr.

May.

2 15.74

Bahamas

Mar.

7— r.i7l »

Jaooei

Jun.

9-1074

Suua

Dic°

3-1974

Alcmania

Jun.

2- 197.'.

K. 11. A.

Sep.

l--:975

1U V. A.

Sep.

IV P.I75

Canada

Abr.

1- 19-o

Arabia

Jul.

1-1976

Intlalerra

May.

0- IV77

MullinaciunaJ

Franeia

Argentina

Arcenllna

«<CL

25 IBM

K.Pana

Del.

5- 1971

Corra

May.

3-1973

Alcm.nl.

f Cb.

11-1976

C.n.dl

Uk.

1-1976

Bahamas

»eb.

14-1977

Alcmania

COMIMON BANC AMI A NACIONAL

Question 15. U.S. law prevents U.S. banks or branches overseas from offering
numbered accounts. Does this apply to subsidiaries of U.S. banks? If not, what
subsidiaries of United States banks in Panama, if any, offer numbered accounts?

Question 16. Does any U.S. bank have an interest, direct or otherwise, in any
bank offering numbered accounts in Panama ?

Answer. We have been informed by the Office of the Comptroller of the Cur-
rency that there are no prohibitions against United States banks or their foreign
branches offering numbered accounts. Indeed, many banks, especially those located
in the Miami area, presently offer numbered accounts. All domestic branches of
banks incorporated in the United States and U.S. branches of foreign-incorporated
banks are, however, required by 31 U.S.C. 1051 et sec. and 31 C.F.R. 103.34 to keep
on file taxpayer identification numbers of all depositors residing or doing business
in the United States, and to keep certain records of financial transactions with
respect to these accounts. These requirements would apply even if the account
were to be maintained under a fictitious name, or merely as a number. These
reporting requirements would not apply to foreign-incorporated subsidiaries of
U.S. banks.

In addition, each person subject to the jurisdiction of the United States (except
a foreign subsidiary of a U.S. person) having a foreign bank account is required
to provide such information concerning such account as specified on his Federal
income tax return.

Treasury has no information concerning which, if any, subsidiaries of United
States banks in Panama offer numbered accounts. Similarly, we do not have in-
formation on whether any U.S. bank has an interest, direct or otherwise, in any
bank offering numbered accounts in Panama.

Questions 17 and 18. What are the guarantees of security for loans to the
Republic of Panama and its official agencies? If it is pledged security, (a) is it
enforceable? (b) how?

Answer. While the Comptroller of the Currency may have some material con-
cerning guarantees of security for loans to the Republic of Panama, it does not
have the comprehensive information necessary to answer this question accurately.
To indicate whether and how particular security arrangements are enforceable
would involve detailed analyses of the security arrangements on particular loans
in light of the law governing the loan contract, possible immunities from suit,
etc. Without detailed information about particular security arrangements, we are
not in a position to perform such analyses.

Question 19. How much of the loans by U.S. commercial banks to the Pana-
manian Government are guaranteed by external official agencies, such as the
Inter-American Development Bank?

Answer. Although the charters of the Inter-American Development Bank and
the IBRD allow them to guarantee commercial bank loans, neither bank has
ever done so in Panama or any other country.

Ill

[From the Twin Circle, Oct. 9, 1977]
Panama Canal Treaty : A Money Deal — But Not Fob You
(By Paul A. Fisher)

Concern is growing in Congress that there may be more behind the pressure
to approve a new Panama Canal treaty than appears on the surface.

"I'm not sure whether the treaty is intended to help poor Panama or big banks,"
one Capitol Hill source told Twin Circle.

Charles Bartlett, a reporter for the Washington Star, wrote on Feb. 25 :

"The (Panama) regime has put the small nation so deeply in the red that
the canal treaty has no supporters more fervent than the American bankers whose
hopes for repayment rest on a revival of faith in the Panamanian economy."

LINOWITZ REPRESENTED PANAMA

Much of the concern about the Panama negotiations focuses on Special Am-
bassador Sol Linowitz who was the principal negotiator on the canal treaty
because in 1973 he represented the Republic of Panama in its negotiations
with your government.

Mr. Linowitz received a special six-month appointment to negotiate the
treaty. Such an appointment did not require the advice and consent of the
Senate, as do the usual ambassadorial appointments which give Senators an
opportunity to explore the appointee's background.

At the time of his appointment, Mr. Linowitz was quoted as saying he would
not take the job if he had to give up his private business associations.

Further, his business connections at the time of his appointment and for
several months thereafter included membership on the boards of directors of
Pan American World Airways and Marine Midland bank. Both businesses
have considerable financial interest in Panama.

Pan-Am employs 151 people and had $14 million in sales last year, according
to a report furnished to Sen. John Sparkman of Alabama.

LINOWITZ'S BANK LOAN

A similar report concerning Marine Midland was made available by Sen.
Sparkman. It shows that the New York City-based bank has $6.2 million in out-
standing loans to the Panama government as of the first of this year. Additionally,
it had an unspecified share in a $115 million internationally syndicated loan.

Further, Marine Midland, through Intermarine London, owns Bream Shipping
Company. Intermarine also owns two Panamanian special-purpose shipping com-
panies, International Ship Finance (Panama), Inc., and Avon Shipping, Inc.

These latter two companies each own a Panamanian flag vessel on behalf of
Japanese owners. The vessels are financed by Intermarine.

Dr. Louis Gasper, staff consultant to the House Banking Committee told
Twin Circle that as of Jan. 1, a syndicate of 10 American banks had loaned
Panama an estimated $200 million, of which $8 million had been loaned by
Marine Midland. This loan is believed to be an expansion of the $115 million
loan mentioned in Sen. Sparkman's report.

OTHER BANKS TOO

The other banks involved in the $200 million loan to Panama, according to
Dr. Gasper are : Banker's Trust, Bank of America, Chase Manhattan Bank, First
National City Bank, First National of Chicago, Philadelphia National Bank,
First National Bank, First Chicago Bank, and Security Pacific Inter-America
National, which is affiliated with Security Pacific of Los Angeles. (The exact
location of all the listed banks was not known to Dr. Gasper) .

Panama's debt has grown from $167 million in 1969 to approximately $1.5 bil-
lion according to Congressman George Hansen of Idaho and Senator Harry Byrd
of Virginia. While all of this amount is not owed to commercial banks, the World
Bank estimates that fifty percent is owed to such financial institutions. The re-
mainder is owed to quasi-government institutions such as the World Bank, the
Export-Import Bank, and similar organizations.

PANAMA TAX FREE BANKS

According to Sen. Jesse Helms of North Carolina, interest payments alone
will consume 39 percent of Panama's 1977 budget.

Bankers' interest in Panama has grown considerably since 1970, the year that
country enacted a new law which permits banks to operate there tax free. Prior
to 1970 there were in Panama only a handful of banks with assets of a few
million. Today, only six years later, 73 banks with assets of $8.6 billion are
located there.

Dr. Gasper told Twin Circle that in the "next couple of years" Panama will
be the third largest banking center in the world, ranking behind only the United
States and England.

ROCKEFELLER WRITES LAWS

"The new banking law was practically written by David Rockefeller," the con-
gressional banking consultant said.

Dr. James Lucier, staff aide to Sen. Jesse Helms said he did not know who
drafted the new Panamanian bank law, but noted that General Omar Torrijos,
Panama's Strongman, met with New York City bankers shortly after assuming
power in 1969, and the banking law followed the next year.

rockefeller's guest

According to the New York Times, Gov. Nelson Rockefeller met with Gen.
Torrijos in New York City on Sept. 26, 1969, at which time the General spent the
evening at the Governor's Westchester home.

The newspaper added :

"Most of General Torrijos 5 time in New York was taken up in discussions with
banks and financial institutions concerning assistance to Panama."

On Dec. 8, 1969, the same newspaper reported that Gov. Nelson Rockefeller
sent former Assembly Speaker Joseph Carlino to Panama to "advise General
Omar Torrijos how to set up a representative government."

The Times pointed out that neither the State Department (which normally
conducts America's foreign relations), the White House, nor the American em-
bassy in Panama were aware of Mr. Carlino's visit.

According to the Panamanian embassy the new banking law went into effect on
July 2, 1970.

Many Congressional sources and press reports have observed a close tie by the
Carter Administration to the Trilateral Commission, and the issue of conflict of
interest is now being debated.

The Washington Post on Jan. 19 stated that the Trilateral Commission is "a
private international organization put together by David Rockefeller to stimulate
the establishment of dialogue between West Europe, Japan and the United
States.

Among members of President Carter's administration who played important
roles in negotiating the Panama treaty are :

President Carter, Vice President Walter Mondale, Secretary of State Cyrus
Vance, Secretary of Defense Harold Brown, and Ambassador Linowitz.

The treaty of agreement was concluded four hours and 40 minutes before Am-
bassador Linowitz's appointment was terminated.

Question 1. Is it true that David Rockefeller wrote Panama's Banking Law of
1970, a law by which Sidney Wise wrote in the Times of London, April 25, 1977,
"it is clear that Panama grants incentives and privileges to banks operating in
its country of which banks in Switzerland can only dream"?

Question 2. If he was not the law's author, in fact, was he or any of his people
involved in any way whatsoever with its drafting? If so, detail who, how, when,
where, and to what extent.

Answer. Neither the Treasury Department or the Department of State have
any information concerning these questions.

Question 3. 1 Fisher describes Ambassador Sol Linowitz as having represented
the Republic of Panama in 1973. Did Mr. Linowitz ever represent the Republic
of Panama? If so, when and in what capacity? Did he ever represent any private
Panamanian entity?

Answer. Ambassador Sol Linowitz has never represented the Republic of Pan-
ama nor any Panamanian entity.

Question 4. 2 Mr. Linowitz has been Chairman of the Board of Xerox Corpora-
tion which is building an installation at Panama's Tocumen Airport. Please
supply all available information about this facility. Is Xerox to have any special
tax breaks from Panama for expanding its operations there? •

Answer. Mr. Linowitz left Xerox Corporation in 1966 and has not been an
officer or a director of that company since.

Question 5. 3 Please supply any additional data, available regarding operations
in Panama by Pan American World Airways and Marine Midland and its
subsidiaries.

Answer. Pan American World Airways and Marine Midland submitted
memoranda to the Department of State on their operations in Panama prior to
Mr. Linowitz' appointment as Ambassador in February 1977. These memoranda
have been published in the Congressional Record on March 10, 1977 (S. 3992). 4

Question 6. Please supply such data on affiliated or subsidiary corporations, if
any, of other U.S. banks operating in Panama.

1 This information was supplied by the State Department.

2 This information was supplied by the State Department.

3 This information was supplied by the State Department.
* See Appendix I, A (Exhibit 2).

Answer. In Question 14 relating to the London Times series of questions,
we have provided a list of U.S. banks operating in Panama. While the Comptroller
of the Currency may have some material relevant to the operations of affiliated
or subsidiary corporations of U.S. banks operating in Panama, it does not have
the comprehensive information necessary to answer this question accurately.

Question 1A. Please submit for the record details dating from January
1970 on individual U.S. commercial bank loans to the Government of the Republic
of Panama and any of its agencies by date, name of bank and the amount in-
volved, etc., and terms of repayment, dates and amounts of interest due, dates and
amounts of principal due and indicate loans from foreign branches. Please sub-
mit the same information for consolidated and syndicated loans to Panama by
U.S. commercial banks. Submit the same for individual or syndicated loans
from foreign commercial banks.

Question 10. Submit data (similar to that requested in Question 7A above) on
loans to the private sector in Panama made by U.S. commercial branches and
affiliates.

Answer. Attached is a listing of long-term external borrowings by Panama
from year-end 1972 through June, 1977. These data, extracted from a World
Bank report, give the available information on individual commercial bank
loans to Panama and are largely limited to publicly announced syndicated com-
mercial bank credits. While the Comptroller of the Currency may have some
material concerning individual bank loans to the Republic of Panama, it does
not have the comprehensive information necessary to answer this question
accurately.

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Question 7B. Please total Panama's total current debt :

a. to United States commercial banks ;

b. to foreign commercial banks, and

c. to government and quasi-government lending institutions, after citing source,
date and amount of each loan and any default, postponement or roll-over in its
regard.

Answer. According to World Bank data, as of December 31, 1976, Panama's
public and publicly guaranteed medium- and long-term external debt amounted to
$1.1 billion (disbursed only), including the following categories of debt:

1 Approximately three-quarters of bilateral loans to Panama consist of USG loans. A
detailed listing of these USG loans as of December 31, 1976, is attached. There has been
no default, postponement, or roll-over of any of these loans.

It should be noted that these figures do not include either private, unguaranteed
debt or debt with a maturity of one year or less. At the present time, there is no
comprehensive source of data on these categories of Panamanian debt available to
the Treasury.

Millions

Suppliers credits-
Private banks

U.S. banks

Public bonds

Multilateral loans
Bilateral loans 1 — .

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Question 8. What is the current ratio of international earnings to total earn-
ings of the 13 (or more) U.S. banks operating in Panama?

Question 9. In each of those banks, what portion of international earnings are

(a) from assets in Panama?

(b) from assets in other countries earned by way of Panama branches?
Answer. We will attempt to provide the Subcommittee with some informa-
tion on this subject as soon as possible.

See Appendix C for answers to Questions 8 and 9.

Question 11. According to the Wall Street Journal, April 16, 1976, Wells Fargo
Bank organized a lending group to provide $19 million for a sugar mill in
Panama and the Government of Panama guaranteed the loans. In the United
States our public debt figure does not reflect all government obligations, for
example, unfunded Social Security, Veterans Benefits or guarantees such as to
Lockheed Corporation and New York City.

(a) Does Panama's public debt figure include such amounts as the guarantee
of the loan for the sugar mill, and the like?

(b) If it does not, what is the extent of such guarantee?

Answer. Yes, Panama's public debt figure does include loans guaranteed by
the Government of Panama.

On August 28, 1977, Panamanian citizen Leopoldo Aragon sent a letter to
President Carter from Sweden where he resided. In that letter, Aragon, who
died by self immolation two or three days later, stated the following :

"In that manner Torrijos had the means to silence the Panamanian people by
sheer terror, crushing all freedoms and human rights, including freedom of
speech and assembly, and banning all political parties, so he could perpetrate the
role assigned to him — the deliverance of the canal treaties — without interference
or criticism. Meanwhile, with U.S. connivance, he, with his sole signature, could
obtain foreign loans in the name of the Republic of Panama, and pocket the
proceeds at his discretion. In fact he has, by name, the constitutional right to do
so according to Article 277 of his tailor-made "Constitution" of 1972, approved
by his rubber stamp Assembly. Thus Panama is saddled today with the highest
per capita foreign debt, again, with the exception of Israel, in the whole world."

1. Is it true that Torrijos could obtain foreign loans for Panama with his sig-
nature alone?

2. If not, what individual, or group of individuals, must sign for such loans?
Answer. The Treasury Department does not presently have the information

available to answer these questions, but will attempt to provide an answer for
the record.
See Appendix C.

In the London Daily Telegraph, March 3, 1977, an article entitled "Britain
Once Ruled Sea and So Must Approve Panama Transfer" by Desmond Wettern,
Naval Corresyndent, appeared. The article states in part :

BANKING INTERESTS

The use of th£ Panama Canal by British warships is now small. In 1976 a
task group of some nine ships used it returning from a nine-month series of
exercises and visits east of Suez, but since then no British warship has navigated
the canal either way, I understand.

Apart from political considerations the Carter Administration is also believed
to be under pressure from American banking interests to hand the canal over
to Panama.

ACCESS TO PROFITS

American and international banks, including the London branch of Chase
Manhattan, are believed to have lent the Left-wing regime of President Torrijos
of Panama large sums and are anxious to obtain interest on their loans. It is
felt that interest payment will be possible only if Panama has access to profits
from canal dues.

British banks believed to have provided loans include the Orion Bank, William
Brandts' and Son and Lloyds, and Bolsa International.

Question 1. Identify Chase Manhattan (London) loans to Panama (unless
shown elsewhere).

Question 3. Give details of any loans to Panama by such U.S. bank affiliates
(unless shown elsewhere).

Answer. While the Comptroller of the Currency may have some material
relevant to answering these questions, it does not now have the comprehensive
information necessary to answer the questions accurately.

Question 2. Identify all foreign banks owned in whole or in part by each of the
U.S. banks which operate in Panama.

Answer. Attached are extracts from the February 22, 1977 issue of "American
Banker" listing the U.S. banks which operate in Panama and identifying
affiliates of each bank in all foreign countries.

[Subcommittee note: Full pages are reproduced from the publication. Banks
which operate in Panama show such activity under the subheading, "Panama."
The first of the extract pages lists the various U.S. banks and their locations in
Panama.]

25-605 O - 78 - 6

32B

AMERICAN BANKER

February 22. 1977

Index to International Activities

(Continued from preceding page)

NIGERIA

Kino

•ink of America NTASA, San Fran-

La got

Bank of America NT43A, San Fran

Bankers Trust Co, New York.
Chase Manhattan Bank N A, New York
Citibank NA. New York.
First National Bank. Chicago.

Port Hareourt

Bank of America NTASA, San Fran

Continental Illinois National Bank A

Trust Co., Chicago.
First National Bank of Maryland. Bal-

Manufacturers Hanover Trust Co., New
York.

Morgan Guaranty Trust Co., New
York.

New Jersey Bank NA, West Paterson.

st. Kins

nk of America NTASA, San Fran-
Sandy Point*

ink or America NT4SA, San Fran-
cisco.

NORWAY

Oslo

Citibank NA. New York.

Manufacturer

Hanover Trust Co.,

OMAN

Matt**

Bank of America

Muscat

Citibank NA, New York.
Rand

oCltibank NA, New York.

PAKISTAN

PHILIPPINES

Cebu

Citibank NA, New York.
Clark Air Force Bate

First National City Bank, New York.
Makati

American Express International Bank-
ing Corp., New York.
Bank of America NTASA, San Fran-

Marine Midland Bank-New York.
Philadelphia National Sank.

Manila

nk of America NTASA, San Fran

TASA, San Fran

American Express International Bank-
ing Corp., New York.
Bank of America NTASA, San Fran-
Citibank NA. New York.
Continental Illinois National Bank A

Trust Co.. Chicago.
Morgan Guaranty Trust Co., New York.

American Express International Bank-
ing Corp., New York.

Bank of America NTASA, San Fran-
cisco.

Citibank NA, New York.

PANAMA

Chase Manhattan Bank NA, New York
Clti&n.k. NA. K:« York.
Canal Zone

k NA, New York

Bank of America NTASA, San Fran

(CISCO.

Chase Manhattan Bank NA, New York

Citibank NA, New York.
Colombia

Mercantile Trust Co, St. Louis.
David

Bank of America NTASA, San Fran

Citibank
La Conception

Chase Manhattan Bank NA, New York.

Las Tablas

Citibank NA, New York.
Panama City

Bank of America NTaVSA, San Fran-

Bankers Trust Co.. New York.
Chase Manhattan Bank NA, New York
Citibank NA. New York.
First National Bank of Boston.
First National Bank, Chicago

Midiantic National Bank, Newark.

Philadelphia National Bank.

Security Pacifio National Bank, Los

Angeles,
thawmut Bank of Boston, NA.
State Street Bank A Trust Co , Boston.
Wells Fargo Bank NA, San Francisco.

Chase Manhattan Bank NA, New York

PARAGUAY

NTAS A, San Fran

Citibank NA, New York.
Puerto Stroessncr

Citibank NA, New York.

PERU

.ima

American National Bank A TVs ;t Co..
Chicago.

Bank of America NTAIA, San Fran

Citibank NA. New York.
Citirens A Southern National Bank
Atlanta.

I A. San Francisco.

NA, New York.

New York.

Continental
Trust Co
Crocker Na
Fidelity Ba

Chicago

San Francisco,
ladelphia.
First National Bank of Boston.
First National Bank, Chicago.
Manufacturers Hanover Trust Co.,

New York.
Marine Midland Bank, New York.
Mellon Bank NA, Pittsburgh.
Morgan Guaranty Trust Co, Now
National Bank of Detroit.
oPacific National Bank of Washington,
Seattle.
Philadelphia National Bank.
• Rainier National Bank. Seattle.
Security Pacific National Bank, Los

United California Bank, Los Angeles.
Wells Fargo Bank NA, San Francisco.

POLAND

Warsaw

First National Bank, Chicago.

PORTUGAL

Lisbon

First National Bank of Boston.

PUERTO RICO

Arecibo

Citibank NA, New York.

Bayamon

Chase Manhattan Bank NA, New York
Citibank NA, New York.
Caguas

Chase Manhattan Bank NA, New

York.

Citibank NA, New York.
Caparra

Chase Manhattan Bank NA, New York
Carolina

Chase Manhattan Bank NA, New York

Citibank NA, New York.
Hato Rey

Chase Manhattan Bank NA, New York
Mayaguez

Citibank NA, New York.

Ponce

Chase Manhattan Bank I
Citibank NA, New York

nhattan Bank I

A. New York

Citibank Na
Santurce

Doha

Chase I
Clliban

OATAR

I NA, New York

RAS AL KHAIMAH

Rai Al Khaimah

Citibank NA, New Yark.

ROUMANIA

RWANDA

Kigali

Bank of America NTASA, San Fran

Cisco.

Morgan Guaranty Trust Co.. New

ST. LUCIA

Chaic Manhattan Ba

SAMOA (AMERICAN)

Pago Pago

Bank of Hawa
Citibank NA, New

SAUDI ARABIA

leddak

«A. New York.

Riyadh

.bank NA, New York.

SCOTLAND

Edinburgh

American Express International Bank-
ing Corp., New York.
Bank of America NTASA, San Fran-

•Chemical Bank, New York.
Continental Illinois National Bank A

Trust Co.. Chicago.
First National Bank, Chicago.
• Manufacturers Hanover Trust Co..
New York.

SENEGAL

nerica NTASA, San Fran

Bankers Trust Co., New York.
Citibank NA, New York.
Fidelity Bank, Philadelphia.
Morgan Guaranty Trust Co,
York.

SHARJAH

Sharjah

Chase Manhattan Bank NA, New

York.

Citibank NA. New York.
First National Bank, Chicago.

lurong

SINGAPORE

NA, New York.

Singapore

American Express International Bank-
ing Corp, New York.

Bank of America NTASA, San Fran-
cisco.

Bank of New York.

Bankers Trust Co, New York.

Chase Manhattan Bank NA, New

Chemical Bank, New York.

Citibank NA, New York.

Citizens A Southern National Bank.

Continental Illinois National Bank A
Trust Co, Chicago.

• First National Bank of Boston.
First National Bank, Chicago.
First National Bank in Dallas.

First National Bank of Oregon, Port-
land.

First National City Bank, New York.
First Pennsylvania Bank NA, Phila-
delphia.
Girard Bank, Philadelphia.
Harris Trust A Savings Bank, Chi-

• Industrial National Bank, Providence.
Irving Trust Co, New York.
Marine Midland Bank, New York.
Morgan Guaranty Trust Co, New

Northern Trust Co, Chicago.

• Pacific National Bank of Washington,

Seattle
Pittsburgh National Bank.
Rainer National Bank, Seattle.
Republic National Bank, Oallas.
Seattle-First National Bank.
Security Pacific National Bank, Lot

State Street Bank A Trust Co, Boston
United California Bank, Los Angeles
United States National Bank, Portland
Wells Fargo Bank NA, San Francisco.

SOUTH AFRICA

Johannesburg

Citibank NA. New York.
European-American Banking Corp. A

European- American Bank A Trust

Co , New York.
First National Bank of Boston.

SPAIN

lilbao

Bank of America NTASA, San Fran

Continental Illinois National Bank A
Trust Co, Chicago.
• Security Pacific National Bank, Los

Bankers Trust Co, New York.
Chase Manhattan Pank NA, New York.
Chemical Bank. New York.
Citibank NA. New York.
Continental Illinois National Bank A
Trust Co, Chicago
First National Bank of Boston.
First National Bank. Chicago.
First National Bank of Miami.
First National City Bank, New York.

Trust Co,

Manufactu

New York.
Marine Midland Bank. New
Morgan Guaranty Trust

SRI LANKA

ibank NA. New York.

SWEDEN

Stockholm

•Citibank NA, New York.
First National Bank of Boston.
First National Bank. Chicago.

SWITZERLAND

Basle

American Express International
Ing Corp, New York.
Ceneva
American Express International
Ing Corp , New York.
• American Fletcher National

Bank of America NTASA. San Fran-
cisco.

Chase Manhattan Bank NA, New

York.

Citibank NA. New York.

Continental Illinois National Bank A

Trust Co, Chicago.
Fidelity Bank. Philadelphia.
First National Bank of Boston.
First National Bank. Chicago.

Marine Midland Bank. New York.
Morgan Guaranty Trust Co, Now

York.

Northern Trust Co, Chicago.

United States Trust Co. of New York.

Lausanne

American Express International Bank-
ing Corp, New York.
Citibank NA, New York.
Lugano

Bank of America NTASA, San Fran-
Citibank NA. New York.

Zug

Chemical Bank, New York.
Continental Illinois National Bank A

Trust Co, Chicago.
Mellon Bank NA, Pittsburgh.
Zurich

American Express International Bank-
ing Corp, New York.

Bank of America NTASA, San Fran-
cisco

Bank Leuml Trust Co, New York.
Bankers Trust Co, New York.
Brown Brothers Harrlman A Co, New

Chase Manhattan Bank NA. New York.
Chemical Bank. New York.
Citibank NA. New York.
Continental Illinois National Bank A

Trust Co, CttSOKSJVA
First National Bank of Boston
Girard Bank, Philadelphia.
Manufacturers Hanover Trust Co,

New York
Morgan Guaranty Trust Co., Now

York.

Seattle-First National Bank.

TAHITI

Papeete

Bank of Hawaii, Honolulu.
Tahiti

Citibank NA. New York.

TAIWAN

Taipei

American Express International Bank-
ing Corp, New York.
Bank of America NTASA, San Fran-

• Rank of California NA, San Francisco,
•ankers Trust Co, New York.
Chase Manhattan Bank NA, New

York

Chemical Bank, New York.

Citibank NA, New York.

Continental Illinois National Bank A

Trust Co, Chicago.
Fidelity Bank. Philadelphia.
Irving Trust Co N-w York.
Morgan Guaranty Trust Co, New

(Continued on page 55Al

February 11. 1977

AMERICAN BANKER

International Activities of United States Banks

The Information in this listing
was supplied by the banks them-
selves, by the Federal Reserve Board
and taken from the files of the
American Banker. Unless otherwise
indicated, the information is as of
Dec. 31, 1976 Questionnaires were
sent to the 300 largest banks in the
United States, as well as to a num-
ber of smaller institutions that are
known to be actively engaged in
international banking. Following is
the ninth annual revision of the
American Banker tabulation: ,

ALABAMA

Birmingham

BIRMINGHAM TRUST
NATIONAL BANK

(A Subsidiary of Southern
Bancorporation of Alabama,
Birmingham)

International banking policy:

By virtue or its 13 banking subsidi-
aries. Southern Bancorporation is repre-
sented in the major market areas of
Alabama, and BTNB's International de-
partment was established to serve the
state's international banking needs
through these affiliates. Working with
its foreign correspondents, BTNB stands
ready to assist Alabama companies ex-

ing businesses, a strong commitment h
been made to provide the innovatii
competence and expertise

"Our major objectives are: to pro-
mote the expansion of International
trade; to facilitate the Importation and
exportation of goods through our own
port as well as the many others found
in our area; to provide a full range of
International services to our customers
and correspondents wherever the serv-
ices are needed."

FN8 Mobile serves the International
needs of the holding company's four
other subsidiary banks throughout Ala-
bama.

Correspondent balance relationships:
The First National Bank of Mobile

banks in eight countries, and 31 for-
es maintain
bile. Corre-
spondent agency arrangements are main-
tained with over 300 overseas banks, a
number of which maintain branches
lich FNB

dent balances in 14 countries. Principal
account relationships are' Mexico, Japan,
England, West Germany, Netherlands,
Switzerland, France, Asia, Peru and
Spain. In addition, 33 banks from 10 for-
maintain correspondent
the international depart-

|eign

FIRST NATIONAL BANK OF
ARIZONA, PHOENIX
(A Subsidiary of Western Bancorp,
Los Angeles)

International banking policy:

"To provide a full range of Interna-
tional banking and financial services for
customers and correspondent banks, to
encourage and assist customers in ex-
panding their involvement in interna-
tional cor
trade and i
southwesterr

See listing

The

CROSS INDEX BEGINS ON
PAGE 28B
n Banker list of Inter

national Activities of U. S. Banks
includes a cross index of banks abroad
by country. New activities for 1976
are indicated m the Index by a (•).

This reference shows the name of
each U. S. bank represented in each
foreign country; the type of facility

country sub-headi
ranged alphabetii

the

througho

their international
nplete range of docu

itary

foreign Investment."

THE FIRST NATIONAL BANK OF
BIRMINGHAM
(A Subsidiary of Alabama
Bancorporation, Birmingham)

International banking policy:

"The First National Bank of Birming-
ham established an international de-
partment to service the growing needs
of our customers for international bank-
ing facilities. Our centralized location In
Alabama allows us to fully serve the
domestic and International needs of the
Important and growing industries of
Alabama, Mississippi, Georgia, Florida
and Tennessee. We emphasize traditional
International banking services, such as
export financing using Exim Bank,
FCIA, and straight country exposure.
Import financing, letters of credit, pur-
chase 'sale of foreign exchange, and for-
eign collections. Using our network of
foreign correspondents and foreign gov-

companies to Increase their export trade
or introduce them to world trade."

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

MEXICO
Mexico City: Representative.
Correspondent balance relationships:

Through accounts and agency agree-
ments FNB of Birmingham has direct
access to banks in world financial centers

Mobile

AMERICAN NATIONAL BANK
& TRUST CO., MOBILE
(A Subsidiary of Alabama
Bancorporation, Birmingham)

International bonking policy:

"Our International banking services
run the complete gamut of international
business activities, be it trade (or com-
merce). Our main area of concentration
Is Latin America with special emphasis
•n Mexico. Our close personal contacts
and knowledge of these areas have
proved most beneficial to our custo-

THE FIRST NATIONAL BANK
OF MOBILE
(A Subsidiary of First
Bancgroup-Alabama, Inc., Mobile)
International banking policy:

"First National Bank In Mobile main-
tains an aggressive International depart-
ment, staffed by a knowledgeable and ex-
perienced staff and designed to provide
fast, efficient, personal service to cor-
porate customers and financial Institu-
tions, both domestic and foreign. In an-

MERCHANTS NATIONAL BANK,
MOBILE

(A Subsidiary of Southland
Bancorporation, Mobile)

International banking policy:

"Our principal activity Is In the fi-
nancing of our customers' export and
import transactions, and In doing so we
have always concentrated on two factors:
to help them keep the business they
have on a sound and profitable basis;
and to provide the facilities they need
to develop new promising areas of opera-
tion.

"We maintain facilities to meet all
types of International financing require-
ments, supplementing thoss of our own
bank with those of the correspondent
banks with whom we keep close contact
in most countries of the world. By work-
ing as closely as possible with our cor-

nited States."

■ United California Bank,! . , .
Los Angeles, principal subsidiary of LOS Angeles
Western Bancorp.
Representation overseas:
BAHAMAS
Nassau: One branch.
Correspondent balance relationships:
First National maintains corresponds

CALIFORNIA

LLOYDS BANK CALIFORNIA,
LOS ANCELES
(A Subsidiary of Lloyds First
Western Corp., a wholly-owned
subsidiary of Lloyds Bank, Ltd.,
London)
V. S. Subsidiary:

FIRST WESTERN BANK INTER-
NATIONAL, CORP., LOS ANCELES

This state-chartered corporation Is
capitalized at $2 million.

vide the services our domestic customers
need overseas and, at the same time, be
of good service In this market to our

VALLEY NATIONAL BANK,
PHOENIX

Infernaiional banking policy:

"At the largest bank in the Rocky
Mountain Area", w. are we,, versed i i
oversea, banking to serve Southwestern j ^ tra^ricC

firms in their International business activ- — . . . . ...

itles. Our service, include foreign trad, j Correspondent balance relationships.
financing, participation In foreign loan
syndications, letters of credit, collections,
overseas transfers of funds, foreign ex-
change and trade inquiries. We believe

the close cooperation wit

Lloyds

all major trading currencies. Accounts
from approximately 200 banks are held
by Lloyds Bank California, a member of
Lloyds Bank Group which has offices

er 40

elation-

ig frl

not now foresee a need for our
own branches In other countries."
Correspondent balance relationships:

Merchants National holds correspon-
dent accounts from 16 banks In nine
countries and maintains accounts with
22 correspondent banks in
plus agency arrangements in othe

ing friends overseas with whom
tain over 1,000 correspondent
ships In major cities throughout thi
world.

U. S. Affiliate:

ALLIED BANK INTERNATIONAL
NEW YORK
Valley National is one of ,8 member!
banks of Allied. See listing for Allied : mil
International under New York. g a

MANUFACTURERS BANK,
LOS ANCELES

International banking policy:
"Manufacturers Bank, Los Angeles.

has 8 locations. 7 of them In Los An-
geles County, and one In Orange County.

"Having reached $368 million In re-
sources by the end of 1976 from S334
million a year earlier, Manufacturers
follows a policy of providing the

ALASKA
Anchorage
NATIONAL BANK OF ALASKA,
ANCHORACE

International banking policy:

"The National Bank of Alaska, the
largest bank in Alaska, provides complete

and full international banking services,
with our main activities being assisting
the exporter and importer In order
to promote and expand the foreign trade
of Alaska. At present, we have no
representative office overseas, but we
will make annual visits to the banks and
companies in the major marketing areas
of the Far East."

Correspondent balance relationships:

National Bank of Alaska maintains
balances with five foreign banks, and

Representation overseas:
BAHAMAS
Nassau: One branch.
Correspondent balance relationship
Valley National has S4 foreign

I highest qu

nging probli

bank

its du

with NBA. NBA also maintains agency
arrangements with approximately SO
overseas banks.

ARIZONA

Phoenix

THE ARIZONA BANK, PHOENIX

International banking policy:

nternational pol-

-fold:

fac

to Arizona's fast-growing International
trade; and to generate income from par-
ticipation in other profitable interna-
tional banking activities related to world
trade. The department is a separate
profit center contributing substantially to

overseas branch in the Cayman Islands
for Eurocurrency transactions."
Representation overseas:

CAYMAN ISLANDS
George Town: One branch.
Correspondent balance relationships:
Arizona Bank maintains 36 correspon-

ARKANSAS
Little Rock

FIRST NATIONAL BANK IN
LITTLE ROCK

International banking policy:

"Our main objective is to provide oi
customer base, which is statewide, with I
international services as they need them.
We have the capabilities to offer any In* I
ternational banking service that they
might need from travelers foreign ex- 1
change to financing exports through,
FCIA and Eximbank. Our customers in-
clude exporters, importers and Arkansas |
correspondent banks.

"We also actively promote exporting
from the state of Arkansas through our
call program and association with sev-
eral international businesses and organi-
zations. We hope to encourage manufac-
turers and the agricultural sector in our
state to look into expansion of their sales

Correspondent balance relationships'

Through accounts and agency agree-
ments. First National Bank in Little
Rock has access to banks in world finan-
cial centers to service our customer
needs world wide.

WORTHEN BANK & TRUST CO.
NA, LITTLE ROCK
(A Subsidiary of First Arkansas
Bankstock Corp.. Little Rock)

International banking policy:

"International trade activities, spurred
by the 1971 opening of the Arkansas
River to navigation, are sharply increas-
ing the demand for new banking serv-
ices. We are staying ahead of this
demand. Through direct relationships
with foreign banks, their New York
offices and large U.S. banks, our custom-
ers receive quality services efficiently
provided.

"We have actively participated In trad

"The bank s specialty is largely in fi-
nancing the shipment of goods. Our
ability to do this has been enhanced
by the establishment of our fine network
of correspondent banks. By having such
a broad and profitable relationship with
our correspondents, we are thus able
to effectively assist international oriented
companies with financial packages tail-
ored to their Individual requirements."

ondent balance relationships:

San.

:nt balances with 35 banks in
countries; 19 foreign banks
13 countries maintain correspondent b
ances with Manufacturers Bank; a
120 foreign banks have agency arranc,

SECURITY PACIFIC NATIONAL

BANK, LOS ANCELES
(A Subsidiary of Security Pacific
Corporation, Los Angeles)

International banking policy:

"Security Pacific Corporation, primar-
ily throuSh its principal subsidiary, Se-
ity Pacific Bank, constantly explores
ious possibilities of overseas
n- This expansion may assume
m of investments, represen-
ffices or full-service branches,
cisions are always based upon
the requirements of our cus-
responden

the va

tional banking and financial services.
"In addition, Security Pacific Bank

ber of correspondent banking relation-
ships throughout the world, and, in turn,
extends its presence overseas. These
relationships complement the bank's
ability to serve its customers on a mul-

U. S. Subsidiaries:

SECURITY PACIFIC
INTERNATIONAL BANK, N. Y.
This Edge Act subsidiary of Security
Pacific Bank, incorporated in 1968. is
capitalized at $16 million.
SECURITY PACIFIC OVERSEAS
CORPORATION, LOS ANCELES

SPOC is an investment Edge Act Cor
poration capitalized at $6 million.

(Cnntinued on nrxt pigei

AMERICAN BANKER

February 22. 1977

International Activities

i Continued from prereeltn*; paae)
SECURITY PACIFIC OVERSEAS

INVESTMENT CORPORATION
LOS ANGELES

A subsidiary of Security Pacific Over-
Kll Corporation, SPOIC was organized
for tlx purpose of making overseas In-

Rtpre levo'-'oi ovefieos.-

AUSTRALIA
Melbourne: Tricontinental Corporation,

bank with offices in Sydney, la 24%
owned by SPOIC.
Sydney: Representative office.
Security Pacific Australia Ltd, a

* * 1 BAHAMAS
Nassau: One branch.

BELGIUM
Brussels: One branch.

BERMUDA
Hamilton: Security Universe Ltd. Is 50*i
owned by Security Pacific Corp. and
has finance subsidiaries and affiliates
In Hong Kong and the United King-

Rio de Janeiro: Banco Oenasa de In-
vestments, 5 * one of Brazil's larg-
est merchant banks, headquartered in
Rio de Janeiro with branch offices In
Brasilia, Sao Paulo, Belo Honzonte
and Porto Alegre. SPOIC has a 20*.
Interest in Banco Denasa.

Sao Paulo: Representative office.
ENGLAND

London: One branch and European head-
quarters office of the

rvlng the In-
ternational requirements of Its clientele.
It has representative offices In five over-
seas locations with minority Inve s tment
positions In financial Institutions princi-
pally surrounding the Pacific Basin. Its
main emphasis lies In lending from Lea
Angeles with some placing of Its Euro-
currency loans from its Nasaau branch."

u. s. y.i»fiT»fi

UNION INTERNATIONAL BANK,
LOS ANGELES
This Edge Act corporation was estab-

Repreientaiion overseen:
BAHAMAS
Nassau: One branch.

BRAZIL

Rio de Janeiro: Representative effic*.

ENGLAND
London: Representative office.

HONG KONG
Hong Kong: Representative office.

Saitama-Union (International) Hong
Kong Ltd. Union Bank has a minority
interest In this financial Institution.

JAPAN
Tokyo: Representative office-
Sun Lease Co, Ltd. Union Bank has
a minority interest In this leasing com-

bed an International department to i BRAZIL
rvlee its local customer*' trad* ftnanc- [ an* ** Janelr*: Represent* tiv* c» ce.
g, international Investment and foreign &m Paula: Regional •Witt-
change need*. Through an expanding lBttrMej#-a , »_ A xuz4 A Hold
.K^TTr^:.™^ ■ »0* <"roct lotcrest In - i ba.k whkc
able to foreign Branch*, in Recife, Santo* and Ri
clienU -U trade. L, Jtntln _
rv.ee. ,n South- 1 BRUNEI

Bandar Scri Begawan i On* branch.
Correspond 1 **/ Wane* rc/ofiomaip*: BURUNDI
San Diego Trust is in the process *f | Bujumbura: Banque Comanerclakt *

makes avail

establishing reciprocal accounts l* major

Son Francisco

BANK OF AMERICA NT&SA.
SAN FRANCISCO
(A Subsidiary of BankAmenca Corp.,
San Francisco)

TMi bank, with a branch In
Gitega. is owned by SFOM, a BOANY
affiliate (see Switzerland).

CAMEROON
aoundc: Ban que International* pour

SFOM. l

B0A«

.see Switz-

Canada. BOANY

CANADA
Montreal Trust Co, Ltd,
largest trust company
P »%.

Shutoken Lease Co, Ltd. Union Bank
has a minority interest in this leasing
company.

MEXICO

Mexico City: Representative office

VENEZUELA
Caracas: Representative office.
Security Pacific International Leasing ' Carmpondent balonct nloiionihipi:
(Europe), Inc, a subsidiary of the hoM-| Union Bank has 280 accounts from
■ ng company, has a branch in London. foreign banks and maintains 91 accounts
Western American Bank ( Europe) j abroad.

I."*" owne7T-bsXritt t M ba se k : ' UNITED CaTHfORNIA BANK,
currty Pacific National Bank. | LOS ANCELES

"'owned 1 br^urrt^n'iverL^L-td 00 :,;'* Bancorp.,
Hamilton, Bermuda, is based here and I LO *
has fiv* branch** In the U. K, /*f*mo/rO»oV banking policy:

FRANCE -United California Bank'* fortlgn ex-

Paris: Representative office I pension policy Is on* *f branch and/or

GERMANY en* acqulsitlan *f, or Investment In, for-

Frankfurt: On* branch. ,i gn tanking institutions. Correspondent

Munich: Security Pacific International '
Leasing (Europe), Inc: one branch.
HONG KONG
Hong Kong: Asia and Australasia head-

overseas expansion and operation. In
order to bulM and operate a truly Inter-
national banking system, ft employs
branches, subsidiaries, representative of-
fices and investment participations.

-By yearend If 71 »
13.000 staff members
World Banking Division at dlv
headquarters i
London as well
able to offer a

wholly-owned subsidiary *f BOANY.
Vancouver: North Con t in ent Capital Ltd.
Is an affiliate *f BankAmenca Cc-c .
with office* in Vancouver, Calgary, Ed-
I m oat o n, Montreal and Toronto,
vcr CAYMAN ISLANDS

the George Town: One branch.

World Bank 4 Trust Corp. (Cayman)

Tokyo, Caracas and Ltd, a subsidiary of Wobaca
in the U. S. that are Co, (Luxembourg) in which BofA n a
II range of wholesale ; substantial shareholder,
and commercial banking services. Cor- 1 CHANNEL ISLANDS

responding relationships are maintained jersey: One branch,
globally, in particular where the bank Bank of America (Jersey). Ltd, a fun
has direct office or affiliate- There arc | servic* commercial bonk, ta • whsily-
9 branches, currency units and repre- owned BofA subsidiary.

!t , h J^ CHILE

Santiago: Representative t ' :e

Financicra America ri* Chile, S-A, a

sentative offii

through a global system equipped to

COLOMBIA

International objectives."
! U. S. Siifcuic/ioriej:

UNITED CALIFORNIA BANK
INTERNATIONAL, NEW YORK
I This Edge Act unit Is capitalized at

SPOIC holds a majority intert
ink of Canton, Limited, a
■I Hong Kong-based bank I

ensed branches' in Hong Kong | *nd UNITED CALIFORNIA OVERSEAS

INVESTMENT CORP.,
LOS ANCELES

on* each in Bangkok. Thailand; Kuala
Lumpur, Malaysia: and Singapore. In
addition. It own* a banking subsidiary

Edge Act Subsidiary which holds
n of UCB's Investment* In foreign
:lal Institution*.

Security Unlvero* (Hong Kong) Ltd.
I* BCr% owned by Security Universe Ltd.
*f Hamilton, Bermuda.

JAPAN r?ep/»j»«fofiCWI ortnem:

Tokyo: On. branch AUSTRALIA

MALAYSIA Melbourne: Euro-Paclflo Finance Corp..

Kuala Lumpur: Branch *f Bank of Can- i Ltd. UCOIC has a minority Interest
ton, Hong Kong, an SPOIC subsidiary. \ |„ this medium and long term financial
MEXICO Institution.
Msxlc* City: Representative ■»««. Sydney: Representative «fflc«.

NETHERLANDS I BAHAMAS

Amsterdam: Security Pacific Interna- Nassau: One branch,
tlonal Leasing (Europe) Inc; one; BELGIUM
oranch. I Bruoseki: Oh branch.

BRAZIL

[ Rio d* Janeiro: Representative sfflc*.
ENGLAND
One branch.

HONG KONG

NEW ZEALAND
Kuckland: Marac Holdings, Ltd,
Auckland-based holding company vi
three wholly owned subsidiaries In- 1
eluding Marac Finance Ltd, Marac i
International Ltd, and Marac Corpora-

tion Ltd, I

owned by SPOIC
PANAMA
Panama City: Security Pacific

Kong: Representative office.

nternational Capital Ltd
merchant banking subsidiary whi
(Panama). S-A. This wholly owned I owned by UCOIC.
bank augments the capabilities of both INOONESIA
Security Pacific Interamerican Bank, i Jakarta: Representative office.
S.A. and Security Pacific Natii

Bank in Panama.

Security Pacific
S.A. In th« Republic of Panama. This
jc r; venture regional bank, of which
SPOIC owns SO*., serves the short and
medium term lending markets through-
out Central America.

PHILIPPINES
Manila: Regional *ffic* of the bank.
SINGAPORE

Branch *f Bank of Canton. Hong Kong.
• n SPOIC subsidiary.

SPAIN

Barcelona: Security Universe Espana
S-A. Is owned by Security Pacific
Corp.

TAIWAN
Telp«i: Representative office.

THAILAND
Bangkok: Branch of Bank of Canton
Ltd . Hong Kong, an SPOIC subsidiary

Corr.ipond.nf fco'onc* nloiionihipi:

Corre.pondent relations arc maintained
nan )S0 leading banki

with

UNION BANK, LOS ANCELES
(A Subsidiary of Union Bancorp,

LOS Anrrlci

/n/emofi'ono/ bonting policy:

opted ■

IRAN

Teheran: Represenutiv* sffic*.

JAPAN
Tokyo: One branch.

MEXICO

Mexico City: Representative effk*.
PERU

Lima: R*pre*entativ« office.

PHILIPPINES
Manila: Representative effk*.

SINGAPORE
Singapore: On* branch.

SPAIN

Madrid: Representative offke.

TAIWAN
Taipei: On* branch.

VENEZUELA
Caracas: Representative «fflc*.
Cotmpo*d*nt bo/once nloiionihipi:
United California Bank maintain* 1
deposit accounts with foreign ban
and Mt foreign correspondent banks
maintain accounts with UCB.

Son D/ego

SAN DIECO TRUST &
SAVINCS BANK
(A Subsidiary of San Die-fO
Financial Corp.)
/nfernofiono/ bowsing policy:
-San Dlegs Trust r*c*nlly ha* rstab

U. S. SabW.fjrics:

BAMERICAL INTERNATIONAL
FINANCIAL CORP. (BIFC),
SAN FRANCISCO
BANK OF AMERICA
NEW YORK (BOANY)
BANK OF AMERICA
INTERNATIONAL OF CHICAGO

BANK OF AMERICA
INTERNATIONAL OF FLORIDA
(MIAMI)

BANK OF AMERICA
INTERNATIONAL OF TEXAS
(HOUSTON)

Reprejenfcrfion oreneoi:

ABU DHABI
See United Arab Emirate*.

ANGUILLA
Th* Valky: On* branch.

ARGENTINA
Buenos Air**: Four branch**.

AUSTRALIA

BOANY

which BofA has a minority interest,
ha* b ra nc he s k* Barranquilla, Cad,
Medellin, and four in Bogota.

CONGO

Brazzaville: Union Congelala* de Banque,
with branches la Del hue and Psint*-
Noire. is owned by SFOM, a BOANY

COSTA RICA

Melbourne: MBC

InternatlonaL Ltd,
finance company with
Sydney, Brisbane and

Sydney: Represenutiv* office.
Commercial •> General
a. (CAGA), a financial company v
30 office* throughout Australia, I*
ate in which BOANY own* 20*e

wholly-owned subsidiary *f BofA.
Financicra ri* ajneraca, U. la an af-
filiate!* which BIFC own* S1-* Io-
ta rest.

CYPRUS

Nicosia: Hellenic Bank Ltd. ■****-
filial* of BofA.

DENMARK
Copenhagen: Scandinavian representa-
tive office; On* branch. ,
DOMINICAN REPUBLIC
SakcdO: Ono aeanch-
Santiago: On* branch.
Santo Domingo: Two branches.

Financiers Asorlssts, » *
affiliate la which BIFC own* S0%

DUBAI
See United Arab Emirates.

ECUADOR
Guayaquil: On* arsuaca.
Quit*: Two branch**.

EGYPT
Cairo: On* branch.

EL SALVADOR
On* branch.
ENGLANO
On* branch.
. — branches; I •ternational Fi-
nancial Center; Europe. Middle East,

ease Underwriting Ltd. arranges
leases and financing *f large equipment |
Items to be leased. BIFC share* owner- Ir
ship with U. S. Leasing International, affiliate of BofA with six other branch**
San Franctac* and four Australian firms, in ths U. K.

Partnership Pacific, Ltd. Is an afflllata **"V.?i' l "«*"« t, ~ 1

In which BIFC. an Australian bank and "> » wnciiy-ev
a Japanese bank are equal partner* hav- \*"'"y ' •

i , , . K.,~, ,.,,...,1 nf mare than 137 merit

Acceptance. : San Salve*
Blrmlnghan

rce* of more 1
provides long- and medlu
and equity financing for

AUSTRIA
Vienna: One branch.

BAHAMAS
Nassau: World Banking Corp, Ltd,
an International banking affillat* *f
BOANY. I* akt* owned by T*r*nt* Do-
minion Bank and other investors.
Branch of Bank of America New York.
BAHRAIN
Manama: On* branch.

BARBADOS
Bridgetown: Ono branch.

BELGIUM
Antwerp : On* branch.
Brussels: On* branch.

William* Giyn Factor.
Ltd- ka a factoring affillat* In which
BIFC own. S1% interest.

European Brazilian Bank Ltd. (EURO-
BRAZ) is a merchant bank affiliate of
Bank of America International. S-A,

Iran Oversea*
merchant bank, w
by BofA.

International Mexican Bask Ltd, a
full merchant banking servic. affiliate
of BofA International. S-A, Luxem-

One branch.
Reading: BankAmenca Finance Ltd . a
BIFC affiliate with a branch In BristaL
FRANCE
Lenta On* branch.
Lyon: One branch.
Marseilles: One branch.
Paris: Ono branch: South Europe re-

temational pour I
ie Commerce et I'lndustne riu Da-
homey, a commercial bank affiliated ,
with SFOM In which BofA as a sub- 1,

stantlal shareholder. bank art equal partners. It k>

BOLIVIA natksnal company which stints In mod-

La Paz: On. branch. |erni*ati*n and expanaloa projects

Santa Cruz d* la SUjrra: On* branch. — particularly

arvau* ri* la Societe Financiers, Euro-
one Is an affillat* In which BIFC.
European banks and a Japanese

multi-

through

In Europe

February 22, 1977 AMERICAN BANKER 3B

International Activities :

long- and medium-term loam, equity
financing, and advisory service! for ac-
quisitions and mergers.

Bank of America International S.A. is
a merchant bank subsidiary of Bof A
International (Luxembourg).

Societe de Cooperation Industrielle
Franco-Sovietique (SOFRACOP), a BIFC
affflate with an office in Moscow, serves
at agent for East-West trade.

Societe Financiere pour les Pays
D'Outre Mer (SFOM) a holding com-
pany with banking subsidiaries In several
African nations. Owns United Overseas
Bank, Switzerland, A BOANY affiliate.
Strasbourg: One branch.

GABON

Libreville: Banque Internationale pour le
Commerce et r Industrie du Gabon, an
affiliate of SFOM In which BofA Is
a substantial shareholder.

GAMBIA

Bathurst: Branch of Banque Interna-
tionale pour le Commerce et I'lndus-
trie du Senegal, an affiliate of SFOM
in which BofA Is a shareholder.
GERMANY

Cologne: One branch.

Duesseldorf: One branch.

Bankhaus Centrals Credit AG, with 25

branches In West Germany and West

Berlin, It a wholly-owned subsidiary of

BofA.

Frankfurt: One branch; Northern and
Eastern Europe regional office.

Hamburg: One branch.

Munich: One branch.

Stuttgart: One branch.

GREECE

Athens: One branch.
Investment Bank S.A. Is a BOANY

affiliate.

Piraeus: One branch.
Salonica: One branch.

GUAM
Agana: One branch.

BA Finance (Guam) Inc., a wholly-
owned subsidiary of BIFC.
Tamuning: One branch.

GUATEMALA
Guatemala City: Three branches; Re-
gional »fflce.

HONDURAS
Comayaguela: One branch.
San Pedro Sula: One branch.

Almecenes de Deposito, S.A. Is an
affiliate of BIFC.
Tegucigalpa: One branch.

HONG KONG
Hjng Kong: Five branches, Represents

tlve office and Regional office.

Atlan and Euro-American (ASEAM)
Capital Corp. Ltd., BIFC affiliate, offers
merchant banking services In Hong Kong
and Southeast Asia.

BA Finance (Hong Kong) Ltd., a
BIFC wholly owned subsidiary.

BA Leasing and Capital (Hong Kong)
Ltd., a BIFC affiliate, offers leasing
services In Hong Kong and Southeast
Atla.

INDIA

Bombay! One branch; Regional Office.

Calcutta: One branch.

Madrat: One branch.

New Delhi: Representative office.

INDONESIA
Jakarta: Two branches.

IRAN

Teheran: Representative office also cov-
ering Afghanistan.

Foreign Trade Bank of Iran la a
BOANY affiliate.

IRELAND
Dublin: One branch.

ITALY

Milan: Representative office.

Banca d'America e d'ltalla, with depos

Its exceeding SI billion, Is a subsidiary in

which BOANY ownt 97% Interest. It

operates 89 offices in Italy.

IVORY COAST

Abidjan: Banque Internationale pour le
Commerce et I'lndustrle de la Cote
d'lvolre, with branches throughout the
Ivory Coast, is owned by SFOM, a
BOANY affiliate.

JAMAICA

Kingston: Jamaican American Merchant
Bankers, Ltd. Is a wholly owned sub-
sidiary of BIFC.

JAPAN

Kobe: One branch.

Okinawa: Two branches.

Osaka: One branch.
General Lease Co., Ltd., Is an affiliate

In which BIFC ownt 20% Interest.

Tokyo: Atla Division headquarters; one
branch; Regional Office.
Tokyo Investment Services (Int'l.)

Inc., Ltd., 50?i> ownership of BankAmer-

Ica Realty Services, Inc.

Yokohama: One branch.

KENYA

Nairobi: Commercial Bank of Africa
Ltd., with a branch In Mombasa Is
owned by SFOM, a BOANY affiliate.
KOREA
•eoul: One branch.

KUWAIT

Kuwait City: Financial Group of Kuwait,
a finance and investment company In
which BIFC Is a 30% shareholder.
LEBANON

Beirut: One branch.

LUXEMBOURG
Luxembourg: Ameribas Holding, S.A.. a
BIFC subsidiary.

Wobaco Holding Co., S.A., over 45%
BOANY ownership.

Bank of America International, S.A.,
is a merchant bank with an office In
London and representative offices In
Paris and New York.

Bank of America S.A. Is a full service,
wholly-owned subsidiary of BofA.

Bank of Credit & Commerce Inter-
national, S.A. BofA has over 44% Inter-
est.

Societe Financiere Europeenne Is an
affiliate of BIFC and the holding com-
pany of Banque de la SFE, Paris.
MALAWI

Blantyre: Commercial Bank of Mal-
awi, Ltd., a commercial bank with 30%
BofA ownership.

MALAYSIA

Kuala Lumpur: One branch.
Asian and Euro-American Merchant

Bankers — ASEAM — (Malaysia) Ber-

had, a BIFC affiliate, Is a merchant

MARIANA ISLANDS
Saipan: One branch.

MARSHALL ISLANDS
Majuro: One branch.

MEXICO

Mexico City: Repretentative office.

Arrendai.ora Cornermen, S.A., a BIFC
Investment leasing induttrial equipment
and vehicles.

Corporacion Financiera S.A. It a de-
velopment bank subsidiary of BOANY.

MOROCCO
Casablanca: Banque Marocalne du Com-
merce Exterieur, with branches In
Rabat, Tangier and Tetuan, 1 1 a
BOANY- affiliate commercial bank.
NETHERLANDS
Amsterdam: One branch.

Amparls, B.V. Is a medium term fi-
nance company affiliate in which BIFC
owns a 50% interest.

Rabomerica International Bank,
N.V. is a commercial and merchant bank
with minority BofA ownership.
Rotterdam: One branch.

NETHERLANDS ANTILLES
Curacao: One branch In Willemstad.

NEW CALEDONIA
Noumea: Banque de Paris et des Pays-
Bas Nouvelle-Caledonie; BofA has a
30% Investment in this commercial
bank.

NEW HEBRIDES

Vila: Pacific International Trust Co.,
Ltd, It an affiliate in which BIFC

| ownt an over 20% interest.

I NEW ZEALANO

Wellington: New Zealand United Corp,
Ltd., is a merchant bank In which
BIFC owns a 20% Interest. It has
branches in Auckland and Christ-

NICARAGUA
Managua: Three branches.

NIGERIA

Lagos: Savannah Bank or Nigeria Ltd.
is minority-owned by BofA. It has
a branch In Port Harcourt, Kano, and

a8 °* OMAN
Matrah: National Bank of Oman, a full
service commercial . bank In which
BofA hat a 20% ownerthlp.

PAKISTAN
Karachi: One branch.
Lahore: One branch.

PANAMA
Colon: One branch.
David: One branch.
Panama City: Three branches; Regional
Office; Latin America Currency Unit.
Financiera Bamerical, S.A. Is a wholly
owned subsidiary of BIFC.

PARAGUAY
Asuncion: Three branches.

FinAmerlca Paraguay is a wholly-
owned subsidiary of BIFC.

PERU
Lima: One branch.

PHILIPPINES
Manila: One branch.

BA Finance Corp. of the Philippines
It an affiliate of BOANY.

Insular Bank of Asia and America,
BofA 30% ownership in commercial
banking with 28 branches.

PUERTO RICO
San Juan: Bamerical Mortgage and Fi-
nance Company, Inc., a wholly-owned
BIFC affiliate.

RWANOA
Kigali: Banque Commerciale du Rwanda,
with four branches is owned by SFOM,
a BOANY affiliate.

ST. KITTS
Basseterre: One branch.
Sandy Points: One branch.

SCOTLAND
Edinburgh: One branch.

SENEGAL
Dakar: Banque Internationale pour le
Commerce et I'lndustrle du Senegal,
with branches In Bathurst (Gambia),
Thles and Saint-Louls-du-Senegal, Is
operated by United Overseas Bank,
Geneva, owned by SFOM, a BOANY
affiliate.

SHARJAH
See United Arab Emirates.

SINGAPORE
Singapore: Four branches: Regional Of-
fice; Atla Currency Unit.
Asian and Euro-American Merchant
Bank— AGEAM— Ltd., a BIFO affiliate.
SPAIN

Madrid: Representative office.

Banco Commercial para America It a
BOANY affiliate.

Banco Intercontinental Espanol Is a
BOANY affiliate with branches in Bilbao
and Barcelona.

BBA Leasing, S.A, with BIFC 50%
ownership.

Interfinanclera, S.A, a BOANY In-
vestment for consumer financing.

Interpromotors, S.A, is a BOANY in-
vestment handling real estate actiyities.

SURINAM
Paramaribo: Handel's Industrial and
Credit Bank, a BofA investment, Is a
commercial bank with three branches.
SWITZERLAND
Geneva: United Overseas Bank which
operates banks in Burundi, Cameroon,
Congo (Brazzaville), Ivory Coast,
Kenya, Rwandj, Senegal, Uganda, and
Upper Volta, Is owned by Societe Fi-
nanciere pour les Pays d'Outre Mer
(SFOM), Geneva, In which BOANY
Is a shareholder.
Lugano: Corner Bank Ltd, based here,
hat branches In Locarno, Ascona,
Catagnola, Massagno, Paradlso and
Pregassona. This investment Is held
by the Banca d'America e d'ltalia,
97% owned by BofA.
Zurich: One branch.

Societe Financiere pour les Pays
d'Outre Mer (SFOM). BofA through
BOANY and Banca d'America t d'ltalla,
Milan, owns 36% of SFOM, SFOM
owns United Overseas Bank, Geneva,
which operates several banks In Africa.

TAIWAN
Taipei: One branch.

THAILAND
Bangkok: One branch.

Bamerical Financial Corp. (Thailand)
Ltd. Is a wholly-owned subsidiary of
BIFC.

Asian 4 Euro-American Capital —
ASEAM — Corp. (Thailand) Ltd, a BIFC
affiliate.

TOGO

Lome: Banque Pour le Commerce et
I'lndustrle du Togo, an affiliate of
SFOM, In which BOANY It a share-
holder.

TRUK ISLANDS
Truk: One branch.

TUNISIA

Tunis: Union Internationale de Bariques,
with branches in Sfax and Sousse, Is
a BOANY affiliate.

TURKEY

Istanbul: Turkish Foreign Trade Bank,
with two branches In Istanbul and
others In Ankara, Izmir and Sisll, Is a
BOANY affiliate.

UNION OF SOVIET SOCIALIST
REPUBLICS
Moscow: Representative office.

UNITED ARAB EMIRATES
Bank of Credit and Commeroe Inter-
national S.A. of Luxembourg, an affiliate
of BofA, has branches In Abu Dhabi,
AJman and Al-Ain, Abu Dhabi; Dubai
and Delra, Dubai, and Sharjah, Sharjah.
The affiliate also maintains branches in
the U.K., Germany, Jordan, Mauritius,
Bahrain, and North Yemen.

UPPER VOLTA
Ouagadougou: Banque Internationale
pour le Commerce et ('Industrie de la
Haute Volta, an affiliate of SFOM, In
which BOANY Is a substantial share-
holder.

URUGUAY
Montevideo: One branch.

VENEZUELA
Caracas: Latin America Divisional head-
quarters; Representative office.
1 Metro-America, C.A, an affiliate In
which BIFC holds 40% Interest, is an

pany.

VIRGIN ISLANDS
Christiansted: Two branches.
Frederiksted: One branch.
Charlotte Amaliei One branch.
Correspondent balance relationships:

Bank of America NTtSA has corre-
spondent balances with approximately
2,400 foreign and domestic banks.

BANK OF CALIFORNIA N A,
SAN FRANCISCO
(A Subsidiary of BanCal Tri-State
Corporation, San Francisco)

International banking policy:

"As the oldest incorporated commer-
cial bank in the West, the scope of our
international banking policy was set
forth in our 1864 certificate of incorpo-
ration: 'For the purpose of carrying on
the banking and exchange business in
all its branches, in this City and within
this State, the neighboring States and

the Atlantic cities, Europe, China and
the East Indies.' For well over a cen-

tury our policy hat been to most af-
fectively serve our domestic and foreign
customers and correspondents, a policy
that is enhanced by our network of of-
fices in California, Oregon, Washington
and our Edge Act subsidiary In New
York. While we find our long-established
network of foreign correspondents of In-
creasing value to our customers, our
policy hat kept abreast of the continuing
multinationalization of world business
and finance to include direct branches in
major Eurocurrency centers abroad and
representatives In key geographical
areas. We are thus able to effectively
assist internationally-oriented companies
with financial packages tailored to their
individual requirements."

U . S. Subsidiary:

BANK OF CALIFORNIA
INTERNATIONAL, NEW YORK
Representation overseas:
BAHAMAS
Nassau: One branch. ■ •

ENGLAND
London: One branch.

JAPAN
Tokyo: One branch.

PHILIPPINES
Manila: Representative office.

TAIWAN

Taipei: Representative office.
Correspondent balance relationships:

The Bank of California hat corre-
spondent relationships with over 2,000
banks throughout the world.

BARCLAYS BANK OF
CALIFORNIA, SAN FRANCISCO
(A subsidiary of Barclays Bank In-
ternational Ltd., London)

International banking policy:

"Through two International offices In
San Francisco and Los Angeles, Barclays
Bank of California providet itt custom-
ers with one of the finest International
banking services on the west coast of
America, offering a wide range of per-
sonal services and corporate expertise
to Its customers In both the domestlo
and foreign markets."

Representation overseas:

CAYMAN ISLANDS
Grand Cayman: One branch.

Correspondent balance relationships'

Barclays Bank of California maintains
correspondent relationships with leading
banks In 164 countries throughout tht

CALIFORNIA FIRST BANK,
SAN FRANCISCO
(A Subsidiary of Bank%f Tokyo,
Ltd., Tokyo, Japan)

International banking policy:

"Promotion of trade between the
United States and Pacific Basin coun-

I types of

International transactions thr<

ughout the

world. Three regional Intern

ational of-

fices based in San Francisco, L

>s Angeles,

San Diego and a branch offic

e in Guam

work closely with a worldwide network
of affiliates and correspondents."

Representation overseas:
BAHAMAS
Nassau: One branch.

GUAM
Agana: One branch.

MARIANA ISLANDS
Saipan: One branch.
Correspondent balance relationship^

About 40 foreign banks maintain cor-
respondent balances with California
First Bank and it maintains correspond-
ent balances with about 30 foreign banks.

CROCKER NATIONAL BANK,
SAN FRANCISCO
(A Subsidiary of Crocker National
Corp., San Francisco)

International banking policy:

"With four domestio International
facilities In San Francisco, Los Angeles,
San Diego, Chicago and New York; full-
service branches in London and Tokyo;
representative offices in seven major
world financial centers; and an offshore
office in the Cayman Islands, Crocker
has a global network that spans six
continents; and as an "E" Award holder,
Crocker has a proven export finance
expertise and has also actively expanded
its project finance, corporate finance and
loan syndication capabilities.

"Crocker utilizes its Edge Acts, Inter-
national banking offices, affiliates and
its offices In principal money markets
throughout the world to service both its
corporate and bank clients' needs swiftly
(Continued on next page)

AMERICAN BANKER

February 22. 1977

International Activities

(Continued from preceding- page)
and efficiently. Naturally, Crocker rellea
heavily on iti vast proven correspondent
bank network oversea* (which now num-
ber! well over two thoutand) to expedite
further IU International banking *erv-

U. S. Subsidiaries:

CROCKER INTERNATIONAL
INVESTMENT CORP.,
SAN FRANCISCO

CROCKER INTERNATIONAL
BANK, NEW YORK

CROCKER BANK
INTERNATIONAL
(CHICAGO)

Representation overseas:

AUSTRALIA
Melbourne: Representative office.

BRAZIL
Sao Paulo: Representative office.

CAYMAN ISLANDS
George Town: One branch.

ENGLAND
London: One branch.
United International Bank, Ltd.

HONG KONG
Hong Kong: Representative office.

INDONESIA
Jakarta: P.T. Mutual International Fi-
nance Corp. Crocker holds a 17% In-
terest In this international merchant
bank.

JAPAN

Tokyo: One branch.

NETHERLANDS
Amsterdam: Representative office.

PHILIPPINES
Manila: Representative office.

Asian European American Develop-
ment Corp. Crocker holds a 6% interest
In this bank which engages in money
market and merchant banking activity
In the Philippines.

VENEZUELA
Caracas: Representative office.

ZAIRE

Kinshasa: Banque de Paris et des Pays-
Bas Zaire. Crocker holds a 16 l3To
direct Interest in this commercial bank.
Correspondent balance relationships'

Crocker National Bank maintains cor-
respondent relationships with Important
banking Institutions throughout the

SUMITOMO
8ANKT>F CALIFORNIA,
SAN FRANCISCO
(A Subsidiary of Sumitomo Bank,
Ltd., Osaka, Japan)
International bonking policy:

"We have two International banking
divisions. In San Francisco and Los
Angeles, which are engaging In the In-
ternational financing business with a
motto of ' Speedy and Accurate Service"
for the entire satisfaction of all our cus-
tomers. Because of our background of
having a parent bank In Japan, we are
In a position which enables us to offer
advantages and better services to our
customers who have intentions of ex-
panding their business activities with
Japan."

Representation overseas:
BAHAMAS
Nassau: On* branch.

Correspondent balance relationships'-

In addition to th* direct correspondent
relationship with many foreign banks,
our Indirect relationship with much more
other foreign banks, through our parent
bank, helps Sumitomo Bank of Call-
form* expand It* International banking
f\.tr, to a world- wld* extent In waff
• us countries.

WELLS FARCO BANK NA,
SAN FRANCISCO
(A Subsidiary of Wells Fargo & Co..
San Francisco)

International banking policy:

"Well* Fargo Bank's International
banking policy has been and will con.
tinue to be on* of providing customers
with th* fm**t In International banking
service*, whll* continuing to explore and
•stabllsh unlqu* and innovatlv* means to
meet th* ever changing problems of Inter-
national business. It Is wens Fargo
Bank's commitment to provid* a port-
folio of international services to meet the
requirements of a multi-national business
climal* with a limited number of over-
seas banking offices located In principal
money center* The** entitle* work
closely with affiliate*, representative *f-
ftces and correspondent bank*."

U. S. SufciioWei:

WELLS FARCO BANK
INTERNATIONAL, NEW YORK
WELLS FARCO INTERAMERICAN

BANK, MIAMI
WELLS FARCO INTERNATIONAL
INVESTMENT CORP.,
SAN FRANCISCO

Representation overseas:

ARGENTINA
Buenos Aires: Representative office.

AUSTRALIA
Sydney: Representative office.

Martin Corporation Group Ltd. Is an
affiliate.

BAHAMAS

Nassau: One branch. '

BRAZIL
Sao Paulo: Representative Office.
CANADA

Toronto: Well* Fargo A Co., Canada,
Ltd., i* a subsidiary.

COLOMBIA
Bogota: Representative office.

DUBAI

Dubai: Dubai Bank, Ltd. Is an affiliate.
ECUADOR

(Ell

Ecuatoriana de Financiamento S. A.
(ECUFINSA), Guayaquil, is an affiliate.

ENGLAND
London: Western American
rope) Ltd. Is an affiliate.
Wells Fargo, Ltd., London, a merchant
bank, U a subsidiary.

FRANCE

Paris: Credit Chemique is an affiliate.

GERMANY
Frankfurt: Representative office.

Allgemeine Deutsche Credit-Anstalt
which has 43 branches. Is an affiliate.

HONG KONG
Hong Kong: Representative office.

Shanghai Commercial Bank Ltd,
which has 12 offices, is an affiliate.
WMS Capital Corp. is an affiliate.
JAPAN
Tokyo: One branch.

LUXEMBOURG
Luxembourg: One branch.

MEXICO
Mexico City: Representative office.
Arrendadora Serfin, S.A. is an affiliate.
NEW ZEALAND
Auckland: Broadbank Corp. Ltd. Is an
affiliate.

NICARAGUA
Managua: Representative office.
Banco de America I* an affiliate.
PANAMA

Panama City: Empresa Financiers
Continental, S.A., PANAMA, la an
affiliate.

SINGAPORE
Singapore: Representative office.
SPAIN

Madrid: Representative office.

VENEZUELA
Caracas: Representative office.

Financier* Nacional S.A. is an affiliate.
Correspondent balance- relationships:

Wells Fargo has correspondent bank-
ing relationships with 350 banks around
the world.

Walnut Creek
SECURITY NATIONAL BANK,
WALNUT CREEK

International banking policy:

"Security National Bank ha* a nine-
branch banking system. Our interna-
tional department performs a support
function for our commercial banking
activities in the San Francisco Bay
Area. International services provided in-
ternally Include export -'Import letters
of credit, documentary collections and

COLORADO

Denver

CENTRAL BANK OF DENVER
(A Subsidiary of D. H. Baldwin
Company, Denver)

International banking policy:

"To provid* our customer* with thi
financial tool* to conduct their Interna
tlonal banking transaction*. Specifically
thes* service* includ* commercial am
clean Utters of credit which are provldee
both domestically and overseas In ordei
to facilitate commercial transaction* anc
to provid* guarantees to overseas banks
corporations or governmental entitles. Ir
addition, Central Bank provides forelgr
currency, wire transfers, collection am

the Rocky Mountain region w
plete range of foreign banking
utilizing, wh-re appropriate, our direct I sea
contacts with foreign correspondent
banks throughout the world."

Correspondent balance reloiionthipt:

Colorado National Bank maintains 21
account* in foreign bank* and nine for-
eign banks maintain accounts with them.

THE STATE NATIONAL BANK
OF CONNECTICUT, BRIDGEPORT

International bonking policy:

national bank, is a regional bank serv-
ing the need* of our marketing
area which include* Fairfield County,
where many major national corporations
maintain their corporate headquarters.
Our International Banking Department
Is operated on the philosophy of aug-
menting money center operations by pro-
vldtng traditional international banking

FIRST NATIONAL BANK OF

DENVER
(A Subsidiary of First National
Bancorp, Inc., Denver)

International banking policy:

a* a leading regional bank, provides i| UK innovative and advanced computer
complete range of international trade technology while still stresalng per-
services for our customer* and cor- MBa ii« d .trvice on a local level."
reapondent* located throughout the

Rocky Mountain West. The International , Correspondent bo/once re/of lOnsAips'

The State National Bank of Conneetl-

slon

area by maintaining a
foreign correspondent

Cayman Island* and

eed* of It* marketii

large network of j

s around the
account relatlonshi

and with

v.e

. _ supplement our

latlon»hips In all major overseas trade correspondent network and thereby pro-
centers, thus enabling the bank to pro- v lde working arrangement* with banks,
vide the widest possible international even In the most remote area, of th*
services in the region, including an ex- w orld.
perienced foreign exchange trading op-
eration.

"Recipient during 1976 of the United
States President'* "E" award, the first
ha* continuously provided Its opera-
tional, marketing, and financial support
for its international customers. In ad-
dition to participating actively under
Eximbank's program*. The First also
specializes In all kinds of international
financing on a worldwide scale."

UNITED BANK OF DENVER
(A Subsidiary of United Banks of
Colorado, Inc., Denver)

International banking policy:
"The United Bank of Denv

broad

spondent banks in the Rocky Mountain
and Western Plains regions. Traditional
international banking facilities are pro-
vided, including leters of credit, docu-
mentary collections, remittances and
foreign exchange trading. Direct financ-
ing includes short- and medium-term

Hartford
THE CONNECTICUT BANK &
TRUST CO., HARTFORD
(A Subsidiary of CBT Corp.,
Hartford)
U. S. Subsidiary:
CONNECTICUT BANK INTER-
NATIONAL, NEW YORK
Thi* Edge Act corporation, formed In
1971, it capitalized at $2.5 million.
Representation overseos.

BAHAMAS
Nassau: One branch.
Correspondent balance relationships:
The bank maintains an extensive num-

HARTFORD NATIONAL BANK
& TRUST CO.

Corp., Hartford)

services are provided utilizing our con-
nections with Exlmbank, FCIA, World., .

Bank and Commodity Credit Corporation International banking policy:
programs. Eurodollar financing is han-

dled by our Nassau branch.
U. S. Afnllofe:

ALLIED BANK INTERNA-
TIONAL. NEW YORK

United Ban
banks of Alll<

of 18 member
sting for Allied

"Hartford National Bank and Trust
Company continues to actively support
both exporters and Importer* located
primarily In Connecticut and Southern
New England. Thi* support ha* been
provided through It* London represent*-

ously throughout the world. The bank
has taken an active role in the creation,
syndication and participation In multi-
currency loans to developed and under-
developed countries.

"Throuqh the bank'* affiliation with
Equator Bank Limited It ha* increased
its activity and placed a greater em-
has dollar accounts from P"asis on expanding its activities In sev-
countries and maintains j «'»' « h « ■*"«* emerged countries In
-y account* with banks in Africa. Working with various banks
20 "countries." The network of correspon- 'broad and with syndicat. manager*

Representation overseas:
BAHAMAS
Nassau: On* branch.
Correspondent balance relationships:
United Bank ha* dollar account* froi

(90

CldU

participaln

COLORADO NATIONAL BANK,
DENVER

IA Subsidiary of Colorado National
Banksharcs, In

International bonking policy
"To provid* our customer*

CONNECTICUT
Bridgeport

THE CITY NATIONAL BANK OF
CONNECTICUT, BRIDGEPORT
(A Subsidiary of Connecticut
Financial Services Corp., Bridgeport)

International bonking policy:

"It Is our policy to accommodate our
clients worldwide and to provide the
best possible service to our domestic
business clients In Connecticut. We rely
on New York. Los Angeles, Boston and
Montreal correspondents because of the
superior service w* receive.

CONNECTICUT NATIONAL
BANK, BRIDCEPORT

International bonking policy:

"Connecticut National Bank has re-
cently expanded Its emphasis In the In-
ternational banking field CNB i* proud |

of It* ability to develop Innovative and

•peclaliied services In helping its cus- . ,

tomers achieve their personal goals. CNB New noren

\IJSS^^SS baking"':..'.. njarww haven

In preparing letter* of credit, arranging NATIONAL BANK

transfers, ofltring efficient for- . . _ .. ill- jt .

Election, and conducting credit Internat.onal bank.ng po/.cy:

o csmbln* the finest In International
Ing service* with Imaginative fl-
ing to «*sist our corporate cus-

with

within the United State*,
been able to provide the larger exporter
with financial assistance that ha* enabled
the client to compete with worldwide sup-
pliers. Thus, It ha* been an active *up-
porter of export expansion programs In
the United States and has offered to its
clients Innovative and Imaginative solu-
tion* to their export financing requlrc-

U. S. Alt Hate:

ALLIED BANK INTERNA-
TIONAL, NEW YORK

Hartford National I* on* of 18 member
bank* of Allied. See lilting for Allied
International under New York.
Representation overseas:
BAHAMAS
Nassau: One branch.

Equator Bank Limited, Nassau, k» a
joint venture with Royal Bank of Canada
and Helmboldt and Co.
Correspondent balance relationships:

Hartford National maintain* corre-
spondent balances In 38 foreign bank*

conducting
investigations. CNB can also arra
short and medium term export rtnanc
provide foroign t

nllfy

cut Na

February 22, 1977

AMERICAN BANKER

International Activities-

FIRST HAWAIIAN OVERSEAS
CORP., HONOLULU
Representation overseas:
GUAM

NEW HEBRIDES
Vila: One branch.

JAPAN

Tokyo: International Credit & Finance
Co, Ltd. First Hawaiian hat a minori-

Cor,

ispondent balance relationships:
st Hawaiian Bank maintains ac
s in all major trading currencie!
a global network of foreign cor-

ILLINOIS

Chicago
AMERICAN NATIONAL BANK

& TRUST CO., CHICACO
(A Subsidiary of Walter E. Heller
International. Chicago.)
International bonking policy:
"Through an expanded network of In-

Bank and Trust Company continues te
provide a growing number of customer!
a complete and unique range of Inter,
national banking services. The network
of International locations, coupled wi
the capabilities provided internationally
by our commercial finance and factoring
affiliate. Walter E. Heller A Company
and Walter E. Heller Overseas Corp,
plus our vast correspondent banking net
work, gives the bank a capacity for serv
log the total needs of our United States
customers abroad as well as dome
of foreign countries. The bank and
Heller organization have also developed
a number of centralized services, such ai
a collections capability, providing econ
omies which are passed along to oui
customers. The Bank has also been In-
strumental in developing Individual!)

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.
Correspondent balance relationships
Central National Bank has 37 accoui
with foreign banks in 21 countries and
71 foreign correspondents from 31 (
tries have accounts with Central

CONTINENTAL ILLINOIS NA-
TIONAL BANK & TRUST CO
CHICACO
(A Subsidiary of Continental Illinois

Corp., Chicago)
U. S. Subsidiaries:

CONTINENTAL BANK INTERNA

TIONAL, NEW YORK
CONTINENTAL BANK INTERNA
TIONAL (PACIFIC), LOS ANGELES
CONTINENTAL BANK
INTERNATIONAL (TEXAS),
HOUSTON

The i

trade I GREECE
Athens: One branch.
Piraeus: One branch.
I Thessaloniki: One branch.

HONG KONG
Hong Kong: Underwriters Bank (Ove
seas) Ltd. CINB has majority owne
ship of this commercial bank.

U. S. Subsidiaries:
AMERICAN NATIONAL OVER-
SEAS CORP., CHICACO

WALTER E. HELLER
OVERSEAS CORP., CHICACO

A holding company subsidiary which

Representation overseos:

AUSTRALIA
Sydney: Representative office.

BRAZIL

Sao Paulo: Representative office.

CANADA
Toronto: Representative office.

CAYMAN ISLANDS
George Town: One branch.

COLOMBIA
Bogota: Representative office.

ENGLAND
London: One branch.

GERMANY
Mainz: Representative office.

HONG KONG
Hong Kong: Representative office.
MEXICO

Mexico City: Representative office.

NETHERLANDS
Utrecht: Representative office.

PERU

Lima: Representative office.

VENEZUELA
Caracas: Representative office.

Correspondent bolonce relationships:
American National maintains accoui
relationships in it countries. Over 11
foreign banks, representing 41 oountrie

CONTINENTAL INTERNATIONAL
FINANCE CORPORATION,
CHICACO

Representation overseos:

ARGENTINA
Buenos Aires: Representative office.

Banco Shaw S.A. CINB has a minority
interest In this commercial bank which
has 24 banking offices.

AUSTRALIA
Brisbane: Lease Industrial Finance Ltd.,
an affiliate of Continental Illinois Cor-

Sydney: Representative office.

Commercial Continental Ltd. CINB

has a substantial minority interest in

this merchant banking affiliate. CCL also

has offices In Melbourne.

AUSTRIA

Vienna: Conlll Bank A.G.. a commer-
cial bank. Is a wholly-owned subsid-
iary of CINB with deposits of (109

CENTRAL NATIONAL BANK,

CHICACO
(A Subsidiary of Central National
Chicago Corp.)

International banking policy:

"The purpose of our Internationa
banking group, is to expertly a n c

BAHAMAS

Nassau: One branch.

BAHRAIN
Manama: Continental Bank Ltd. Is i

commercial banking subsidiary ol

CINB.

BELGIUM
Brussels: Continental Bank S.A./N.V.
a 1247 million deposit commercial
bank, is a wholly-owned subsidiary of
CINB. It has a network of local agen-
cies. Including branches in Antwerp
and Liege.

BRAZIL

Sao Paulo: Representative office.

CANADA
Toronto: Builders Financial Co.
and its subsidiaries. Builders Ca
Ltd. and Western Builders Capital
Limited, are Joint ventures of Contli
ental Illinois Corporation with The
Royal Trust Company, Montreal.
Continental Illinois (Canada) Ltd.. a
wholly-owned subsidiary of Continental
Illinois Corp.

Sovereign Mortgage Insurance Com-
pany, an affiliate of Continental Illinois
Corporation.

CAYMAN ISLANDS
George Town: Caribbean Bank (Cay-
man) Ltd. CINB is part owner of this
merchant bank.

COLOMBIA
Bogota: Representative office.
Call: Corporaclon Financlera del Valle
is a private development bank in
which CINB has a minority interest.

Ecuatorl-

ana de Desarrollo S.A. is a private de-
velopment bank in which CINB holds
a minority interest Office also in
Guayaquil.

ENGLAND
London: Two branches.

Continental Illinois Ltd., a merchant
banking subsidiary of Continental Illinois
Corporation.

H. 4 H. Factors Ltd. CINB has a
minority interest in this factoring firm.

FRANCE
Paris: One branch.

Credit Commercial de France is a
M-billion deposit commercial bank op-
erating over 200 branches
Ihe country. In which C
minority interest.

GERMANY
Ousseldorf: Representative office
Frankfurt: One branch.
Munich: One branch.

Teh

INDONESIA
akarta: Representative office.
P. T. Inter-Pacific Financial Corp
INB has an important Interest in this
nancial service institution.

IRAN

Bank Dariush, CINB has
minority interest in this commerci;
bank.

Industrial & Mining Development Ban
of Iran. CINB has a minority interest i
this private industrial development ban

ITALY
Milan: One branch.
Rome: Representative office.

JAMAICA

Crown Continental Merchant Bank
Jamaica Limited. Kingston. CINB It
part owner of this bank.

JAPAN '
Osaka: One branch.
Tokyo: One branch.

Century Greyhound Financial Corp.
CINB holds a minority interest in this
leasing co.

KENYA

Nairobi: Regional representative office

KOREA
Seoul: Representative office.

LEBANON
Beirut: Representative office.

Continental Development Bank SAL
CINB has majority ownership of this
commercial bank which has eight bank-
ing offices.

LUXEMBOURG
Luxembourg: Continental International
Finance S.A. Is a holding company
subsidiary of CINB.

MALAYSIA
Kuala Lumpur: Malaysian International
Merchant Bankers Berhad. CINB has
an Important minority interest in this
merchant bank. It has a branch in

MEXICO

Mexico City: Representative office.

MOROCCO
Casablanca: Societe de Banqu* et de
Credit. CINB holds a minority Inter-
est in this commercial bank. Branch
also in Rabat

NETHERLANDS
Amsterdam: One branch.
Rotterdam: One branch.

PAKISTAN
Karachi: Pakistan Industrial Credit A
nvestment Corp. Ltd. is a private
nk in which CINB

Lima: ADELA Investment Co. S.A.

an investment company for L a t

America in which CINB has a mils

ity ownership.

PHILIPPINES
Manila: Representative office.

House of Investments Inc. CINB has
a minority interest In this investment
company.

Private Development Corp. of
Phillippines is a private development
bank In which CINB has a minority in

I n g Corp.

in thii

SCOTLAND
Representative office.
SINGAPORE
Singapore: One branch.

Singapore International Merchant
Bankers Ltd. CINB holds a substantial
minority Interest in this merchant bank-
Private Investment Co. for Asia S.A.
(PICA) is an investment company In
which CINB owns a minority interest.
SPAIN

Barcelona: Banco* Atlantico. CINB has
a minority interest in this $1.25 bil-
lion deposit bank with 60 branches
throughout Spain,

TAIWAN
Taipei: One branch.

China Investment and Trust Company.
CINB has a minority Interest In this
investment trust company.

THAILAND
Bangkok: Continental Illinois Thailand
Ltd. is a wholly-owned merchant bank-
ing subsidiary of CINB.

VENEZUELA
Caracas: Representative office.

EXCHANCE NATIONAL BANK
OF CHICACO
(A Subsidiary of Exchange Interna-
tional Corporation, Chicago)

International banking policy:

"Exchange National Bank Is Involved
in all major international banking func-
tions, including issuance of letters of
credit, export 'import financing, foreign
currency trading, etc. Exchange Bank's
affiliate In Israel, American Israel Bank
Ltd.. maintains 17 full service branches
and serves as the official depositary and
fiscal agent tor the U. S. government
there. From Its Chicago headquarters
and through Its affiliate operations. Ex-
change Bank provides U. S. and foreign
businessmen with market research, eco-
nomic guidance and financial expertise
needed to capitalize on business and in-
vestment opportunities in Israel.

"Exchange Bank maintains a represen-
tative office in Mexico City In order to
participate In the financing of business
ventures in Mexico. Offshore financing of
business ventures in other Central and
South American countries, as well as
Europe. Is handled through our Nassau,
Bahamas branch. Our correspondent
banking relationships include more than
250 banks In all major foreign countries."
Representation overseas:
BAHAMAS

ISRAEL

American Israel Bank Ltd. has Its
head office and four branches in Tel Aviv,
three branches In Ramat-Gan, four In
Jerusalem, and one each In Haifa, Herz-
Beer-Sheva, Rishon-Lezion and Bnel-

OfflCC.

position

Madrid: Representativi
Interleasing, S.A. C
portant minority owne
leasing company,
mon Industrial Bancarla Is an
rial development bank in whi
B holds a minority interest. H
es in Barcelona and throughc

SWITZERLAND
Geneva: Representative office,
ig: Greyhound Financial &
Corp. A G. CINB holds a min
terest in this leasing compar
has important financing subsic

Leasing

(Switzerland), ;
Ing subsidiary

FIRST NATIONAL BANK,
CHICACO
(A Subsidiary of First Chicago Corp.)

International banking policy:

The First National Bank of
Chicago are committed to continuing
efforts to offer truly world-wide
eial services through our expanding
branches, representative of-
fices, wholly-owned

U. S. Subsidiaries:

FIRST CHICACO INTERNA-
TIONAL BANKINC CORP ,
NEW YORK
An Edge Act subsidiary, with current
capitalization of $12.5 million. Carries
on a complete foreign banking operation.
Date organized: June 1962.

FIRST CHICACO INTERNA-
TIONAL FINANCE CORP.,
CHICACO

An Edge Act subsidiary with current
capitalization of $23.4 million. Organized
June. 1962.

FIRST CHICACO INTERNA-
TIONAL, LOS ANGELES
An Edge Act subsidiary with current
capitalization of $4.9 million. Organized
May, 1973.

FIRST CHICAGO
INTERNATIONAL,
SAN FRANCISCO

An Edge Act subsidiary with current
vcapitalization of $5.9 million. Organized
lov., 1973.

FIRST CHICAGO INVESTMENT
CORP., CHICAGO

A wholly-owned subsidiary of Plrst
Chicago Corp. engaged in making equity
investment in foreign business.

lotion overseas:
ABU DHAB
Abu Dhabi: One branch.

AUSTRAL!/
Sydney: Representative of
First Chicago Austral
wholly-owned finance com

1972.

Bridgetown: One branch.

BELGIUM
Antwerp: One branch.

BRAZIL
Sao Paulo: Representative office.

(Co,.

pags

AMERICAN BANKER

International Activities

February 22, 1977

(Continued from preceding page)
CANADA

Toronto: First Chicago Investment! of
Canada Ltd., a leasing subsidiary or-
ganized Oct., 1973, wholly owned by
First Chicago International Finance

CHANNEL ISLANDS
Guernsey: First National Bank of Chi-
cago (Channel Islands) Ltd, a wholly-
owned subsidiary. Organized Jan ,
1974.

COLOMBIA
Bogota: Representative office.

DUBAI
Dubai: One branch.

EGYPT

Cairo: Misr International Bank Is 20%
owned by First National Bank of Chi-
cago and 51% Bank Misr. Organized
Sept. 4, 1975, 29% of the bank la
owned by others.

ENGLAND
Bristol: One branch.
Leicester: One branch.
London: One branch.

First Chicago, Ltd. Is a wholly-owned
merchant banking subsidiary. Organized
July, 1970.

International Commercial Bank, Ltd
Jointly owned by First National; Irving
Trust Co., New York; Commerzbank
A.G, Duesseldorf; the Hongkong £
Shanghai Banking Corp, Hong Kong
Banco di Roma, Rome; and Credit Lyon
nais, Paris. FNB has a 22% direct In
terest in this, commercial bank. Organ
ized July, 1967.
Newcastle: One branch.

FRANCE
Paris: One branch; one sub-branch.

GERMANY
Duesseldorf: One branch.
Frankfurt: One branch
Munich: Representative office.

GREECE
Athens: Two branches.
Piraeus: One branch.

HONG KONG
Hong Kong: First Chicago Hong Kong
Ltd. Is a wholly-owned merchant bank-
ing subsidiary. Organized Jan, 1973.
INDONESIA
Jakarta: Representative office.

FNB of Chicajo h? 3 a 35% Interest
In P. T. Indonesian Investments Interna-
tional, a merchant bank. Other partners
Include Bank Deg ng Negara, Jakarta,
The National Rank of Australasia, Ltd,
Melbourne, The Nikko Securities Co,
Ltd, Tokyo, The Mitsubishi Bank Ltd,
Tokyo. Organized Oct, 1973.

IRAN

Teheran: Representative office.

IRELAND
Dublin: One branch.

ITALY
Milan: One branch.
Rome: One branch.

JAMAICA
Kingston: First National Bank of Chi-
cago (Jamaica) Ltd, Is a commercial
banking affiliate of FNB, with a main
j ranC 1971 d 10 ,ub " bri,ncne •• Organized
First Chicago
maica) Ltd, la an
ganlzed Jan, 1971

NIGERIA

Lagos: First National Bank of Chicago
(Nigeria) Ltd, la a 40%-owned for
eign banking subsidiary. Organlzei
May, 1974.

PANAMA

Panama City: One branch, one aub
branch.

Flrat Chicago Panama S.A, a wholly
owned banking subsidiary, organize*
Oct, 1973.

PHILIPPINES
Manila: Representative office.

POLAND
Warsaw: Representative office.

8COTLAND
Edinburgh: One branch.

SHARJAH
Sharjah: One branch.

SINGAPORE
Singapore: One branch.

First Chicago (Asia) Merchant Bank
Limited, a 70%-owned merchant bank-
ing subsidiary, organized March, 1974.
SPAIN

Madrid: Representative office.

First Chicago Popular, a finance com-
pany jointly owned by Banco Popular
and FNB with 50% each. Organized
Aug, 1973.

SWEDEN
Stockholm: Representative office.

SWITZERLAND
Geneva: One branch.
Flrat Chicago S.A. (Geneva) Is a
merchant banking aub-

elopment flnanca actlvM

tlonal financial and services activities.!
Emphasis was placed on Increasing trade
related financing with our network of _

foreign correspondent banks and domes- Co/reioondenf balance relationships-

C " enU - Fi "" C "' • UP(Wrt ! The Northern Trust Co. The North-

correspondent banking rela-
*IUi Important banking Insti-
tutions throughout the world.

growing role In

sidiary of FNB.

THAILAND
Bangkok: Slam Credit Corp, Ltd, a
40% participation In this finance com-
pany. Organized April, 1970.
VENEZUELA
Caracas: Representative office.

WALES

Cardiff: Commercial Bank of Wales, Ltd.
FNB has a 20% interest through First
Chicago International Finance Corp
Jointly owned with the Hodge Group
and others. Organized Feb, 1971.
Correspondent balance relationship!
The First National Bank of Chicago
banking relationships with
king Institutions throughout

and affiliates of U.S. corporations. The
success of these efforts is reflected In a
39% growth in division loans outstand-
ing and a 42% increase in division fee
Income. Utilizing the capabilities of the
bank's London representative office and
the Eurocurrency funding capacity
the Cayman Islands branch, the b
continues to
international i

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

ENGLAND
London: Representative office.

Correspondent balance relationsh : ps:

La Salle National Bank maintains
:orrespondent relationships with major
banks throughout the world.

THE NORTHERN TRUST CO.,

CHICACO
(A Subsidiary of Nortrutt Corp.,
Chicago)

International banking policy:

"Supplementing our direct presence In
the major money centers, Northern Trust
relies on close relationships with well es-
tablished foreign correspondent banks.
Because these institutions are thoroughly

INDIANA
Fori Wayne

FORT WAYNE NATIONAL BANK

International banking policy:

"Fort Wayne National Bank's objec-
t ve and policy are to promote interna-
tional trade throughout our northeastern
Indiana marketing area and provide the
various international banking services
vely engaged In
anging foreign
negotiating let-
Iding credit In-
active In and

transferring
collections, 1st
ters of credit

finan

tains
foreign b.
the world.

fers

HARRIS TRUST & SAVINCS
BANK, CHICACO
(A Subsidiary of Harris Bankcorp,
Inc., Chicago)

International banking policy:

t work closely with correspondent
s adding our own facilities, as
*ary, to provide full service In-
ternational banking throughout the
world. Additional services and Invest-
ment opportunities are being studied."

U. S. Subsidiary:

HARRIS BANK INTERNATIONAL
CORP., NEW YORK

Representation overseas:

KENYA
Nairobi: One branch.

First Ch.cago Kenya Ltd, a wl
* w 7 n 4 td ,ub » id '» r y office. Organized

KOREA
Seoul: Representative office.

LEBANON
Beirut: First National Bank of Chicago
(Lebanon) 8. A. L, Is a fully con
trolled subsidiary, engaging In all com
merclal banking activities, In whlcl
FNB holds direct ownership. It serve
as regional headquarters for the East
«rn Mediterranean countries, a n i
operates two satellite retail facilities
Organized April, 1967.

MEXICO
Mexico City: Representative offlca.

Arrendadora a Inverslonista Latlna
• A. de C.V. Is a wholly-owned leasing
subsidiary of FNB. Organized April.

NETHERLANDS
Amsterdam: Representative office.
Rotterdam: N. V. Slavenburg's Bank.
First National has a 20% direct inter-
est In this commercial bank. The bank,
with branches In the Netherlands, has
various subsidiaries engaging In trust
and real estate operations, term fi-
nancing and trading on the Amster-
dam Stock Exchange. It also has In-
Uresis In banks in West Germany.
Belgium and Greece. Organized Sept,
1925.

BRAZIL

Sao Paulo: Representative office.

Harris Trust has a minority Invest
ment in Banco de Investlmento d<
Brasil.

ENGLAND
London: One branch.

JAPAN
Tokyo: Representative office.

MEXICO

Mexico City: Representative office.

SINGAPORE
Singapore: Representative office.

LAKE VIEW TRUST and SAVINCS
BANK, CHICACO

International banking policy:

"Lake View Bank's International
policy is based on the single premise of
serving all the International banking
needs of our customers. Wo have and

correspondents
1 to enable us to serve not only our
U. S. clients but others active In the field
' iternatlonal banking and finance."
Correspondent balonce relationships:

ka View Bank maintains corre-
spondent relationships with major banks
throughout the world.

LA SALLE NATIONAL BANK,
CHICACO

International banking policy:

nd enjoy widespread branch coverage of
heir own countries, they are In the best
osltion to handle our customers' busl
ess overseas. Their services ara aug
lented by the active calling program of

our international banking officers.'

U. S. Subsidiaries:

THE NORTHERN TRUST INTER-
NATIONAL BANKING CORP.,
NEW YORK

This Edge Act corporation, organized
1968 and capitalized at $5 million, of-
plete range of International
banking services and holds several of the
equity Investments of The Northern
Trust Co. Private Export Funding Corp,
New York, la an affiliate whlcli finances

NORTHERN TRUST
I NTERAMER ICAN BANK,
MIAMI

This Edge Act corporation, organized
1974 and capitalized at »2.5 million,
offers a complete range of international
banking services.
Representation overseas:
CANADA

St. Johns: Transatlantic Trust Corp. Is
a Nortrust affiliate offering interna-
tional trust and investment manage-
ment services.

CAYMAN ISLANDS

George Town: One branch. ,
Security Trust Co. (Cayman) Ltd. Ii
Nortrust Corp. subsidiary offering In

vestment and trust services for non-U. S

Individuals.

ENGLAND
London: One branch.

London Multinational Bank Ltd
The Northern Trust Co. holds a 20% In
terest In this bank, which has equity
capital of £8.2 million. Partners In
International merchant bank, organized
In 1970 are Baring Bros. A Co,
London, Chemical Bank, New York and
Credit Suisse, Zurich. Multlbank ha
filiates In Hong Kong, Malaysia,

this region. We it
diverse needs of our many" customers
the employment of Innovative and
traditional banking techniques and In
I transaction we stress efficient,
nalized service."

Indianapolis

AMERICAN FLETCHER NA-
TIONAL BANK, INDIANAPOLIS
(A Subsidiary of American Fletcher

Corp., Indianapolis)
International banking policy:

"In order to meet the objective of full
service banking, the international divi-
sion Is committed to providing complete
financial services for Its customers and
correspondent banks domestically and
throughout the world."

U. S. Affiliate:

ALLIED BANK INTERNA-
TIONAL. NEW YORK
American Fletcher has 103 due to ac-
counts In 36 countries and 62 due from
Bank International under New York.

Representation overseas:
BAHAMAS
Nassau: One branch.

LUXEMBOURG
embourg: One branch. «

SWITZERLAND
eva: American Fletcher Bank

Correspondent balance relationships:
American Fletcher has 103 due to a<
unts in 36 countries and 62 due froi
25 countries.

FRANCE

Brit: Banque Rivaud is a TNTIBC af
filiate engaged In commercial am
merchant banking services.

HONG KONG
Hong Kong: Representative office.

SINGAPORE
Singapore: Private Investment Co. for
Asia iPICA) Is a TNTIBC afflllata en-
gaged In development finance actlvl-

SWITZERLAND
Geneva: Banque Scandlnava an Suisse.
The Northern Trust Company holds
a 25% Interest In this bank, capitalized
at 71.3 million Swisa franca. Partners
art Bergen Bank, Den Danaka Land,
mansbank. Den Danske Provlnsbank,
Skandinavlska Enskllda B a n k a n,
Skanska Banken and Union Bank of
Finland.

INDIANA NATIONAL BANK,

INDIANAPOLIS
(A Subsidiary of Indiana National
Corp., Indianapolis)

International bonking policy:

Ing policy Is based on the premise that
a major reglor '
sophisticated an

benefit of Its customers. Through our
foreign offices and affllllatc banks, wo
have been successful in serving the In-
ternational needs of our foreign and
domestic customers International Divi-
sion services, such as domestic and Euro-
currency loans, foreign exchange, ex-
port and Import financing, trade devel-
opment, letters of credit, and collections
and remittances, complement. Indiana
National's full rangt of domestic aerv-

U. S. Subsidiary:

INDIANA NATIONAL OVERSEAS
CORP, INDIANAPOLIS

BAHAMAS

One branch.
CAYMAN ISLANOS
Town: Euratlantit Maritime
Ltd. INOC has a 20% interest
I bank which specializes in ship

ENGLAND
London: Representative office.

London Interstate Bank. Ltd. INOC It
a 16.7% shareholder In this medium-
term consortium bank which was estab-

is an TNTIBC affiliate engaged In de- llshed In February, 1971.

February 22, 1977 AM t RICA N BANKER 9B

International Activities

MEXICO

Mexico City: Representative office.
Correspondent bo/once relationshios:

Indiana National maintaini reciprocal
correspondent balance relationships with
23 banks in 16 foreign countries.

MERCHANTS NATIONAL BANK
& TRUST CO., INDIANAPOLIS
(A Subsidiary of Merchants National
Corp., Indianapolis)

International banking policy:

activities on trade-related business, we
actively assist our customers with all of
their international requirements which
includes the financing of their Imports
and exports. We also emphasize the
utilization of government programs such
as FCIA and Eximbank. All Interna-
tional banking transactions entrusted to
us are given the professional, innovative,
and personal attention that has been a
tradition in our international division."
Correspondent balance relationships'

"Citizens Fidelity Bank maintains di-
rect accounts and agency agreements
with leading banks throughout the world
to service our needs and those of our
customers."

dollar financing, foreign exchange and
international funds transfers. Through
our extensive network of overseas cor-
respondents we provide worldwide as-
sistance and advice to domestic and for-
elgn clients. Located In the largest port
on the Gulf Coast, we have developed
particular expertise In Latin America
and are active lenders In that area.

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

MEXICO
Mexico City: Representative office.
Correspondent balance relationships:

The bank maintains balances In 25
foreign banks and 95 foreign banks
maintain balances with the First Na-

HIBERNIA NATIONAL BANK,

NEW ORLEANS
(A Subsidiary of Hibernia Corp.,
New Orleans)

International bonking policy:

"Our primary objective is to provide
our commercial clients and correspon-
dent banks with all the services that
are necessary in order for them to trade
competitively throughout the world.

"In-bank seminars for exporters and
importers, organized campaigns to inter-
est new firms in International trade and
the means to finance their exports and
imports, the publishing of timely world
marketing reports, are just a few of the
'special servies' which have helped us
earn the Presidential 'E' award for a
significant role in promoting the growth
of International trade through the port of
New Orleans. We are the first bank in
our three-state area to have ever re-
ceived this award. It gives recognition
to the tremendous growth in our Inter-
national business and services over the
past decade."

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.
Correspondent balance relationships:

Hibernia National Bank maintains
correspondent balances In oviritli
banks In various countries of the world,
thereby offering Its customers remit-
tance, collection and other full Interna-
tional banking services In every corner
of ths globe. In addition, 75 foreign

with Hibernia National Bank's main of-
fice and an average of 25 banks have
deposits In our Cayman branch.

MARYLAND
Baltimore

EQUITABLE TRUST CO.,

BALTIMORE
(A Subsidiary of Equitable
Bancorp., Baltimore)

International banking policy:

"Our purposes are threefold: First, to
service the Middle Atlantic region of the
United States In its banking needs
around the world. Second, to provide
services that will facilitate the relation-
ships of foreign banks with the U. S.,
and third to finance various Interna-
tionally oriented trade and lending op-
portunities."

Representation overseas:
BAHAMAS
Nassau: One branch.
Correspondent balance relationships:

Twenty-eight foreign banks have cor-
respondent balances with Equitable
Trust Co.; Equitable Trust has 30 cor-
respondent balances with foreign banks.

FIRST NATIONAL BANK OF

MARYLAND, BALTIMORE
(A Subsidiary of First Maryland
Bancorp, Baltimore)

International banking policy:

"Over fifty years old, the International
banking division of the First National
Bank of Maryland provides a full range
of International banking services for
companies located in the trading region
served by the port of Baltimore. We will
maintain our efforts to encourage the
rapid growth of foreign commerce flow-
ing through the port and to develop fur-
ther our position as the region's major
International bank."

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

PERU

Lima: Representative office.

Correspondent balance relationships:

First National Bank of Maryland
maintains 62 correspondent accounts In
23 countries and 136 accounts from 39
countries are held by FNBM.

MARYLAND NATIONAL BANK,

BALTIMORE
(A Subsidiary of Maryland National
Corp., Baltimore)

International banking policy:

"Maryland National follows a flexible
international policy designed to maxi- -
mize profits, to promote international
trade in the Middle Atlantic States and

correspondent banks and customers.
While the bank has worked exclusively
through foreign correspondents prior to
1969, and will continue to work primar-
ily through them In the future, the bank
recognizes the possibility that it may
open overseas branches or Initiate other
forms of foreign representation as the
requirements of the bank and its cus-
tomers may dictate."

U. S. Subsidiaries:

MARYLAND NATIONAL
OVERSEAS INVESTMENT
CORP., BALTIMORE
This Edge Act corporation, with au-
thorized capital of $5 million and paid-in
capital of $2.5 million, holds shares of
the bank's overseas affiliate, London In-
terstate Bank. -

Representation overseas:
BAHAMAS

Nassau: One branch.

ENGLAND

London: Representative office.

London Interstate Bank Ltd.: Maryland
National holds a minority position In
this bank. It specializes In medium-
term Eurodollar loans and merchant
banking services and has an Initial
capitalization of $12 million equally
divided between four American, one
British, and one German partner.
^ : MEXICO

Mexico City: Representative office. '

Correspondent balance relationships'
Maryland National Bank maintains

correspondent balance relationships with

more than 100 banks In more than 40

UNION TRUST CO. OF
MARYLAND, BALTIMORE
(A Subsidiary of Union Trust
Bancorp, Baltimore)

International banking policy:

"Our international banking policy will
continue to maintain emphasis on the
existing services being offered to the
corporate and individual customer alike;
however, with the further sophistication
of all aspects of international banking,
new areas will be explored to ascertain
whether they will be compatible with
Union Trust's commitment. Development
and growth can only increase our con-
tribution to the economic well-being of
the Port of Baltimore and surrounding
regions."

Correspondent balance relationships'-

Union Trust Co. maintains correspon-
dent balances with 19 banks in 13 coun-
tries and 38 foreign banks in 23 coun-
tries maintain correspondent balances
with Union Trust Co.

MASSACHUSETTS
Boston

THE FIRST NATIONAL BANK OF
BOSTON
(A Subsidiary of First National
Boston Corporation)

International banking policy:

"The First National Bank of Boston
continues, through its international
operations, to meet the needs of its
multinational customers.- Our operations
Include branches and subsidiaries sup-
plemented by representative offices and
foreign affiliates to provide a wide
range of banking and non-banking fi-
nancial services. This widespread or-
ganization gives our customers full
benefit of Bank of Boston's leadership
in certain specialized services, its 190
years of experience in international fi-
nance, combined with the extensive
knowledge and experience of our foreign
partners and correspondents."

(Continued on next page)

"Our International division Is struc-
tured to provide efficient trade-related
international services for Indiana ex-
porters and importers as well as for
approximately 150 correspondent banks
throughout the state. Our foreign draft
and remittance service for these domestic
correspondent banks was implemented in
1976. We concentrate on export lending,
acceptance financing and Eurodollar fi-
nancing of foreign subsidiaries of In.
diana-connected companies. In addition
we supplement efforts of the state In
attracting foreign Industry to Indiana.
As with many regional international
banks, we emphasize high Quality per-
formance of the usual foreign depart-
ment activities, e.g. letters of credit,
collections, funds transfers, etc."

Representation overseas:

Correspondent balance relationships:

Thirty-one foreign banks maintain
working balances with Merchants and
Merchants maintains working balances
with 29 foreign banks.

IOWA

Des Moines

IOWA DES MOINES
NATIONAL BANK,
DES MOINES
(A Subsidiary of Northwest
Bancorp., Minneapolis)
International banking policy:

lowa-Oes Moines National Bank offers
all International banking services either
through its own facilities or In coopera-
tion with the principal subsidiary of the
holding company, Northwestern Na-
tional Bank of Minneapolis. See the list-
ing of NWNB, Minneapolis.

KANSAS

Wichita

FOURTH NATIONAL BANK &

TRUST CO.. WICHITA
(A Subsidiary of Fourth Financial
Corp., Wichita

International banking policy:

"The Fourth National Bank & Trust
Company established an international
department to service the growing needs
of our customers for international bank-
ing services. Our centralized location in
Kansas allows us to fully serve the
domestic and international needs of the
Important, growing industries of Kansas
and their expanded foreign trade. We
emphasize traditional international bank-
ing services such as export and Import
financing, letters of credit, purchase and
sale of foreign exchange and foreign
collections. Building on our longstanding
relationships with our many customers
from our marketing area, the depart-
ment recently expanded its capabilities."
Correspondent balance relationships'-

The Fourth National Bank * Trust
Company maintains a number of corre-
spondent relationships with major banks
throughout t he world.

KENTUCKY
Louisville

CITIZENS FIDELITY BANK &
TRUST COMPANY, LOUISVILLE
(A Subsidiary of Citizens Fidelity
Corp.)

correspondent banks (over 90% of Ken-
tucky banks look to us as their corre-
spondent). We are dedicated to fully
service the foreign trade needs of the
businesses and Individuals in our region,
which we define as Kentucky and sur-
rounding states. To support our philoso-
phy of concentrating our international

FIRST NATIONAL BANK OF
LOUISVILLE
(A Subsidiary of First Kentucky
National Corporation)'

International bonking policy:

"First National Bank pursues a policy
of offering full international banking
services. Domestically, we have geared
ourselves to handle all international
banking needs of c

us to serve not
others active in
the field of international banking and
finance. During the coming year we will
place particular emphasis on our pro-
grams for trade development, export fi-
nancing and international lending."

Representation overseas:
BELGIUM
Brussels: Representative office.

BRAZIL

Rio de Janeiro and Sao Paulo: The bank
has a special consultant for Brazil-
N. M. Rothschild oV Sons.

CAYMAN ISLANDS
George Town: One branch.

VENEZUELA
Caracas: Sociedad Financiera Credival
C A. is a commercial finance company
affiliate of the bank.
Correspondent balance relationships:
First National maintains reciprocal
relationships with lead-

LIBERTY NATIONAL BANK AND

TRUST CO., LOUISVILLE
International banking policy:

"Liberty National Bank's international
department, representing the regional
bjec-

full

continuing efforts for Increased foreign
trade and investment thus encouraging
the economic growth of our state and
region and 3.) continued exploration of
foreign lending and International In-
vestment opportunities."

Union Trust Co. maintains correspon-
dent balances with 20 banks In 15 coun-
tries and 44 foreign banks In 23 coun-
tries maintain correspondent balances
with Union Trust Co.
Correspondent balance relationships:

Liberty National Bank maintains
correspondent balance relationships
: world's principal money
rect foreign relationships

LOUISIANA
New Orleans

THE BANK OF NEW ORLEANS
AND TRUST CO.
(A Subsidiary of New Orleans
Bancshares, Inc., New Orleans)

International banking policy:

"The principal objective of the Interna-
tional department of The Bank of New
Orleans and Trust Company Is to pro-
vide a wide range of International bank-
ing services to its domestic and overseas
customers and correspondent banks
through the use of Its worldwide facili-
ties. The result of these services In turn
contributes to the growth of the port
and city of New Orleans."
Correspondent balance relationships:

The Bank of New Orleans maintains
reciprocal correspondent relationships
with leading banks

FIRST NATIONAL BANK OF
COMMERCE, NEW ORLEANS
(A Subsidiary of First Commerce
Corp., New Orleans)

International bonking policy:

"First National Bank of Commerce
offers a broad range of international
services Including letters of credit, for-
eign collections, export financing, Euro-

AMERICAN BANKER

February 22. 1977

International Activities

(Continued from preceding page)
U. S. Subsidiaries:
BANK OF BOSTON INTERNA-
TIONAL—NEW YORK
BBI It an Edge act lubsldlary which
w» established In 1918. It provides a
full rang* of International financial
services.

BANK OF BOSTON INTER-
NATIONAL — LOS ANGELES

Thli Edge Act subsidiary was estab-
lished In 1973 to provide a full range of
International financial services on the
West Coast with emphasis on trade with
the Far East.

BANK OF BOSTON INTERNA-
TIONAL OF MIAMI

Thla Edge Act subsidiary provides a
full range of international financial serv-
ices, directing special attention to trade
flow through Miami between Central and
South America.

BOSTON OVERSEAS FINANCIAL
CORPORATION, BOSTON
BOFC Is a wholly-owned Edge Act
subsidiary with the purpose of making
equity investments overseas. Through
BOFC'i affiliates. First National Bank
of Boston offers factoring and leasing
services, consumer and corporate sales,
financing and consulting and unusual fi-
nancial assistance through Its affiliates
around the world.

Representation overseen: *

ARGENTINA
Avellaneda: One branch.
Buenos Aires: Eight branches.

International Factors, S. A, wholly
owned by BOFC, provides eaport and lm.
port services for Interested companies.
Rosarlo: On* branch and two teller

branches.

8A8IN — Socledad Anonlma de Ser-
vices * Inverslones, wholly owned by
BOFC. provides specialized financial
services.

AUSTRALIA
Melbourne: Representative office.

Boston Financial Ltd, It a merchant
bank wholly owned By BOFC.

First Leasing and Finance, Ltd. Is 50%
owned by BOFC and has a branch In
Sydney.

General Credits Ltd. Is a BOFC fac
torlng affiliate.

Sydney: Branch of First Leasing and Fl
nance Ltd, Melbourne.

AUSTRIA

Vienna: Factor Bank-International Fac
tors-Austrla GmbH. Is a BOFC fac-
toring affiliate

BAHAMAS
Nassau: Bank of Boston Trust Co. (Ba-
hamas), Ltd. la a wholly-owned tub-
tidlary of FN B, handling trust and In-
vestment administration and Eurocur-
rency deposits and financing for nsn-
U. S. citiiens.
_ Ont branch (First National Bank of
handling Eurocurrency deposits

COSTA RICA
an Jose: Representative office for Ce
tral America.

Corporacion Internaclonal de Boston

:igium

Em pre

BOLIVIA
La Pax: One branch.

Corporacion Flnanclera de Boston,
S -A, a wholly-owned subsidiary of BOFC,
provides retail financing, export import
services and leasing.

BRAZIL
Complnat: One branch.
Porto Alegre: One branch.
Rio de Janeiro: Ont branch.
Sao Paulo: One branch.

Boston S. A. Admlnlttracao
denimentos Is a wholly-ow
Ing company of BOFC which engages In
Investment management, money market
and other ipeclalized services.

Boston Distributors de Tltulot t Va
sores Mobilanos Ltda. Is wholly-owned
by BOFC through Boston S.A, the
holding company Boston Distributors
engages In marketing of commercial
six othtr

Boston Flnancelrt S.A, wholly owned
by BOFC through Boston S. A. engages
In csnsumtr and corporatt talet financ-
ing.

Botton Leasing Arrendamentt Repre-
eentacoet a Services Ltda, owned by
BOFC through Bolton S. A, engaget In
letting. " *

CANADA

Montretl: Botton Factors International
Inc. It a subsidiary of BOFC.
CHANNEL ISLANDS

subsidiary of the bank, •ffcrlng bank
Ing, trust, Investment management
and custody services.

corporate sales financing and is 80%

owned by BOFC.

DENMARK

Copenhagen: International Factors Ltd.
Danish branch.

DOMINICAN REPUBLIC

Santo Domingo: Banco de Botton Dom
Inicano, S.A, owned 30% by FNB of
Botton, provides full banking services
ENGLAND

Brighton: International Factors, Ltd
Is an affiliate of BOFC.

London: Two branches. »

First National Boston I Imlted, Invest

ment banking, is a subsidiary of BOFC

Watford: Boston Trust A Savings, Lim-
ited, retail banking, Is a subsidiary of
Bank of Boston S.A, Luxembourg.
FINLAND

Helsinki: Soumen Interactors Oy h) I
factoring affiliate of BOFC.

FRANCE

Paris: One branch.
Soclete Francaise de Factoring-Inter

national Factors France, is a BOFC af

fillete.

Boston Credit-Bail S.A. Is a BOFC
subsidiary engaged In leasing.

GERMANY
Frankfurt: One branch.

Botton Leasing G m b H. It a wholly-
owned tubsidiary of FNB of Boston.
Malni-Mombach: Inter-Factor Bank,
A.G. Is an affiliate of BOFC.
GUATEMALA
Guatemala City: Servicios Comerclales
e Industries Is a 50% J(
of BOFC. It engages in leasing
consumer and corporate sales financ-
ing.

HAITI

Petionvllle: One branch.
Pert-au-Prlnce: One branch.

HONDURAS
San Pedro Sula: Companla de Credito

S.A. Is 50% owned by BOFC. It er

gages In leasing and consumer an

corporate sates financing.

HONG KONG
Hong Kong: Representative office.

First National Boston (Hong Kong
Ltd. Is a merchant bank 100% owned
by BOFC.

INDIA

Bombay: Industrial Credit 4 Investment
Corp. of India la a BOFC affiliate,
IRAN

Teheran: Representative office.

IRELAND
Dublin: International Factors (Ireland)
Ltd. Is a BOFC affiliata.

ITALY

JAPAN

Tokyo: On* branch.

Pacific Lease Co, Ltd. It a Joint ven
ture Icaaing company of BOFC.

Orient Factors Ltd, factoring services,
Is a BOFC affiliate.

LEBANON
Beirut: Representative office.

LUXEMBOURG
Luxembourg: One branch of FNB of

Bank of Boston S A, commercial and
Invettmcnt banking, It a subsidiary of
BOFC.

MEXICO
Mexico City: Representative office.
NORWAY

Oslo: Norlnvett, AS it a BOFC affiliate.

PANAMA
Panama City: One branch.

PHILIPPINES
Manila: Private Development Corp of
the Philippine*, an Industrial develop
ment financing company, it an affili-
ata of BOFC.

PORTUGAL
Lisbon: International Factor* (Portu-
gal) SARL It a BOFC affiliate.
SINGAPORE
Singapore: Representative office.

SOUTH AFRICA
Johannesburg: Standard Bank Factors
Ltd. Is a factoring am
finance affiliate of BOFC.

SPAIN

Madrid: Representative office

International Factar*
a BOFC affiliate

SWEDE!
Stockholm: Skandic Fl
a BOFC affiliate.

ng. AB I*

SWITZERLAND
Geneva: Boston investment and Finan-
cial Servlcca, S-A. offers trust and asset
management services and I* wholly
owned by BOFC.

irlch: Factor* AC it t BOFC affiliate
VENEZUELA
Caracal: Representative office.

Arrcndadora Industrial Venezolana

Correspondent bo/once relationships'

First National Bank of Botton main,
taint account balance* with 152 corre-
spondent bankt and 498 corretpondent
bank* maintain account balances with
FNB.

NEW ENGLAND MERCHANTS
NATIONAL BANK, BOSTON
(A Subsidiary of New England Mer-
chants Co. Inc., Boston)
International banking policy:

"To facilitate the ever Increasing
needs of our clients, both at home and
abroad. New England Merchants main-
tains close relationship* with major
bank* and Institution* throughout
world. To expand our foreign c

Correspoadenf balance relationships;

Shawm ut maintains account! with 60
overseas banks and 175 oversea* bank*
maintain accounts with ShawmuL

need* of our domestic client!, and mai
tain a close relationthip with client!
abroad, plant for 1977 call for an
gressive overseas calling program. Our
International department maintair
constant liaison with approximately 200
foreign banks which together with
Nassau branch and other Investments,
put us in a position to advise our clients
regarding the constantly changing situa
tlon in any specific country.

U. S. Subsidiary:

NEW ENGLAND MERCHANTS
BANK INTERNATIONAL,

BOSTON
The Edge Act corporation was incor
perated In 1965 and on Dec. 31, 1976
had S2 million capirUI stock. It has In
vestment* In Western Europe and ths
Cayman Islands.

Representation overseas;

BAHAMAS

Nassau: One branch.

CAYMAN ISLANDS

George Town: Euralantlt Maritime
Bank Ltd. It 20% owned by Now
England Merchants and primarily en
gages in ship financing. Other partner*
In the venture arc British and Dutch
banks.

Correspondent balance relationships:

New England Merchanta maintain
balances with 55 foreign banks in 2
countries and 82 foreign institutions
from 34 countries maintain balances
with New England Merchant!.

SHAWMUT BANK OF BOSTON
NA, BOSTON

(A Subsidiary of Shawmut
Corporation, Boston)

International banking policy:

"It is our bank's International policy
to work closely with correspondents
throughout the world and to supplement
these relatiomhlpl for particular pur-
poses In specific locations by Investment
n International financial organizations."

U S. Subsidiary:
SHAWMUT INTERNATIONAL
CORP , BOSTON

Feb. 25, ° 1966,
million.

Rtpreitnlalion

ENGLAND
indon: Atlantic International Bank,
Limited. Shawmut hold* a 29% direct
Interest In thli bank formed In 1969
at f 72 million.
LUXEMBOURG
: ADELA Investment Co,
S.A. Shawmut International Corpora-
tion ownt 2.500 shares of thlt Invest-
ment company which hat flvt branches
snd assists In tha development of
Latin American businesses.
European Enterprise* Development
Company S.A. Shawmut International
Corporation owns 25.000 *harrl of this
capital company which sup-
plies capital and managerial assistance
companies or develop ex-

PANAMA

Panama: Private Investment Company
for Asia (PICA) S.A. Shawmut Inter-
national Corporation ownt 40 tharrl of
thli multinational investment company
whole primary objective It to promote
Allan economic development.

STATE STREET BANK 1 TRUST

CO., BOSTON
(A Subsidiary of State Street Boston
Financial Corporation)

International bonking policy:

"Our International business ponty fol-
lows the general strategy of cur tank
and holding company. While we continue
to emphasize traditional patterns of
trade financing, we also service the In-
ternational needt of our cuttomcn In
the area* of capital management and
banking system* In market* which w*
have Identified as those where our special
expertise In these fields I* most appli-
cable. Our overseas facilities are strate-
gically designed and located to maximize
our ability to assist our customers when
experience ha* cemenitrated that cur
abilities best meet market requirements."
U. S. Subsidiary:

STATE STREET BANK BOSTON
INTERNATIONAL, NEW YORK

This wholly-owned Edge Act corpora-
tion was incorporated In 1964 and has
capital and surplus of »7J million.

Representation oversees:
BAHAMAS
Nassau: One branch.

ENGLAND
London: Representative office.

GERMANY
Munich: State Street GmbH I* a wholly-
owned subsidiary of State Street Bank
Boston International.

KUWAIT
Kuwait City: Representative.

PANAMA

Panama: State Street Bank (Panama)
Corp. Is a wholly-owned subsidiary *f
Bank Boston Intcma-

State Sir

SINGAPORE
Singapore: Representative efflee.
Correspondent bolance relationships;

St*te Street Bank A Trust C*. main-
tains correspondent baaince* with 65
banks In 24 countries and 194 foreign
banks from 49 countries maintain c*r-
baiance* with State Street
A Trust Co.

Dedham
BAY BANK/NORFOLK COUNTY
TRUST CO., DEDHAM

International banking policy:

"In line with Norfolk's unosaslng ef-
forts to provide broad and efficient bank-
ing services, our International depart-
ment standi ready to meet the ever
increaung requirement! of our domettlo
customers engaged In oversea! opera-
tions Whether It be setter* of credit,
foreign exchange, foreign collection!, or
any other International transaction. It
ii our objective to give personalized
service of the highest quality. In addi-
tion, by maintaining very close corret-
pondent banking relationships, wl aim
to continue to promote the growth of
international trade in our marketing
area In the coming year."

Quincy

SOUTH SHORE BANK,
QUINCY

(A Subsidiary ot Multibank Financial
Corp., Botton)

S. Affiliate:

MULTIBANK
INTERNATIONAL. QUINCY
n Edge Act corporation Jointly owned
by South Shore National *nd the seven
other bank* in Multibank Financial
Corp.: Attleboro Tru»t Co.; BMC Durfe*
Tru*t Co, Fall River; Falmouth National
Bank; First Agricultural Bank Pltl*-
field; Mechanics Bank, Worcester;
Northampton National Bank; and Secur-
ity National Bank, Springfield.

Representation

CANADA

Montreal: Shorehaven Leasing cf Cana-
da, a wholly-owned tubudlary of MBI.

Correspondent balance relationships:
South Shore maintain* over 20 foreign

12B

AMERICAN BANKER

February 22, 1977

International Activities

(Continued from preceding page)
FIRST NATIONAL BANK
OF JACKSON

International banking policy:

"The First National Bank of Jackson
has a policy of providing a complete in-
ternational service to accommodate our
customers and our correspondent banks
■nd their customers.

Correspondent balance relationships:

The First National Bank of Jackson
maintains relationships through Its cor-
respondent banks and other sources and,
has access to banks in the major finan-
cial centers of the world.

MISSOURI
Kansas City

COLUMBIA UNION NATIONAL
BANK & TRUST CO.,
KANSAS CITY

International banking policy:

"Columbia Union National Bank and
Trust Co. established its international
banking department in 1970 to provide
a full range of international services to
f.ccommodate the needs of our customers
in the Midwest. These services Include
commercial letters of credit, documen-
tary collections, issuance of foreign
drafts and payment orders, foreign ex-
change trading and the financing of
short and medium term export loans
under the programs of Eximbank and
FCIA."

Correspondent balance relationships:

Columbia Union NB4T maintains 19
correspondent balance relationships with
foreign banks and 28 foreign banks

COMMERCE BANK
OF KANSAS CITY, NA
(A Subsidiary of Commerce
Bancshares, Inc., Kansas City)
International banking policy:

UNITED MISSOURI BANK OF

KANSAS CITY NA
(A Subsidiary of United Missouri

Bancshares, Inc., Kansas City)
International banking policy:

"Our policy concerning all of our in
ternational transactions on behalf o
our domestic customers is to worl
through our foreign correspondents over
seas. In addition to our 118 foreign ac
count relationships listed below, we share
agency arrangements with 437 b
through which we are able to offer let-
ters of credit, payment and eollectloi
services, export financing and interna
tional credit information. In addition to
these correspondent services, we offer
foreign exchange and travelers chec
in the most common foreign currencies.
We are vitally interested In assisting
our domestio customers' in every way
possible whenever the subject concerns
exports, imports or the financing of In
ternational transaction*."

Correspondent relationships:

posit accounts with 43 foreign banks ;
70 foreign banks maintain accounts m
UMB of Kansas City.

St. Louis

BOATMEN'S NATIONAL BANK,

ST. LOUIS
(A Subsidiary of Boatmen's Banc-
shares, Inc., St. Louis)

International banking policy:

"Personal service Is the objective we
pursue in our banking endeavors and our
foreign department makes every effort
to maintain this standard. The Boat-
men's National Bank Is the oldest bank
west of the Mississippi River and over
e years has created close relationships
th banks both domestically and
abroad. Through this network of cor-
respondents In major U. 8. money cen-
ters as well as through foreign banks
ach year to grow in serv-
stomers. Being a regional

national corporations withlr

Correspondent balance relationships:

"Commerce Bank of Kansas City, NA
the largest bank in the greater Kansas
City area, offers a full range of inter-
national banking service* to both com-
mercial and correspondent bank cus-
tomers throughout the Midwest and
Rocky Mountain states. The primary
emphasis of the international department
is the promotion of international trade
In this region through import-export fi-
nancing, FCI A-Eximbank programs,
direct overseas financing, and complete
foreign exchange capabilities. Our cen-
tral location in the United States has
been a major factor in the expansion of " '
our foreign correspondent and agency main
relationships. We work closely with our bank
foreign correspondents, including an P |ete
active international calling schedule by I ooer>
department officers. | A _ m *

"As the lead bank of Commerce Bane-
shares, Inc.. we assist the other 31
affiliate* within the holding company to
provide international banking services.
Of particular importance Is our policy

Boatmen's National Banl
nine account* in major overseas banks
and the nine foreign banks maintain ac-
count* with Boatmen'* NB.

FIRST NATIONAL BANK IN
ST. LOUIS
(A Subsidiary of First Union Ban-
corporation, St. Louis)

International banking policy:

nk In St. Loui*

iolicy, designed to provide corn-
innovative international credit,
il, and trading services to mid-
i corporate

MERCANTILE TRUST CO.,

ST. LOUIS
(A Subsidiary of Mercantile
Bancorporation, Inc., St. Louis)

Internaiional banking policy:

"Mercantile Trust was among tl
first banks throughout the mid-west r
gion to realize the increasing significance
of International trade. Consequently
Mercantile now offer* the largest am
most active International function withli
it* market area. In its commitment t<
growth, Mercantile has established ex
pertise In a complete range of Interna'
tional services — an expertise augmented
and refined through automation. Mercan-
tile Trust Company continues Its regional
expansion as well a* maintaining a
strong position in the world market-
place."

U. S. Subsidiary:

MERCANTILE INTERNATIONAL

CORP., ST. LOUIS
This Edge Act corporation, capitalized
at $5 million, is a subsidiary of Mercan-
tile Trust and serve* primarily an In-
vestment function.

Representation overseas:

CAYMAN ISLANDS
George Town: On* branch.

PANAMA

Panama City: Union de Banco*. MIC has
an equity interest in this bank.

Correspondent balance relationships:
We maintain relationships with banks

located in more than

to coordinate

International department of our as
sociate, Commerce Bank of St. Louis. 1

Correspondent balance

relationships'
City i

NEBRASKA

Lincoln

FIRST NATIONAL BANK & TRUST
CO. OF LINCOLN
(A Subsidiary of First National
Lincoln Corp., Lincoln)

International banking policy:

"The First National Lincoln, as a
leading bank in the state of Nebraska Is
committed to the policy of providing In-
ternational banking service* and extend-
ing credit oversea* and throughout th*
Great Plains— a major agricultural and
industrial growth area."
Correspondent balance relationships:

First National Lincoln ha* five ac-
count* from bank* in four countries
maintain* eight foreign currency
h bank* in seven countries.

NATIONAL BANK OF COMMERCE

T&SA, LINCOLN
(A Subsidiary of NBC Co., Lincoln)
International banking policy:

"The National Bank of Commerce Is
located in the heart of a highly capital-
intensive, agro-industrial region and ben-
nsive experience and ex-
/e are committed

foreign. In support of these services, the I t0 provide leadership in our tra
bank has area specialists, regularly 1 •>/ bringing reliable information

calling in Latin America, Europe, Cana-| ll 9" markets

da, A.la, the Mid-East and Africa. On | »<""er», by arranging »hort- and medium
July I. 1976, a representative office was

Comi

Bank of Kansas City. Over 450 agency
relationships are maintained with banks

FIRST NATIONAL BANK
OF KANSAS CITY

opened in London.

"Much of the ban
activities are related to servicing its
domestic customers' needs, both at
home and abroad. The special emphasis
placed on serving the Midwest's major
ith major foreign corporations reflect* the bank'* large
,J and 51 foreign [ portfolio of customer* with multi-na-
tional operation*. Increased international
credit activities include continued use
of the Eximbank/ FCI A program, but
also Involve direct credit to overseas
borrowers for a variety of purposes. For-
eign exchange trading continues to grow
rapidly In support of the requirements
and opportunities for our Midwest multi-
national corporations and financial Instl-

by prov

(A Subsidiary of First National
Charter Corp., Kansas City)
International banking policy:

"Our purpose in the International de-
partment of First National Bank of
Kansas City Is to supply the firm* en-
gaged in International business in the
Midwest with the best and most com-
plete services presently available, what-
ever their need. We also provide the
flexibility necessary to adapt to the con-
stantly changing international market-
place. By doing this, we are not only
fulfilling the present needs of our cus-
tomers but providing a foundation tor
the future."

Correspondent balonce relationships:

U. S. Affiliate:

ALLIED BANK INTERNA-
TIONAL, NEW YORK
First National Bank In St. Louis is
one of 18 member banks of Allied. See
listing for Allied International under
New York.

Representation overseas:

BAHAMAS
Nassau: One branch.

ENGLAND
London: Representative office.
Correspondent balance relationships:

port finar
a full range of
services for both commercial and con-
sumer customers. NBC maintains cor-
respondent relationships with *ix foreign
banks and agency relationships with
many more. Our Intention Is to expand
these relatii
trade expani

out the world. These direct ac
complemented by numerous
spondent relationships with o

Omaha

OMAHA NATIONAL BANK
(A Subsidiary of Omaha National
Corp., Omaha)

International banking policy:

"Policy Is to be the International bank-
ing leader in the multi-state region that
the bank serves. International expansion
of correspondent and agency relation-
ships as well as Increased emphasis on
export financing and financing of agri-
culture and agriculture related Indus-
tries. Substantial benefits are generated
overseas by consulting services offered
by the bank and Its parent in the field
of agriculture."

Representation overseas:
BAHAMAS
Nassau: One branch.
Correspondent balance relationships:

Omaha National has correspondent
balances with 14 foreign banks in 11
countries and holds correspondent bai-
lor 19 foreign banks in 16 coun-
Omaha National Bank has over
25 agency relationships.

THE UNITED STATES
NATIONAL BANK OF OMAHA
(A Subsidiary of Northwest
Bancorp., Minneapolis)

International banking policy:

"The United States National Bank of
Omaha's policy is to endeavor to serve
the growing need for international bank-
ing services and financing in the Mid-
west, a primary contributor to the world
food market basket. Import/export vol-
umes are growing constantly. The ap-
proval of a Foreign Trade Zone for
Omaha holds great promise for further

"Flexibility is key to the policy. By
working independently, through North-
western National Bank of Minneapolis,
the holding company's principal subsid-
iary, or New York correspondent*, wo
are able to bring truly first class service*
to our market area. The facilities of
NWNB are listed under Minneapolis."

NEW JERSEY
Elizabeth

NATIONAL STATE BANK,
ELIZABETH

International banking policy:

"The National State Bank conduct*
practically all foreign transactions di-
rectly and maintains relationships with
many banks all over the world. We are
endeavoring to provide full international
services to all our customers and pro-
spective customers, domestic as well as
foreign."

Hackensack

UNITED JERSEY BANK,
HACKENSACK
(A Subsidiary of United Jersey
Banks, Princeton)
International banking policy:

"United Jersey Bank, as well as th*
holding company, United Jersey Banks,
prefers to transact its International busl-
ess directly with correspondents abroad
rather than through foreign branches, In-
asmuch a* we feel that the local bank
■nd Its staff I* better equipped to deal
with any financial and commercial prob-
lem* th*t our customer* may encounter
In their respective countries. We also be-
lieve that the cost of establishing a full
service branch abroad Is excessive for a
regional bank." ,

Representation overseas:

Correspondent balance relationships:

United Jersey Bank maintains cor-
respondent relationships worldwide and
reciprocal account relationship* with a
number of foreign bank*.

Jersey City

FIRST JERSEY NATIONAL BANK,

JERSEY CITY
(A Subsidiary of First Jersey Na-
tional Corp., Jersey City)

International banking policy:

"First Jersey provides comprehensive
International banking services including
foreign remittances and collections, for-
eign exchange and currencies, letter* of
credit and acceptances, utilizing our net-
work of correspondents strategically lo-
cated throughout the world. Loans ar*
made on direct and Indirect basis to
foreign banks and businesses.

"Main emphasis is on the financing of
foreign transactions for corporations In
th* New Jersey-New York market"

Correspondent balance relationships:

First Jersey maintains accounts at 25
foreign banks while 17 foreign banks
have account* at First Jersey.

Morristown

AMERICAN NATIONAL BANK &
TRUST OF NEW JERSEY,
MORRISTOWN
(A Subsidiary of Horizon Bancorp.,

. Morristown, N. J.)
International banking policy:

"The international department aim*
to provide international banking serv-
ices to customers and prospects of the

and improve the profitability of the bank
by broadening its loan and deposit base.
Towards these goals we have aggres-
sively expanded our international opera-
tions with major emphasis on import and
export financing. Our overseas exposure
is considerable but v,

February 22. 1977

AMERICAN BANKER

International Activities -

Representation overseas:
BAHAMAS
Nassau: One branch.
Correspondent balance relationships:

spondent balance!
banks and 7 oversea
maintain balances

with 15 overseas
ith American Na

Newark

FIDELITY UNION TRUST
COMPANY, NEWARK
(A Subsidiary of Fidelity Union
Bancorporation, Newark)
U. S. AtHliate:

ALLIED BANK INTERNATIONAL,
NEW YORK
Fidelity Union Is one of 18 member
bank
Inter

Representation overseas:
BAHAMAS
Nassau: One branch.

FIRST NATIONAL STATE BANK
OF NEW |ERSEY, NEWARK
(A Subsidiary of First National
State Bancorporation, Newark)

International bonking policy:

"With a worldwide network of pre
eminent correspondent banks in 10'
countries. First National State Banl
of New Jersey as the largest bank li
the State is able to serve its customer
with the entire spectrum of interna
tlonal banking services. Our philosoph]
has been that regional banks can mon
readily transact

effective basi-

Representaiion overseas:

CAYMAN ISLANDS
George Town: One branch.

MEXICO
Mexico City: Representative office.

Correspondent balance relationships:
First National State Bank of Ne
Jersey maintains 40 active trading a
counts abroad In the major currencies
and 55 banks maintain dollar balances
on its books.

MIDLANTIC NATIONAL

BANK, NEWARK
(A Subsidiary of Midlantic
Banks Inc., West Orange,

International banking policy:

"Midlantic continues to pursue a policy
of offering fast, efficient and full-fledged
International services and financings t<
Its domestic and overseas customers
This Is accomplished with the assistant
of an experienced operational and terrl
torial staff which travels frequently
throughout the world and works in con
Junction with an ever-increasing networl
of overseas correspondents. As needs die
tate and opportunities arise, Midlantic
will continue to expand Its direct repre
sentation and investments abroad."

U. S. Subsidiary:

MIDLANTIC INTERNATIONAL
INC., NEWARK

This wholly. owned

ubudiarr of Mid
lantic Banks Inc. has authorized capital
of »2S million and was established for
the purpose of acquiring and ow
shares of foreign banks and/or other
financial institutions.
Representation overseas:
BRAZIL

Sao Paulo: Midlantic Servlcloe • Ad
Istracao Ltda., wholly owned by

ENGLAND
London: Representative office.

PANAMA

Panama City: Union de Baneos. Mldlan
tic International Inc. has a minor. t)
Interest In this ban
trs Include M

Louis: First National Ban

ville; WFC Corp.

Correspondent balance retain

inipi:

B.ilances are maintained with 32 for.
Sign banks In IS countries and 47 foreign
banks from 2\ different countries main
tain baljnc-s with Midlantic National
Bank.

Paramus

CARDEN STATE NATIONAL
BANK, PARAMUS

International banking policy:

"We are continuing to expand our In-
ternational banking operations at the
rapid growth pace of the multinational
corporate community In northern New
Jersey. The functions of our International
department have been developed to pro-
vide these corporations with closeat-
hand personal services of high efficiency
and effectiveness. For this purpose, we
maintain relationships with more than
125 highly qualified banks worldwide
and we work directly with those banks.
A full range of International banking
services Is available."

Correspondent balance relationships:

Through the facilities of our global
banking correspondent relationships we
continue to effectively administer the
broad spectrum of International services
such as letters of credit, collections,
money transfers, bank drafts and for-
eign exchange for our multinational and
Individual customers. As required, the
number of such relationships is increas-
ing steadily so that we can better serve
the business Interests of our customers.

Rutherford

NATIONAL COMMUNITY
BANK, RUTHERFORD

International banking policy:

"Our international banking policy is
to offer a complete line of international
services to our customers and to per-
form all functions with maximum Speed
and efficiency."

Correspondent balance relationships:

The bank has correspondent balances
with 15 banks in 13 countries. Three
banks in two countries maintain ac-
counts on our books.

Trenton

NEW JERSEY NATIONAL BANK,
TRENTON
(A Subsidiary of New jersey
National Corporation, Trenton)

International banking policy:
"New Jersey National Bank provides

services specifically directed to the needs

tional corporations In the state of New

Jersey."

Correspondent balance relationships:

Several due from accounts are main-
tained with banks abroad and several

tained with New Jersey

penetration from Long Island to central
New York. The First Commercial Banks
Inc. network now Includes reprsenta-
tion in 24 New York counties through
132 branch offices. Corporate policy
dictates that the full range of Interna-
tional services be made available com-
bining profitability with customer need.
Relationships abroad numbering 85 have
been established to facilitate business to

basis. Strong emphasis is placed on fast,
flexible and personalized service."

Correspondent balance relationships:

Reciprocating accounts are maintained
with 14 foreign banks in eight countries.

NATIONAL COMMERCIAL
BANK & TRUST CO., ALBANY

Buffalo

MANUFACTURERS & TRADERS
TRUST CO., BUFFALO
AND NEW YORK CITY
(A Subsidiary of First Empire
State Corp., Buffalo)

International banking policy:
"To provide a comprehensive
banking services to its custi
eluding: export financing throi
Bank and F.C.I.A. programs

CHANNEL ISLANDS
Guernsey: Allied Bank International

NETHERLANDS ANTILLES
Curacao: Allied International, N.V. Is a
wholly-owned banking subsidiary of
Allied.

Correspondent balance relationships'
Allied Bank International has 54 ao-

AMERICAN EXPRESS INTERNA-
TIONAL BANKINC CORP.,
NEW YORK

International banking policy:

range of
gh Exim

vices for businesses, fin

Institu-
te Is of-
Express
poratlon
26 coun-

iffectively on a
iroximity to C
ndustnal secto
cing Canadian

WIFT and CHIPS
gn correspondent ban
pled with our foreign
diaries, enables us t

(AEIBC) and its subsK
tries outside the U. S. Services
loans, overdrafts, advances and letten
of credit, acceptances, discount financing

rchant

with

West Paterson

NEW JERSEY BANK NA,
WEST PATERSON
(A Subsidiary of Creater Jersey
Bancorp., West Paterson)
International banking policy:

"The reception of the President's "E"
award evidences New Jersey Bank's
dedication to providing professional in-
ternational banking services to greater
numbers of New Jersey corporations.
An ever-expanding network of cor-
respondent banks affords access to world-
wide markets."
Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

COLOMBIA
Bogota: Representative office covering
•o Ecuador, Panama and Venezuela.
MEXICO
Mexico City: Representative office.
PERU

Lima: Representative office.
Correspondent balance relationships:
New Jersey Bank maintains accounts
th 69 foreign banks in 26 countries;
112 foreign banks In 34 countries havs
spondent balances with NJB.

NEW YORK
Albany

FIRST COMMERCIAL BANKS
INC., ALBANY

International banking policy:

strong I

U. S. Subsidiary:

FIRST EMPIRE OVERSEAS CORP.,
BUFFALO

Representation overseas:
CANADA

Toronto: First Empire Financial Services
Ltd. Is a subsidiary of the Edge cor-
poration. This company is engaged in
a broad range of financial services in-
cluding leasing, term financing, equip-

through Its subsidiaries,
s Financial Services and
s Development

FRANCE
Paris: One branch.

NETHERLANDS ANTILLES
Curacao: M4T Bank International. N.V
Curacao is a wholly-owned subsidiary

Correspondent balance relationships: rjul

The MAT maintains accounts wi
banks in 16 countries and 101 banks
31 countries maintain accounts wil

don, Beirut. Amman and Cairo. The New
York agency of AEIBC s North Ameri-
can region provides financial services

ness. An exclusively International orienta-
tion, broad geographical representation
in the form of branches and wholly-own-
ed subsidiaries and some 2.000 corre-
spondent relationships throughout t h •
world provide unique advantages to the
international customer."

f?epresen/ofion overseoi:
AUSTRALI A

Sydney: Representative sffl-».

AUSTRIA
Vienna: One branch.

BAHRAIN
Manama: One branch.

BANGLADESH
Chittagong: One branch.

BELGIUM
Antwerp: One branch.
Brussels: One branch.

CAYMAN ISLANDS
George Town: One branch.

DENMARK
Copenhagen: American Express A 3, an
AEIBC subsidiary.

DUBAI

MARINE MIDLAND BANK,
BUFFALO

See Marine Midland Bank, New York

New York

ALLIED BANK INTERNA-
TIONAL, NEW YORK

International bonking policy:

"Allied Bank International Is a con-
sortium bank established In 1968 and
wholly-owned by 18 shareholding banks
whose aggregate assets exceed (JO bil-
lion. Allied Bank International Is a
United States banking corporation char-
tered and regulated by the Federal Re-
serve Board, conducting a full service
international, wholesale business with
banks and corporations In the United
States and around the world.

"Shareholders are: American Fletcher
National Bank and Trust Co., Indiana-
American Security A Trust Co.,
ngton, D. C.; Bank of the South-
N.A., Houston: Equlbank N. A.,
Pittsburgh: Fidelity Union Trust Co.,
Newark: First Hawaiian Bank, Hono-
lulu: First National Bank of Fort Worth:
First National Bank in St. Louis; First
National Bank o( Saint Paul; First Ten-
nessee Bank, NA, Memphis; Hartford
Bank and Trust Company. Albany; I National Bank A Trust Co.; Liberty N»-
Trust t Deposit Company. Syr-lilonal Bank A Trust Co.. Oklahoma
Ij Kingston Trust Company, Kings- > City; Michigan National Bank, Lansing;
The Homer National Bank, Homer; f Trust Company Bank. Atlanta; United
The Oyslcrmcn's Bank and Trust Com- . Bank of Denver, N. A.; United Stales
ly. Sayville. and The Chester Na- 1 National Bank of Oregon, Portland;
rial Bank. Chester. Valley National Bank of Arizona.

Cooperative efforts among holding I Phoenix ; and Virginia National
company

nal services are giver
isis at all First Commercla
Include National Commer
d Trust Company, Albany
y. Syr

nbers insure further market 1 Norfolk.'

East Devel-

Ono branch.

EGYPT
Cairo: One branch.

Egyptian- American Banl
owned affiliate of AEIBC.

American Express MiddU
opment Co. S A L. is a l
AEIBC. Headquarters is in

ENGLAND
Birmingham: Representative office.
London: Two branches.

Amex Bank Ltd.. London, Is a mer-
chant bank subsidiary of AEIBC.
Manchester: Representative office.

FRANCE
Antibes: One branch.
Cannes: One branch.
Nice: One branch.
Paris: Two branches.

GERMANY
American Express Bank GmbH, Frank-
furt, a subsidiary of AEIBC, has branches
in Cologne. Ousseldorf, Hamburg, Heidel-
berg, and two In Munich.

GREECE
Athens: Three branches.
Piraeus: One branch.
Salomca: One branch.

HONG KONG
Hong Kong: Two branches.
Kowloon: Three branches.

INDIA

Bombay: Two branches.
Calcutta: One branch
New Delhi: One branch.

INDONESIA
Jakarta: One branch.
Jakarta Kota: One branch.

ITALY

American Express Bank SpA, Rome, a
subsidiary of AEIBC, has 'iranches In
Florence, Mcstre, Milan, Naples and

Venice.

(ContmnoJ on ne\t pjgc)

14B

AMERICAN BANKER

February 22, 1977

International Activities

East

(Continued fr

JORDAN
imman: American Expre
Development Co. S. A. L. Is a sub-
sidiary of AEIBC. It has a branch in
Cairo, Egypt.

MONACO
lonte Carlo: One branch.

NETHERLANDS

Karachi: One branch.
Lahore: One branch.

PHILIPPINES
Makatl: Representative office.

The Bancom Group, Inc., Is a 29%
owned affiliate of AEIBC.

SCOTLAND
Edinburgh: Representative office.

SINGAPORE
Singapore: One branch.

SWITZERLAND
American Express Bank (Switzerland)
A.G., Zurich, a subsidiary of AEIBC, has
branches in Basle, Geneva and Lausanne.

TAIWAN
Taipei: One branch.

ATLANTIC BANK OF NEW YORK
(A Subsidiary of National Bank of

Creece, S.A., Athens)
International bonking policy:

"Services offered by the international
department include commercial letters of
credit, documentary collections, import
and export financing, reimbursement
orders, money transfers, foreign credit
Information, advisory services for Greece,
foreign lending in the form of ship fi-
nancing and participation in syndicated
foreign loans. There are correspondent

"The parent bank is Greece's largest
commercial bank with over 300 branches
In the country plus branches In Chicago,
London, Cyprus, the Netherlands and
West Germany: representative offices In
Paris, Cairo and Sydney: and affiliated
banks In Canada, France, and South
Africa."

BANK LEUMI TRUST COMPANY
OF NEW YORK

Bm* Uumi T f usl Company of New
York Is majority owned by Bank Leumi
le-lsrael B.M., Tel-Aviv.

International banking policy:

"8ank Leuml Trust Company of New
York has a close orientation to Israel
commerce and is particularly well-
cqulpped to serve American business in
Its trade relations with Israel. In addi-
tion, we are engaged in the full spectrum
of financing the movement of goods and
services throughout the world and are
active In the International money mar-
kets."

Representation overseas:

ARGENTINA
Buenos Aires: Representative office.

BAHAMAS
Nassau: One branch.

BRAZIL

Sao Paulo: Representative office.

respondents and our overseas banking
offices to provide them with the fastest,
most intelligent counsel possible."

U. S. Subsidiary:

BANK OF NEW YORK INTERNA-
TIONAL CORP., INC., NEW YORK
Representation overseas:
BAHAMAS
Nassau: Bahamas International Trust
Co., Ltd. Bank of New York has a
direct minority interest In this insti-
tution which is engaged primarily in
trust business.

CAYMAN ISLANDS
George Town: One branch.

Cayman International Trust Co. Ltd.
Bank of New York International Corp.
has a minority interest

ENGLAND

Singapore: One branch.
Correspondent balance relationships:

The bank maintains correspondent
balances in 92 banks in 25 countries and
354 foreign banks in 65 countries main-
tain correspondent balances with us.

London: Bank Leuml Le-lsrael (U. K.)
Ltd. Is an affiliate.

FRANCE

Paris: Bank leumi Le-lsrael (France)
Is an affiliate.

GERMANY
Frankfurt: Representative office.

HONG KONG
Hong Kong: Representative office.
ITALY

Milan: Representative office.

SOUTH AFRICA
Johannesburg: Representative offlcs.

SWITZERLAND
Geneva: Bank Leuml le-lsrael (Switzer-
land) It an affiliate.
Zurich: Bank Leuml le-lsrael (Switzer-
land) Is an affiliate.

VENEZUELA
Caracas: Representative office.

BANK OF NEW YORK
(A Subsidiary of Bank of
New York Co., Inc. N. Y.)

International banking policy:

"The bank has always held to Its
policy of maintaining close working re-
lationships with the top correspondent
banks around the world. In this way,
whenever our customers have overseas
banking problems, we can utilize the
appropriate facilities both of theso cor-

BANK OF TOKYO TRUST CO.,
NEW YORK
(A Subsidiary of The Bank of Tokyo
Ltd., Tokyo, Japan)

International banking policy:

"As the global operations of business
and International trade continue to grow
and proliferate, we find many of our
valued customers and prospects In the
vanguard of progressive expansion. Our
international policy Is to continue to
meet the needs of our

Representation overseas:

CAYMAN ISLANDS
George Town: The Bank of Tokyo
Trust Co. (Cayman) Ltd., specializing
in International and .-.ffsltore banking
and trust services, is a wholly-owned
subsidiary of The Bai.k of Tokyo
Trust Co. (New York).

ENGLAND

BANKERS TRUST CO.,
NEW YORK
(A Subsidiary of Bankers Trust
New York Corp.)

International banking policy:

throughout the world, principally trans-
national corporations, foreign govern-
ments and their agencies, and foreign
central and commercial banks. In addi-
tion to making loans, the bank handles
deposit accounts, places funds on deposit
with other banks, buys and sells foreign
currency, engages in project finance and
syndicated loan activities, Issues and con-
firms letters of credit, offers a rapid col-
lection system for checks and drafts,
transfers funds and offers various cus-
todian, advisory and training services.
These services are provided through the
New York offices and our domestic Edge
Act subsidiaries, as well as through an

sisting of nine branches, 25 representa-
tive offices, nine subsidiaries and 10
equity investments in banking and finan-
cial institutions, and through more than
1.200 correspondent banks In 123 coun-
tries abroad."

U. S. Subsidiaries:

B. T. INTERNATIONAL
(DELAWARE) INC., NEW YORK
Formerly Bankers International (Lux-
embourg) Societe de Participations Fl-
nancleres, a Luxembourg holding com-
pany, which was wholly-owned by Bank-

BANKERS TRUST
INTERNATIONAL (MIDWEST)
CORP., CHICAGO
BANKERS TRUST
INTERNATIONAL (PACIFIC)
CORP., LOS ANGELES
BANKERS TRUST
INTERNATIONAL (SOUTHWEST)

CORP., HOUSTON
Representation overseas:

ARGENTINA
Buenos Aires: Representative office.

Eullco, S.A., an insurance brokerage
firm Is an affiliate of BIC.

Bullrich S.A. de Inversiones, an Invest-
ment banking affiliate specializing In
short-term and project financing, la an
affiliate of BIC.

AUSTRALIA
Melbourne: Office of Crd BT Co.
Sydney: Representative office.

Ord-BTCo is an investment banking
affiliate of BIC.

BAHAMAS
Nassau: One branch.

BELGIUM
Antwerp: Head office of Banque du
Benelux S.A., a commercial banking
affiliate of BIC.
Brussels: Representative office.

Office of Banque du Benelux S.A.
Ghent: Office of Banque du Benelux S.A.
Liege: Office of Banque du Benelux S.A.
BRAZIL

Rio de Janeiro: Representative office.
Sao Paulo: Representative office.

a BIC subsidiary.

CANADA
Toronto: Representative office.

Capital Services, Ltd., a wholly-

owned

npany, is a BIC affi

CapH

$12.1

BANKERS INTERNATIONAL
CORP., NEW YORK
This Edge Act Corporation Is capi-
talized at $33.4 million. It makes invest-
ments In banks and financial Institutions
In key areas around the world. There are
four other domestic Edge Act subsidiar-

BANKERS TRUST
INTERNATIONAL (MIAMI) CORP

COLOMBIA
Bogota: Representative office.
M;dellin: Corporacion Financeria Na-
cional, a finance company specializing
In medium- to long-term lending, is
a BIC affiliate.

DENMARK
Copenhagen: Representative office.

ENGLAND
Birmingham; One branch.

Bankers Trust International Ltd. Is
a wholly-owned subsidiary of BIC.
A merchant bank which participates In
commercial and Investment banking
activities, it also facilitates mergers
and underwriting operations.
Manchester: Representative office.

FRANCE
Paris: One branch.

GERMANY
Ouesseldorf: Branch of Deutsche Union-
bank, GmbH, Frankfurt.
Frankfurt: Representative office.

Deutsche Unlonbank GmbH la major-
wned by BIC. It is a full-service

GmbH.

Branch of Deutsche Unionban
HONG KONG

Hong Kong: Representative office.

BT Asia, Ltd., a merchant bank, is
subsidiary of BIC.

B.T. Asia, Ltd., a merchant bank, is
wholly- owned by BIC.

INDONESIA
Jakarta: Representative office.

IRAN

Teheran: Representative office.

ITALY
Milan: One branch.
Rome: Representative office.

Bankers Trust Finanziaria S p A. Is
a wholly owned Investment banking affil-
iate of BIC.

IVORY COAST
Abidjan: Societe Generale de Banques
en Cote d'lvoire, a commercial bank
with branches throughout the country.
Is an affiliate of BIC.

JAPAN
Tokyo: One branch.

KOREA
Seoul: Representative office.

Korea Investment and Finance Corp.
Is an affllate of BIC.

MEXICO

Mexico City: Representative office.

NETHERLANDS
Amsterdam: Representative office.

NIGERIA
Lagos: Representative office.

United Bank for Africa, Ltd., a com-
mercial bank with offices throughout the
country, Is a BIC affiliate.

PANAMA
Panama City: One branch.

PHILIPPINES
Manila: Representative office.

SENEGAL
Dakar: Societe General de Banque* au
Senegal, a commercial bank, is a BIC

SWITZERLAND
Zurich: Bankers Trust A.G. I* a wholly-
owned commercial banking affiliate of
BIC.

TAIWAN
Taipei: Representative office.

THAILAND
Bangkok: Representative office.

Thai Investment A Securities Co., Ltd.
is an investment banking affiliate of BIC.

TUNISIA
Tunis: Representative office.

Banque de Tunisie, a commercial bank,
It an affiliate of BIC.

VENEZUELA
Caracas: Representative office.

BROWN BROTHERS HARRIMAN
& CO., NEW YORK

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

ENGLAND

Brown Harriman A. International
Banks Ltd., international merchant
bankers, is 20% owned by Brown Broth-
ers Harriman & Co. The other owners
are First National Bank of Minneapolis,
Pittsburgh National Bank, The Pruden-
tial Assurance Company Ltd., London,
and The Inter-Alpha Group of Banks.
Capital authorized Is £4.1 million, ef
which £3.9 million Is Issued and fully
paid. Total footings. Including deposits
were £83.1 million, as of September
30, 1976.

SWITZERLAND
Zurich: Brown Brothers Harriman Serv-
ices A G, a communication center for
Europe.™ Institutional investors actlv*
In the U. S. securities market. It I*
wholly owned by Brown Brother* Har-
riman 4 Co.

Correspondent balance relationships:

Brown Brothers Harriman & Co. main-
tains correspondent balances in over 100
foreign banks and over 500 foreign bank*
maintain correspondent balances with
Brown Brothers Harriman 4 Co.

CHASE MANHATTAN BANK
NA, NEW YORK
(A Subsidiary of Chase Manhattan
Corp., N. Y.)

U. S. Subsidiaries ond Affiliates:
CHASE INTERNATIONAL
INVESTMENT CORP.,
NEW YORK
CMC is a wholly-owned subsidiary
organized under the Edge Act to provide
Investment funds for economic develop-
ment projects, with emphasis on new cr
expanding enterprises In developing

CHASE MANHATTAN CON-
SULTING, INC., NEW YORK
CMCI provides management consult-
ing services relating to international and
foreign operations and services of tho
International Cash Management Division.

CHASE BANK
INTERNATIONAL— CHICAGO
CBI, Chicago, Is a wholly-owned sub-
sidiary organized under the Edge Act
to engage In International banking ac-
tivities.

CHASE BANK
INTERNATIONAL— HOUSTON
CBI, Houston, Is a wholly-owned sub-
sidiary organized under the Edge Act
to engage In International banking ac-
tivities.

CHASE BANK
INTERNATIONAL— LOS ANCELES

CBI, L. A
sidiary orga
to engage ir
tlvities.

Is a wholly-owned tub-
zed under the Edge Act
international banking ac-

CHASE BANK
INTERNATIONAL— MIAMI
CBI, Miami, Is a wholly - owned
ubsidiary organized under the Edgt Act

February 22. 1977

AMERICAN BANKER

International Activities-

International banking

activities.
CHASE MANHATTAN OVER-
SEAS BANKING CORP.,
NEW YORK
CMOBC la a wholly-owned subsidiary
organized under the Edge Act to hold
Investments In overseas corporations.

CHASE MANHATTAN OVER-
SEAS CORP., NEW YORK

CMOC provides management personnel
and consulting services to the foreign
banks in which Chase Manhattan directly

CHASE WORLD INFORMATION

CORP., NEW YORK
Cwic provides corporate customers
with custom designed research to enable
them to identify tf-rific P'otit oppor
tumties in the East-West trade.

Representation overseas:

ARGENTINA
Buenos Aires: Representative office.

AUSTRALIA
Melbjurne: N.B.A.. Group Ltd. Chase
N.B.A. Group, Ltd. was established as
a merchant banking firm In 1970 by
Chase National Bank of Australasia
Ltd. and the Australian brokerage
firm of A. C. Goode & Co. The Group
Includes All-States Commercial Bills
Ltd.. Chase-N.B.A. Group Depository
Ltd., Managed Deposits Ltd., and
Bourke Street Nominees Pty Ltd.
Perth: Chase-N.B.A. Group Ltd.

(See Melbournel
Sydney:: Alliance Holdings, Ltd. CMOBC
acquired an interest .n Alliance Hold-
ings, a finance company. In 1972.
Chase-N.B.A. Group Ltd. (See Mel-
bourne)

AUSTRIA

Vienna: Oesterrelchltche Kommerzial-
bank A.G. Is an associated bank of
Chase which operates two offices In
Vienna.

BAHAMAS
Eleuthera: One branch.
Freeport: One branch.
Great Abaco: One branch.
Nassau: Three branches.

Chase Manhattan Trust Corp. Ltd. Is
a subsidiary of Chase. The Chase Man-

hlttln Trust Corp. Ltd. Is a wholly

owned subsidiary of CCtOOC

BAHRAIN

Manama: Ona branch.

BARBADOS
Bridgetown: One branch.

BELGIUM
Antwerp: Fifteen branches of Banque
de Commerce. S A.. Brussels, an as-
sociated bank of Chase.
Brussels: Banque de Commerce S.A. has

three offices In Brussels.
Ghent: One branch of Banque de Com-
merce S.A, Brussels.
Liege: One branch of Banque de Com-
merce S.A. Brussels.

BELIZE

Belize: Atlantic Bank. Ltd, an asso-
ciated bank of Chase, has one branch.
BRAZIL

Rio do Janeiro: Representative office.

Banco Lar Brasilelro, S.A. Is an asso-
ciated bank of Chase with 36 offices In
Brazil, including nine In Rio.
Sao Paulo: Nino offices of Banco Lar

Brasilelro, Rio de Janeiro, S.A.
CANADA

Toronto: CMB Holdings Ltd, a subsidi-
ary of CMOBC.

CAYMAN ISLANDS

Ceorge Town: The Chase Manhattan
Trust Cayman Ltd, a subsidiary of
CMOBC.

CHANNEL ISLANOS

Jersey: Standard A Chase Bank C.I.
Ltd, Is associated with Chase.
COLOMBIA

Bogota: Representative office.
Banco del Comsrclo Is an associated

bank of Chase and has 111 offices In

Colombia and three in the Republio of

Pinjmm.

COSTA RICA
San Jose: Chase Manhattan Costa Rica.
S.A, Is an affiliated corporation of
Chase.

DENMARK

Copenhagen: One branch.

OOMINICAN REPUBLIC
Santiago de los C iballerot: One branch.
Santo Domingo: Five branches.

DUBAI

Dubai: The Commercial Bank of Oubal
Ltd. la associated with Chase.
EGYPT

Cairo: Representative offlc* of CMOC
Chase National Bank of Egypt S.A.E.
Is a Joint banking venture with National
Bank of Egypt.

ENGLANO

Chaaa Manhattan Ltd. Is a merchant
bank subsidiary of Chaw.

Equipment Leasing Co, Ltd, Is an
affiliated corporation.

Libra Bank Ltd. is an associated bank
established In 1972 by the participants
in the Orion Group, the Banco Esplrito
Santo e Comerclal de Lisboa, the Swiss
Bank Corporation. Banco do Comerclo
S.A. Group of Mexico Joined Libra In
1973.

Orion Banking Group of banks. Chase
Manhattan, together with the Royal
Bank of Canada. Montreal: National
Westminster Bank Ltd, London, and
West Deutsche, Landesbank Girozentrale.
Duessetdorf. formed this group In Octo-
ber, 1970. Credlto Itallano, Milan, joined
the Group in 1971, The Mitsubishi Bank
Ltd. Joined the Group In 1972. The group
includes Orion Multinational Services
Ltd, which acts as a coordinating and
marketing unit for the Orion Group;
Orion Bank Ltd, a merchant bank; Orion
Termbank Ltd, a medium-term credit
Institution, Orion Leasing Holdings Ltd,
and Multinational Orion Leasing Hold-
ings N.V.

FRANCE

Lyon: One branch.
Paris: One branch.

struction Immobiliere is a subsidiary.

Union Immobiliere Internationals la
an affiliated corporation.

GERMANY
Ouesseldorf: One branch.
Frankfurt: One branch.
Hamburg: One branch.
Munich: One branch.
Stuttgart: One branch.

Famllienbank, A.G. a consumer bank
located In Ousseldorf which Is a wholly-
owned subsidiary of Chaae, started oper-
ations In 1973 with branohes through-
out Germany.

GREECE
Athens: One branch.
Piraeus: One branch.
Salonlca: One branch.

The National Investment Bank of In-
dustrial Development S.A, Athens Is an
associated development and finance
institution.

GUADELOUPE
Potnle-a Pltre: One branch.

GUAM
Agana: One branch.

GUYANA
Georgetown: One branch.

HONDURAS
Tegucigalpa: Banco Atlantlda, S.A. is an
associated bank of Chase. It has 46 of-
fices in Honduras.

HONG KONG
Hong Kong: Twelve branches.

Chase Asia Ltd. Is a wholly-owned
merchant bank subsidiary of Chase.

Diamond Lease (H.K.) Ltd, an af-
filiated corporation of Chase.
Regional office for Southeast Asia.
INDIA

Bombay: Representative office.

INDONESIA
Jakarta: One branch.
Jakarta Kola: One branch.

IRAN

Teheran: Representative office of the
Chase Manhattan Overseas Corp, New
York.

The International Bank of Iran la a
Joint banking venture with Industrial
Credit Bank, Teheran, and Iranian

IRELAND, NORTH
Belfast: Chase and Bank of Ireland (In-
ternational) Ltd, Is an associated bank
of Chase.

IRELAND. REPUBLIC
Dublin: Chase and Bank of Ireland (In
tematlonal) Ltd. is an associate bank
of Chase.

Shannon: One branch of Chase and Bank
of Ireland (International) Ltd, Dub-
lin.

ITALY
Barl: One branch.
Milan: One branch.
Rome: One branch.

Representative office of Chase Manhat-
tan Overseas Banking Corp.

Orion Leasing Italia, a leasing com-
pany owned by the Orion Banking
Group. London, a banking consortium
of which Chase Is a member.

IVORY COAST

Abidjan: Banque ...» de Oevelopps-

ment Induslrlel Is an associated de-
velopment and finance Institution.
JAMAICA
Kingston: Chase Merchant Bankers Ja-
maica Ltd. Is a Chase subsidiary.
JAPAN
Osaka: One branch.

Oilice of Diamond Lease Co. Ltd, of
Tokyo, an affiliated corporation of Chase.

Tokyo: One branch.

The Chartered Bank Ltd, London, an
associated bank of Chase operates four

Diamond Lease Co, Ltd, an affiliated
corporation of Chase.

Mitsubishi Chase Manhattan Consult-
-, Is an affiliated corpo-

Kltta Nlhon Shlnyo Hanbal, a con-
sumer finance company Is 10% owned by
Chase.

KOREA
Pusan: Representative office.
Seoul: One branch.

LEBANON
Beirut: One branch.

Regional office for the Middle East
and North Africa.

LIBERIA
Harbel: One branch.
Monrovia: One branch.

LUXEMBOURG
Luxembourg: Chase Manhattan Bank
Luxembourg S.A, a Chase subsidiary.
MALAYSIA
Kuala Lumpur: One branch.

Amanah Chase Merchant Bank In
which Chase holds a 31% Interest and
Orion Banking Group, London, a banking
consortium of which Chase Is a member,
holds a 5% Interest. Is an affiliated bank.

MARTINIQUE
Fort de France: One branch.

MEXICO

Mexico City: Representative office.

NETHERLANDS
Amsterdam: Nederlandse Credietbank.
N.V. Is an associated bank of Chase.
It has 100 offices In the Netherlands.
NETHERLANDS ANTILLES
St. Maarten: One branch In Mullet Bay.

NEW ZEALAND
Auckland: Chase-N.B.A. New Zealand
Group Ltd. Is an affiliated corporation.
NIGERIA

Lagos: Nigerian Industrial Development
Bank Ltd, an associated development
and finance institution.

PANAMA
Balboa: One branch.
Chltre: Four
Colon: Two
David: One branch.
La Concepclon: One branch.
Panama City: Five branches.
Penonome: One branch.

Banco del Comercio of Bogota. Co-
lombia, an associate bank of Chase has
three branches In Panama.

ssarollo Industrial. S.A, la an as-
sociated development and finance Institu-
tion affiliate.

PHILIPPINES
Phllllplne American Investment Cor-
poration, Manila, is an affiliated corpo-
ration.

Philllplnes Commercial Bank eV Trust
Co, Manila. Is 30% owned by Chase.

PUERTO RICO
Bayamon: One branch.
Caguas: One branch.
Caparra: One branch.
Carolina: One branch.
Hato Rey: One branch.
Mayaguez: One branch.
Ponce: One branch .
Rio Piedras: One branch.
San Juan: One branch.
Santurce: One branch.

Housing Investment Corp, Hato Rey,
Is an affiliated corporation of Chase.
QATAR

Qatar: Commercial Bank of Qatar
Ltd. -Chase Manhattan operates under
advisory agreement.

CastrK

ST. LUCIA
One branch.

SHARJAH
Sharjah: One branch of the Commercial
Bank of Dubai, Ltd.

SINGAPORE
Singapore: Three branches and one
representative office of the bank.
United Chase Merchant Bankers Ltd.
was established In 1972 by Chase and
United Overseas Bank of Singapore.

SOUTH AFRICA
Johannesburg: Representative office
SPAIN

Madrid: Representative office.

Llga Flnanclera, S.A, an Investment
company affiliated with Chase.

Transleaalng S.A. is an associated cor-
poration.

SWITZERLAND

Geneva: Chase Manhattan Bank (Switz-
erland) Is a subsidiary of Chasa.
CMOBC Institutional Banking Division

has Its representative office for France

and Switzerland In Geneva.

Zurich: Branch of Chase Manhattan
Bank (Switzerland), Geneva.
TAIWAN

Taipei: One branch.

THAILAND

Bangkok: One branch.

Chase Manhattan Investment Co

(Thailand) Ltd. is a subsidiary of Chase
Industrial Finance Corp.

is an associated development and finance

Institution.

TRINIDAD AND TOBAGO
Port of-Spaln: Two branches.
San Fernanda: One branch.

UNION OF SOVIET SOCIALIST
REPUBLICS
Moscow: Representative office.

VENEZUELA
Caracas: Representative off.ee.

Banco Mereantil y Agricola, C.A. Is
an associated bank of Chase and has 30
offices In Venezuela.

Arrendaclma. C.A, an affiliated leas-
ing company. In which Chasa has ■
24.S% share.

VIRGIN ISLANDS (U.S.)
St. Croix: Five branches.
St. John: One branch.
St. Thomas: Three branches.

VIRGIN ISLANOS. BRITISH
Tortola: One branch.

Correspondent balance relationships:

Chase Manhattan has over 2.000 car-
respondent banks overseas

CHEMICAL BANK, NEW YORK
(A Subsidiary of Chemical
New York Corp., N. Y.)

International banking policy:

"The policy of Chemical Bank Interna-
tionally ia to serve its customers with
a mix of selected money center overseas
branches, close correspondent bank re-
lationships around the world, affiliated
foreign banks and related financial in-
stitutions."

U. S. Subsidiaries:

CHEMCO INTERNATIONAL
LEASING, INC , NEW YORK

CHEMICAL BANK
INTERNATIONAL, CHICAGO
CHEMICAL BANK INTERNA-
TIONAL OF SAN FRANCISCO

CHEMICAL INTERNATIONAL
FINANCE LTD., NEW YORK
In addition to equity interests In de-
velopment banks, regional development
institutions and participations In non-
bank financial institutions. Chemical
international Finance. Ltd. has mads
equity investments In a variety of non-
financial foreign enterpriees-

Representation overseas:

ARGENTINA
Buenos Aires: Representative office.

AUSTRALIA
Sydney: Representative office.

Development Underwriting, Ltd. CIF
holds an equity interest In this institu-
tion.

AUSTRIA

Vienna: Brelsach Pinschof Schoeller.
CIF has an equity interest in this
Austrian bank.

BAHAMAS
Nassau: One branch.

Bank of New Providence, Ltd. CIF
holds an equity Interest in this bank.

BAHRAIN
Manama: One branch.

BELGIUM
Brussels: One branch.

Chemco Leasing SA NV, a wholly-
owned leasing subsidiary.

BRAZIL

Rio de Janeiro: Representative office.
Sao Paulo: Representative office.

Banco Noroeste de Investimento S.A.
CIF holds an equity Interest In this
Brazilian Investment bank.

Chemco Leasing Llmltada. a leasing
affiliate.

Noroeste— Chemical S.A. Leasing—
Planejamento e Arrendamento. CIF
holds an equity interest In this leasing

company.

CANADA
Toronto: Representative office.

Chemco Leasing. Ltd, Is a wholly-
owned leasing subsidiary.

CHANNEL ISLANDS
Guernsey: Chemical Bank and Howard

LtJ.
which CIF

iritl

COLOMBIA
Bogota: Representative office.

DUBAI
Delra: Representative office.

EGYPT
Cairo: Representative offlct.

ENGLANO
Birmingham: Representative office.
London: Ona branch.

don. A wholly owned subsidiary of
Chemical Bank.

London Multinational Bank. CIF
holds an equity interest In this Institu-
tion.'

(Continued on next pag-o)

16 B

AMERICAN BANKER

February 22, 1977

International Activities

(Continued from preceding page)
AUSTRALIA
Chemco Financial Services, Ltd., Is a
wholly-owned subsidiary.

FINLAND
Helsinki: Industrialization Fund of Fin-
land. CIF has an equity interest in
this development bank.

FRANCE
Paris: One branch.

GERMANY
Frankfurt: One branch.

Chemco Leasing GmbH Is a wholly
Owned leasing subsidiary.

Chemco Mietfinanz GmbH. CIF has
an equity Interest in this leasing com-
pany.

HONG KONG
Hong Kong: Representative office.

Chemical Asia Finance Corp., Ltd. is
a wholly-owned subsidiary of CIF.

Chemco Finance (Hong Kong) Ltd. is
a wholly-owned leasing subsidiary.

INDONESIA
Jakarta: Representative office.

P. T. Multinational Finance Corp.
CBISF holds an equity interest in this
company.

IRAN

Teheran: Representative office.

ITALY
Milan: One branch.

Chemco Leasing s.p.A. is a wholly-
owned leasing subsidiary.
Rome: Representative office.

JAPAN
Tokyo: One branch.

PICA Investment Co. CIF has a mi-
nority equity interest in this develop-
ment institution for Asia.

LEBANON

Chemical Bank (Middle East) S. A.
Chemical Bank owns majority intere
In this Lebanese bank.

LIBERIA

Monrovia: Bank of Liberia. CIF hoi
an equity interest in this Liberii
bank.

LUXEMBOURG
Luxembourg: ADELA Investment C
CIF has a minority equity interest
this development institution for Lat

MEXICO

Mexico City: Representative office.

Arrendadora del Atlantico, S.A. CIF
has an equity interest in this Mexico
City leasing company.

NETHERLANDS
The Hague: Chemco Leasing B.V. Is a

wholly-owned subsidiary.

PHILIPPINES
Makati: Representative office.
Manila: Private Development Corp. of

the Philippines. CIF has an equity

Far East Chemco Leasing 4 Finance
Corp. CIF has an equity interest in this
Philippine leasing company.

SCOTLAND
Edinburgh: Representative office.

SINGAPORE
Singapore: One branch.

SPAIN

Madrid: Representative office.

SWITZERLAND
Zurich: One branch.

C. N. Y. Finanz A. G , Zurich, Is
wholly-owned by CIF.
Zug: Chemco Leasing und Finanz A.G.
a wholly-owned leasing subsidiary.
TAIWAN
Taipei: One branch.

VENEZUELA
Caracas: Representative office.

Sociedad Financiera Exterior, C.A., a
local finance company in which CIF has

has a i

Correspondent bo/once relationships:

More than 1,400 foreign banks have
correspondent balances with Chemical
Bank, while Chemical maintains cor-
respondent balances with 280 foreign
banks throughout the world.

CITIBANK, NAT NEW YORK
(A Subsidiary of Citicorp,
New York)

Internotionol bonking policy:

"Citibank provides comprehensive
banking and financially-related services
through a world-wide system of
branches, subsidiaries and affiliates,
functioning as integral parts of the bank.

"On January |, 1977, It had 1.423
branch, affiliate, representative and sub-
aldiary offices in 101 foreign countries."

U. S. Subsidiaries:

CITIBANK INTERNATIONAL

— CHICAGO
CITIBANK INTERNATIONAL

—HOUSTON
CITIBANK INTERNATIONAL

— LOS ANCELES
CITIBANK INTERAMERICA

— MIAMI
CITIBANK INTERNATIONAL

—SAN FRANCISCO
These Edge Act subsidiaries are wholly-
owned by Citibank, except the Chicago
subsidiary which is owned by Citicorp.

•CITIBANK OVERSEAS
INVESTMENT CORPORATION
A Citibank subsidiary which holds and
manages certain overseas subsidiaries
and affiliates is indicated in the following
listing by an asterisk.

CITICORP LEASING INTER-
NATIONAL. NEW YORK

sidiary

A wholly-owned
corp. Citicorp Lea
in operating leasing and equipment fi-
nancing company with offices and aff ilia-
Canada, Italy, Mexico, the Netherlands,
Puerto Rico, West Germany, United
Kingdom, and affiliates in Japan, Mexico,

Representation overseas:

ABU DHABI
Abu Dhabi: Two branches.

Grindlays Bank, Ltd., London, a Citi-
bank affiliate, has three branches in Abu
Dhabi.

ARGENTINA
Buenos Aires: Twelve branches.

"C'ticard S.A. Comercial Financiera de
Servicios, wholly-owned, operates an all-
purpose credit card facility.

Ripco S.A. C. I. y F., wholly-owned
operates a computer service in Argen-
tina, factoring and travel services.

'Servicios Integrate*, S.A., wholly-
owned, engages in general equipment

AUSTRALIA

Brisbane: Office of FNCB Waltons Corp.
Ltd , Sydney.

Melbourne: Citibank representative of-
fice; office of FNCB-Waltons Corp.,
Ltd., Sydney.

•Arnott First City Permanent Build-
ing Society is a mortgage lending, 50%

•Credivit-Finaneia SA, 99% owned, Is
a Belgian-based financial services com-
plex, specializing In consumer lending
and savings through its 42 branches
throughout Belgium.
Hasselt: One branch of Citibank (Bel-
gium) S.A.
Liege: One branch of Citibank (Belgium)
S.A.

BOLIVIA
La Paz: One branch.

BRAZIL
Bahia (Salvador): One branch.
Belo Horizonte: One branch.
Brasilia: One branch.
Campinas: One branch.
Curltiba: One branch.
Porto Alegre: One branch.
Recife (Pernambuco) : One branch.
Rio de Janeiro: One branch.
Santos: One branch. -
Sao Paulo: Two branches

♦Banco Crefisul de Investimento SA, a
50% affiliate, engages In consumer fi-
nance and merchant banking through its
52 offices throughout Brazil.

•Citybank Credlto, Financiamento e
Investimento S.A. is a wholly-owned
subsidiary specializing in consumer lend-

Distrlbuidora de Titulos I
niliarios S. A., is a wholly
diary which handles special

itati

of Citi(

Ban

Lon

'Citicorp Leasing, S.A., Comercio e
Arrendamento, wholly-owned engages in
general equipment leasing.

•Companhia de Turismo, Promocoes e
Administracao, an affiliate, operates the
bank's credit card activities In Brazil.

FNC Corretora de Titulos e Valores
Mobiliarios. S.A., wholly-owned, provides
investment advisory services and brok-
ers securities through its seat on Rio
Stock Exchange.

♦Omnia Empreendimentos e Partici-
padoes Ltda., wholly-owned, provides
fiduciary services and factoring.

BRUNEI

Bandar Seri Begawan: One branch.
Kuala Belait: One branch.

♦Citicorp Finance Company Ltd. is a
wholly-owned consumer finance and leas-
ing company.

CAMEROON
Yaounde: I. A. Cameroun, 65% owned
by Banque Internationale pour I'Afri-

Citiban

Sydr,

itional Capital Corp., Ltd.,
y of Citinatlonal (Holdings
Iffillatc engages in a wide rang
ial services in Australia, includ
al market development, under

ational Holdings Ltd., 44°
s a short-term money marke
operating through separate sub
s In both the official and un

•FNCB Waltons Corp., Ltd. Is a 50%
owned Australian finance company.

♦Industrial Acceptance Corporation
Ltd., 51% owned, is a financial services
complex and is Australia's second larg-
est finance company with 57 olfices.

AUSTRIA
Vienna: Interbank A.G. is 54.5% owned
by Citibank. It has one office in Vien-
na.

BAHAMAS

Freeport: One branch.

Cititrust (Bahamas) Ltd. wholly-
owned by Citibank.
Oakes Field: One branch.

BAHRAIN

don. has a
Grindlay
bank aff a

alt.

lional Bank Ltd., Lon-
> representative office.

Ltd., London, a Citl-
i one branch In Bah-

BANGLADESH
Dacca: Grindlays Bank, Ltd., London, a
Citibank affiliate, has ten branches in
Bangladesh.

BARBADOS

Bridgetown: Two branches.

Holetown (St. James): One branch.
BELGIUM

Antwerp: One branch of Citibank (Bel-
gium) S.A., wholly-owned by Citibank.

Brussels: One branch.
One branch of Citibank (Belgium)

S.A.

♦Citicorp Inter

Securities SA

rency securities issued abroad and
gages in underwriting in Belgium.

•Citilease S A, wholly-owned engages
in general equipment leasing.

CANADA

Montreal: The Mercantile Bank
da, an affiliate of Citibank

out Canada. *
•international Trust Co. Is a wholly-
owned subsidiary and conducts a general

•Citicorp Ltd., Is a wholly-owned sub-
sidiary offering a broad range of cor-
porate commercial and consumer lend-

♦Citicorp Leasing Canada Ltd., 60%
owned by Citicorp Leasing International,
engages in equipment lease financing
through wholly-owned subsidiaries: Di-
rect Leasing Ltd.; Medi-Dent Services

i 19 offices
ices (Canada)

Equipment Ltd.
throughout Canada
Grindlays Financi
Ltd. is a wholly-owned subsidiary of
Grindlays Bank Ltd., London, a Citibank
affiliate. It offers a broad range of fi-

CAYMAN ISLANDS
George Town: One branch.

Cititrust (Cayman) Ltd., a wholly
owned subsidiary of Citibank, engages
in general trust business.

CENTRAL AFRICAN REPUBLIC
Bangui: Banque Internationale pour

I'Afrique Occidentale, Paris, is an af-

Central
CHAD

Air

Rcpu

N'Jamene: Banquo Internationale pour
I'Afrique Occidentale, Paris, Is an af-
filiate of Citibank which operates two
branches in Chad.

CHANNEL ISLANDS

Jersey: One branch. Citibank (Channel
Islands) Ltd., a wholly-owned subsidi-
ary of Citibank, operates one office in
St. Helier.

National and Grindlays Bank (Jersey)
Ltd. is a subsidiary of Grindlays Bank,
Ltd., London, a Citibank affiliate.

CHILE
Santiago: One branch.

♦Adelantos y Creditos, S.A.F., is a
wholly-owned subsidiary and engages
In short-term money market transac-
tions, personal and commercial lending,
debt and equity securities underwriting,
and investment advisory services.

COLOMBIA
Bogota: Banco Internacional de Colom-

Bogota, four in Barranquilla, two In
Bucaramanga, three In Call, three In
Cartagena, one in Cucuta, four In
Medellin, one in Mcta, one in Pereira,
and one in San Diego.
♦Arrendadora y Administradora City-
col S.A. is a wholly-owned money market
company.

♦Compania Colombiana de Financla-
mlentos S.A., wholly-owned, it* a con-
sumer finance company.

♦Compania Exportadora Cityexport
S.A., 95% owned, provides advisory
services to exporters In Colombia and
engages In the short-term money market.

♦Corporacion Financiera de Desarrollo
Agrope.uario, 40% owned, is a Colom-
bian development bank specializing In
agricultural lending.

COSTA RICA
San Jose: 'First National City (Costa
Rica) S.A. is a broadly chartered fi-
nance company wholly-owned. Its ac-
tivities Includes operation of Citl-
credito. a consumer credit card opera-
tion in Costa R ca.

CYPRUS

Nicosia: Grindlays Bank, Ltd., London,

an affiliate of Citibank, operates 28

offices in Cyprus.

DENMARK
Copenhagen: One branch.

DOMINICAN REPUBLIC
Santiago de los Caballeros: Two branches.
Santo Domingo: Five branches.

•Financiera Citicorp S.A., is a wholly-
owned development bank.

DUBAI
Bander Taleb: One branch.
Dubai: One branch.

♦Citicorp Gulf Finance Ltd. la •
wholly-owned finance company.

Grindlays Bank, Ltd., London, a Citi-
bank affiliate, operates two branches in
Dubai.

Riqa: One branch.

ECUADOR
Ambato: One branch.
Cuenca: One branch.
Guayaquil: Three branches.
Quito: Five branches.

EGYPT
Cairo: One branch.

Grindlays Bank Ltd., London, a Citi-
bank affiliate, operates one branch in
Egypt.

El SALVADOR

San ijiv-uor: One branch.

ENGLAND
London: One branch.

•Citibank Financial Trust Ltd. is
wholly-owned and operates a wide range

instalment credit personal loans, mort-
gage lending and savings. It has 38
offices in the United Kingdom.

Citicorp International Bank Ltd. Is a
merchant bank wholly-owned by Citicorp
with representative offices in Bahrain,

Dao Heng Bank, a subsidiary of
Grindlays Bank, Ltd., Londi n, a Citibank
affiliate, operates one branch.

Grindlays Bank, Ltd.. Is 49% owned
by Citibank. It has 193 banking offices
and an extensive network of subsidiaries
and affiliates in Europe, the Middle East,
the Far East and East and Central
Africa. It has a merchant banking sub-
sidiary, Grindlay Brandts Ltd., operat-
ing in London. Grindlays Bank has its
head office plus three branches In Lon-

New York London Finance Co., Ltd.
is wholly-owned by Citibank and pro-
vides trust and investment services In-
cluding management of employer pen-
sion funds for British companies.
FIJI

Ba: One branch.
Lautoka: One branch.
Nadl: One branch.
Suva: One branch.

FRANCE
Paris: One branch.

Banque Grindlay Ottomane S.A., a
subsidiary of Grindlays Bank, Ltd., Lon-
don, a Citibank affiliate, has its head of-
fice and eight branches in Paris, one in
Monaco and one In Switzerland.

Banque Internationale pour I'Afrique
Occidentale is 49% owned by Citibank.
It has 15 offices In France, one In
Athens, one in Monaco, and 52 through-
out West Africa. It has six subsidiaries
and affiliiates in West Africa and one
affiliate, Hamburg Afnka Bank A. G. In
Germany.

•Citibail S.A., is a wholly-owned leas-
ing company.

♦Citicorp Location (France) S A. is a
wholly-owned leasing company.

♦Citicorp Credit Multiple "CREDIM",
92.5%-owned, is a personal finance com-
pany operating through eight branches

•Socictc de Credit Pour I' Acquisition
et I'Amelioration des Immeubles 97.5%
owned, is a mortgage lending company
operating through 10 branches in France.

February 22. 1977

AMERICAN BANKER

International Activities

GABON

Libreville: One branch of Citibank.
Banque Internationale pour le Gabon
owned by Banque Internationale
pour I'Afrique Occidentale. Pans, a
Citibank affiliate, operates three of-
fices In Gabon.

GERMANY
Berlin: One branch of Citibank A.G.
Ouesseidorf: One branch of Citibank

branch of Citil

Hamburg Afnka Bank, an affiliate o
Banque Internationale pour I'Afriqui
Occidentale. Paris, an affiliate of Citi
bank, has one office m Hamburg.
Stuttgart: One branch of Citibank A. G
• Kundenkreditbank Kommanditgesell
Aktien. a commercial banl

IVORY COAST
Abidjan: One branch.

Banque Internationale poi
Occidentale, Pans, an affiha

•chart

•pecia
«9.4%
cities.

' Trlnka

Investment bank

6V Burkhardt. a

JAMAICA
Kingston: Four branches.

Caribbean Merchant Bank. Ltd., Is a
wholly-owned subsidiary of Citibank.

'First National Finance Ltd., Kings-
ton, is 75% owned consumer finance

company.

Mandeville: One branch.
May Pen: One branch.
Montego Bay: One branch.
Ocho Rios: One branch.

JAPAN
Nagoya: One branch.
Osaka: One branch.
Tokyo: One branch.

First National Nippon Shinpan Co.
Ltd., 40% owned affiliate of Citicorp,
operates as a consumer finance and
mortgage banking company.

Fuji National City Consulting Ltd..
S0"a-owned affiliate of Citicorp, provides
general consulting services and related

II Fuyo General Lease Co. Ltd., 33'/j%-

51% owned and has' owned
rour ornces .n tour cities. general

GHANA ; Grindlays Bank, Ltd.. Londe

Accra: Merchant Bank Ghana Ltd, an bank affiliate, has one branch,
associate of Grindlays Bank, Ltd., Lon- Yokohama: One branch,
don, a Citibank affiliate, operates two
branches.

GREECE
Athens: Two branches.

Grindlays Bank. Ltd . London, a Citi-
bank affiliate, has two branches Banque
Internationale pour I'Afrique Occidentale
Paris, an affiliate of Citibank, has one

p engages

a Citi

Kypseli: One branch.
Piraeus: Two branches.
Thessalomki: One branch.

GUAM

JORDAN
Amman: Two branches.

Grindlays Bank, Ltd., London, a Citi-
bank affiliate, operates 13 branches In

KENYA

Nairobi: One branch.

Grindlays Bank International (Kenya)
Ltd., a subsidiary of Grindlays Bank,
Ltd.. London, an affiliate of Citibank, op-
erates two branches In Kenya.

KOREA
Pusan: Representative office.
Seoul: One branch.

LEBANON
Beirut: One branch.

and Kuwait S.A.L.,
Citibank, offers corn-

Representative office of Citicorp Inter
national Bank, Ltd., London, a wholly
owned subsidiary of Citicorp.

Representative office of Grindlayl
Bank, Ltd., London, a Citibank affiliate

Monrovia:

First National City Bank
. wholly-owned by Citibank,
:ommercial offices in Liberia.

has its

Agana: Ore branch.

Tamuning: Citicorp Credit, which op-
erates a consumer finance and leasing
company, is wholly owned.

GUATEMALA
Guatemala City: Representative office.
HAITI

Port >u Prinre: One branch.

HONDURAS
Tegucigalpa: Banco de Honduras S.A.

la 97 , owned by Citibank. It has six

branches throughout Honduras.
HONG KONG
Hong Kong: Nine branches.

Asia Pacific Capital Corporation Ltd.
Is a regional merchant bank owned 70%
by Citibank with an office In Singapore.

Citicorp International Ltd., wholly-
Owned by Citicorp, engages in selected
merchant banking activities.

Oao Heng Bank Ltd., a subsidiary of

Citibank.

MALAYSIA

Far East" Bank Ltd. 7s" 76% owned by j KuJla Lumpur: Tv , branches.
Citibank. It is a commercial bank which Rakyat First Merchants Bankers Ber-
operates 19 branches in the Crown Col- had, 45% owned. Is a Merchant Bank,
ony. Asian International Merchant Bankers

•FNC8 Financial Ltd. Is a finance Berhad. an associate of Grindlays Bank,
company, wholly owned, with three of- 1 L,d - L ° n <>° n . • Citibank affiliate, has its
flees in Hong Kong. head office In Kuala Lumpur.

Grindlays Finance Ltd, a subsidiary ! Representative office of Grindlays
of Grindlays Bank Ltd, London, an af- 1 Bank. Ltd, London, a Citibank affiliate,
filiate of Citibank, engages In hire pur-
chase and medium term lending.

INDIA
Bombay: Three branches.
Calcutta: Two branches.
Madras: Two branches.
New Delhi: One branch.

Grindlays Bank, Ltd, London, an af-
filiate of Citibank, operates 57 branches
In India and its merchant banking divi-
sion has offices in Bombay and Calcutta.

INOONESIA
Jakarta: Two branches.

Grindlays Bank, Ltd, London, a Citi-
bank affiliate, has a representative office
In Jakarta.

IRAN

Teheran: Representative office.

'Citicorp Financial Advisory Service.
Inc . wholly owned, engages In brokering
•f money market transactions and tman
clal advisory services.

Iranians' Bank Is 35% owned by Cltl
bank it operates four branches In Iran

Repreientative office of Grindlays
Bank, ltd. London, a Citibank affiliate

IRELAND
Cork: One branch.
Dublin. One branch.

ITALY
Milan: One branch.
Rome One branch.

•Citicorp Finamiarla SpA which
makes personal, consumer and finance
loans, it wholly owned.
Turin. One branch.

owned and engages principally In com-
mercial and corporate finance.

•Citicorp Leasing Nederland, B.V.,
wholly- owned, engages In general equip-

•Citicorp Financial Ltd,

One branch.

MALI

Mali.

MAURITANIA
Nouakchott: Banque Internationale
pour La Mauntanie. a 30%-owned af-
filiate of Banque Internationale Pour
I'Afrique Occidentale, Paris, an af-
filiate of Citibank operates nx
branches in Mauritania.

MAURITIUS
Port Louis: One branch.

MEXICO
Mexico City: Five branches.

•Arrendadora Finac, S A. do C.V,
wholly owned, engages In lease financing.

•Arrendadora Banamex. S A. de C V ,
a 40% affiliate of Citicorp Leasing In-
ternational, engages In general equipment

MONACO
Monte Carlo: One branch.

Banque Grindlay Ottomans S.A,
France, a subsidiary of Grindlays Bank
Ltd. London, a Citibank affiliate, has

MOROCCO
Casablanca: First National City Bank

sidiary of Citibank with two branches.
NETHERLANDS
Amsterdam: One branch.
Rotterdam: One branch.
•Citicorp Finance B. V. la wholly

to non-residents.

NETHERLANDS ANTILLES
Aruba: One branch in Oranjestad.
Curacao: One branch in Willemstad.

NICARAGUA
Managua: Two branches.

NIGER

I'Afrique Occidentale. Pans, an affiii.
ate of Citibank operates five branches

NIGERIA

Lagos: international Bank for West Af-
rica Ltd, Lagos, a 40%-owned affiliate
of Banque Internationale pour I'Afrique
Occidentale. Paris, which is 49% owned
by Citibank, operates 10 branches in
Nigeria.

NORTHERN IRELAND
Belfast: One branch.

NORWAY
Oslo: Representative office.

OMAN
Muscat: One branch.

Grindlays Bank, Ltd, London an af-
filiate of Citibank operates five branches
in Oman.

Ruwi: One branch.

PAKISTAN
Karachi: One branch.
Lahore: One branch.

Grindlays Bank, Ltd, London, an af-
filiate of Citibank, operates 15 branches
in Pakistan and a merchant banking
division In Karachi.

PANAMA
Balboa: One branch.
Colon: One branch.
David: One branch.
Las Tablas: One branch.
Panama City: Five branches.
Veraquas: One branch.

PARAGUAY
Asuncion: One branch.

•El Chaco S.A. Flnanciera Is a wholly-
owned finance company.
Puerto Stroessner: One branch.

PERU
Lima: Two branches.

PHILIPPINES

Clark Air Force Das:: Oi.c iiiil.Uiy

banking facility.
Makati: One branch.
Manila: One branch.

Feati Bank and Trust Co, 40%-owned
by Citibank, engages in general commer-
cial banking through its 17 branches.

•Investors' Finance Corporation, 40%
owned, provides personal loans, commer-
cial financing and leasing services

•Orient Pacific Capital Investment
Corporation. 49% owned. Is a money
market and investment bank providing
underwriting equity and term financing
services to industry

PUERTO RICO
Arecibo: One branch.
Bayamon: One branch.
Caguas: One branch.
Carolina: One branch.
Mayaguez: Two branches.
Ponce: One branch.
San Juan: Six branches.

•Citicorp Leasing of Puerto Rico, Inc .
wholly-owned, engages in general equip-

•ervice packaging.

SOUTH AFRICA .
Johannesburg: Citibank N.A. Ltd. a
wholly-owned subsidiary of Citibank,
operates four commercial banking of-
fices throughout South Africa.
SPAIN

Madrid: Representative office

•Citilease Internacional. S.A. 50%
owned affiliate of Citicorp Leasing In-
ternational engages in general equip-
ment leasing.

SRI LANKA
Colombo: Grindlays Bank, Ltd, Lo-cen,

an affiliate of Citibank, operates two

branches In Sri Lanka.

Hatton National Bank. Ltd, an af-
filiate of Grindlays Bank, Ltd, London,
a Citibank affiliate, has 23 branches in
Sri Lanka.

SWEDEN
Stockholm: Representative office.

SWITZERLAND
Geneva: One branch.

Banque Grindlay Ottomane, France, a
subsidiary of Grindlays Bank, Ltd, Lon-
don, a Citibank affiliate, has an office In
Geneva.

•Compagnie Pour le Placement et le
Flnancement, S.A, wholly-owned acta as
a principal In placing funds of Investors
and lenders.

Citicorp International Finance S » ,
wholly-owned by Citicorp International
Bank, Ltd, London, performs financial
services In Europe.
Lausanne: One branch.
Lugano: One branch.
Zurich: One branch.

TAHITI

Tahiti: La Banque de Polynesie, 8 A,
47.5% owned by Citibank has four
branches.

TAIWAN

Taipei: One branch.

•Taiwan First Investment 4 Trust

Co, Ltd. provides trust and investment

services in the Republic of China, and

is 40% owned.

THAILAND

Bangkok: 'First National City Develop-
ment Finance Corp. (Thailand) Ltd. is

Ltd

ICU

a com-
OftKCS.

owned by Citibank, witl
TOGO

Lome: Banq
I'Afrique Occidentale. Paris, an affili-
ate of Citibank, operatea two branch**
In Togo.

TRINIDAD ANO TOBAGO

Port-of Spain: Two branches:
•Tnnfinance Ltd, S0% owned, provide*

personal and commercial leading and

San Fernando: One branch.

TURKEY
Istanbul: Representative office.

UGANDA

Kampala: Grindlays Bank (Uganda)
Ltd . a 51 '.-owned subsidiary of Grind-

lays B.>

i Ltd,

•Prestan

Presto de Puerto Rico. Inc.
. is a consumer finance
Puerto Rico

company with 19 offic

QATAR
Doha: One branch.

Grindlays Bank, Ltd . London, an affili-
ate of Citibank, operates two branches
In Qatar

RAS AL KHAIMAH
Ras Al Khaimah: One branch.

Grindlays Bank. Ltd, an affiliate af
Citibank, has three branches.

SAMOA (AMERICAN)
Pago Pago: One branch.

SAUDI ARABIA
Jeddah: One branch.
Riyadh: One branch.

SENEGAL
Dakar: One branch.

Banque Internationale pour I'Afrique.
Occidentale. Pans, a Citibank af-
filiate, operates eight branches in
Senegal.

SHARJAH
Sharjah: One branch.

Crmdlays Bank, Ltd, London, a Citi-
bank affiliate, operates two branches in
»har t ali.

SINGAPORE

Jurong: One branch.
Singapore: Two branches.

Asia Pacific Capital Corporation Ltd
is a regional merchant bank owned 70%
by Citibank with an office In Hong Kong.

•First Oversea Credit Ltd . 40% owned,
finances consumer and Industrial pur-

of G

--i.il (Ugan-
Indlays Bank,
affiliate, haa

.1ST

Grindlays Bi

da) Ltd . a subi

Ltd, London.

one office in Uganda.

UNION OF SOVIET SOCM
REPUBLICS

Moscow: Representative office.

UPPER VOLTA

Ouagadougou: Banque Internationale
des Voltas. 49-. owned by Banque In-
ternational pour I'Afrique Occiden-

tal, Par

CitH

Upper

URUGUAY
Montevideo: Four branchea.

VENEZUELA
Caracas: Two branches.

•Adelantos y Creditos C A. ha a con.
sumcr finance affiliate.

•Arrendequipos. C.A, la a wholly-
owned leasing company.

•Cltldala C.A, which offers data proc-
essing services. Is wholly-owned.

•Inversiones y Adelantos C.A. h>
wholly-owned. It offers all types af fi-
nancing, including credit card services,
consumer and retail financing in Vene-
zuela.

Maracaibo: One branch.
Valencia: One branch.

VIRGIN ISLANDS
Charlotte Amalie: One branch,
Chnstiansted: One branch.
Sunny Isle: One branch.

YEMEN
Sana'a: One branch.

ZAIRE

Kinshasa: Citibank (Zaire) S A R L .
wholly-owned by Citibank, ha* cne
office

(Continued on next r S«>

AMERICAN BANKER

February 22, 1977

International Activities

(Continued from preceding page)
Banqua Grindlay Internationale at
aire S.A.R.L, a subsidiary of Grindlayj

Banque Internationale pour L'Afrique
Au Zaire, wholly-owned by Banque In-
ternationale pour L'Afrique Occider
Paris an affiliate of Citibank, has
office.

ZAMBIA

Lusaka: Grlndlays Bank International
(Zambia) Ltd., a subsidiary of Grind
lays Bank, Ltd., London, a Citibank af
filiate, has eleven branches in Zambia.

EUROPEAN AMERICAN BANK
& TRUST CO., NEW YORK

International banking policy:

"European American Bank A Trust
like European American Banking Corp
listed below, is owned by Amsterdam
Rotterdam Bank N.V.; Creditanstalt
Bankverein, Vienna; Deutsche Ban)
A.G.. Frankfurt; Midland Bank Ltd., Lon
don; Societe Generale, Paris; and So
olete Generale de Banque, Brussels. Thest
six shareholder banks have more thar
9,300 branches and affiliates throughout
the world. Their combined resources ex
ceed $100 billion.

"European American Bank & Trust i
a commercial bank chartered under th<
banking laws of New York State and I:
■ member of the FOIC and Federal Re
serve System. It has 99 branche
throughout the New York City-Lorn
Island area and specializes in consume
and corporate services."

The nins representative offices listed
below are of both European Amei
Bank & Trust and European American
Banking Corp.

Representation overseas:

Rio de

BRAZIL

: Representative office.
CAYMAN ISLANDS
George Town: One branch of E A B AT.
CHILE

Santiago: Representative office.

COLOMBIA
Bogota: Representative office
EGYPT

C*lro- St»r,r.,-nt»livr offir-
IRAN

Teheran: Representative office.

LEBANON
Beirut: Representative office.

MEXICO

Mexico City: Representative office.

TURKEY
Istanbul: Representative office.

VENEZUELA
Caracas: Representative office.

EUROPEAN AMERICAN BANKINC
CORP., NEW YORK

International banting policy:

"European American Banking Corp. is
an Investment company chartered under
the banking laws of New York State and
having banking power*. It specializes in
International services and foreign ex-
ohanga through its headquarters and
branches in San Francisco and Los

"It Is owned by the same six Euro-
pean banks that own European Amerl-
oan Bank «. Trust Co. listed above. The
nine foreign representative offices of
EAB&T Co. also are offices of European
American Banking Corp."

Representation overseos:

BERMUOA

Hamilton: European American Finance
(Bermuda) Ltd. Is a wholly-owned
subsidiary of the banking corporation.
It takes offshore deposits and makes
offshore loans but Is not licensed to
do local banking In Bermuda.

U. S. Subsidiary:
FRENCH AMERICAN CAPITAL
CORP., NEW YORK

FACC was formed In 1970 and provides

individuals with portfolio manage
and investment research.

U. S. Affiliate:
FRENCH BANK OF CALIFORNIA,
SAN FRANCISCO

A subsidiary of Banque Nationale de
Paris. BNP also has a branch in Chicago
Representation overseas:
FRANCE
Paris: One branch.

Correspondent balance relationships:
French American Banking Corp. main-

THE FUJI BANK AND TRUST CO.
NEW YORK
(A Subsidiary of The Fuji Bank,
Ltd., Tokyo)

International banking policy:

"The Fuji Bank and Trust Company
offers banking, financing services to meet
customer needs throughout the world
ded througT

These services ;

Ban

Ltd., Tokyo.

The Fuji
affili

the world's financial centers.

"Financing of multinationa
and world trade is our long-i
porate policy."

IRVINC TRUST CO.,
NEW YORK
(A Subsidiary of Charter
New York Corp., N. Y.)

International banking policy:

"With a long-established, world-
correspondent banking network, Ir
Trust Co. in recent years has si
tured a variety of activities to bro
cooperation with local enterprises
abroad, with multinational corporations
and with the U. S. world-trade sector.
Through its London, Frankfurt, Taipei,
Singapore, Tokyo, and George Town
branch offices, through direct affiliations

:s, participations in local develop,
t and financing institutions, its perm
t representatives in principal centers
its Edge Act subsidiaries, Irving
Trust's policy is to assure ready avail-
ability of experienced international bank-
lg ser

Close liaison

lending age

:ign correspondents further enable
: to introduce financial arrangements
ored to its corporate clients' indi-
jai requirements."

S. Subsidiaries:

IRVINC INTERAMERICAN

BANK, MIAMI
IRVINC TRUST COMPANY
INTERNATIONAL/PACIFIC,

LOS ANCELES
IRVINC INTERNATIONAL
FINANCING CORP , NEW YORK
IRVING INTERNATIONAL
REPRESENTATIVE OFFICE
CHICACO
Representation overseas:
ARGENTINA
res: Representative office.
AUSTRALIA
Melbourne: Representative office.

Australian International Finance Corp ,
i. (AIFC). Irving International Fi
nancing Corp. holds a substantial minor-
ty interest in this company which was
ormed in 1970. Owners include Austra-
ia & New Zealand Banking Group, Ltd.,
rtelbourne: Bank of Montreal; Crocker

Bank, Ltd
Irving Trust Co. holds a substantia
minority interest in this bank formed If
1967. The other partners are Banco □
Roma, Rome: Credit Lyonnals, Paris
First National Bank, Chicago; Com
merzbank A.G., Duesseldorf, and th<
Hongkong & Shanghai Banking Corp.
Hong Kong. ICB, which has capital re
sources of approximately $50 million anc
additional substantial standby facilities
from its member banks, specializes Ir
medium- and long-term financing ol
multinational corporations and othei

Irving Trust Co. (Nominees), Ltd. Il
a subsidiary of Irving International FI

FRANCE
Paris: Representative office.

HONG KONG
g: Representative office.
Hang Bank, Ltd, in which
sst Co. acquired majority
in 1973. Founded In 1937.
g engages In a full range of
I banking activities.
IRAN

Teheran: Representative office.

JAPAN
Tokyo: One branch.

LEBANON
Beirut: Representative office.

SINGAPORE
Singapore: One branch.

TAIWAN
Taipei: One branch.

China United Trust and Investment
Corp. Irving International Financing

commerci;

Corp. has a 207° investment I
which provides equity and loan funds to
Taiwan operations.

VENEZUELA
Caracas: Representative office.

Sociedad Financlera Del Centro, C.A..
an investment banking and finance com-
pany in which Irving International Fi-
nancing Corp. has an equity interest,
affords a wide range of local serv-
to Venezuelan and U. S. companies.

espondent bolanct relationships:

MANUFACTURERS HANOVER

TRUST CO., NEW YORK
(A Subsidiary of Manufacturers
Hanover Corp., N. Y.)

International banking policy:

"We believe Manufacturers Hanovei
Trust's high rank among banking's
leaders In the world can be maintainec
improved only by offering the broad
possible spectrum or quality financia
services at reasonable cost.

Experience has taught us that Ir
many areas of the world we can provide
these services best by cooperating with
foreign correspondents through our
ensive representative network, rathei
n by competing with them througr
branch or subsidiary operations. How
this does not preclude our direct
operation abroad in major financial and
less centers when it becomes appar-
that our customers' needs can be
r served in this fashion.''

BAHAMAS

assau: Ons branch.

BELGIUM
russels: Manufacturers Hanover Bank/
Belgium. Manufacturers Hanover
lirect majority Inter-

Trust holds

rtually 99.5'

agency

offices throughout Belgium.

BRAZIL

Rio de Janeiro: Representative office.

Santo Andre: Poliolefinos, S.A. Indus-
tria e Comercio. MHIFC has a minor-
ity interest.

Sao Paulo: Representative office.

MHT-Servicios e Administracao, Ltda.

MHIFC has 100% equity.

CHANNEL ISLANDS

Guernsey: Manufacturers Hanover Bank
(Guernsey) Ltd.. is a wholly -owned

3 ry ,

IFC.

CHILE

Santiago: Banco Unido de Fomento,
MHIFC holds a minority interest in
this private development bank.
COLOMBIA
Bogota: Representative office.

Corporacion Financiera Columbiana.
MHIBC holds a minority interest in this
private development banking Institution.

DOMINICAN REPUBLIC
Santo Domingo: Compania Financiera
Oominicana S.A. MHIFC holds a mi-
nority interest in this institution.
ECUADOR
Guayaquil: Banco de Guayaquil. MHIBC
has a minority interest in this com-
mercial banking institution.

EGYPT

Cairo: One branch and representative
office.

EL SALVADOR
San Salvador: Representative office.

ENGLAND
London: Two branches.

Anglo Romanian Bank Ltd. Is a
MHIBC affiliate.

Iran Overseas Investment Bank Ltd.
MHIBC has a minority interest.

Manufacturers Hanover, Ltd. Is an af-
filiate of MHIFC. Other partners in the
merchant bank are Rothschild Nominees
Ltd., London, Riunione Adriatica dl
Sicurta. a Milan-based insurance com-
pany, and the Long-Term Credit Bank of
' pan, Tokyo.

Manufacturers Hanover Export Fl-
nce Ltd. is a wholly-owned subsidiary
MHIBC.

Manufacturers Hanover Property Serv-
:s Ltd., London, is a wholly-owned sub-
lary of Manufacturers Hanover Prop-
erty Services A.G.. Zurich.

Ocean Acceptances (London) Ltd. Is
a subsidiary wholly-owned by Manufac-
Guernsey) Ltd,

INC.,

National Bank, San Fra
Mitsubishi Bank, Ltd.,

IFC

FRENCH AMERICAN BANKINC
CORP., NEW YORK
(A Subsidiary of Banque
Nationale de Paris, France)

International banking policy:

"The French American Banking Corp
was Incorporated In New York State in
1919 and has as its principal activities
International banking and the financing
of foreign trade. It is active in the Euro-
ourrency market through Its Parii
branch, and extends its activities wo
wide via the network of the Banque N
tlonale de Paris.

"As specialists In International bank-
ing. FA8C works closely with European.
Asian and American companies, offering
a full range of loan. Investment and cor-
respondent banking services."

I mately 8 milli
and additional
facilities from

substantial standby
ts member banks,
specializes in medium- and long-term fi-
nancing and also provides usual merchant
banking facilities.

BRAZIL

Rio de Janeiro: Representative office.

Banco De Investimento Credibanco
S.A., an affiliate of Irving Trust Com-
pany, via Irving International Financing
Corp. Crertibanco is engaged in short-
and medium-term lending operations,
and is particularly interested in provid-
ing financial assistance to the Brazilian
subsidiaries and branches of major
American companies.

U. S. Subsidiaries:

THE GALLATIN CO ,

NEW YORK
his Agreement corporation is capi-
talized at $100,000.
MANUFACTURERS HANOVER
INTERNATIONAL BANKING
CORP., NEW YORK
This corporation is capitalized at $7.5
union.

MANUFACTURERS HANOVER
INTERNATIONAL FINANCE
CORP , NEW YORK

This is a wholly owned subsidiary of
le Trust Company, capitalized at $12.5

MANUFACTURERS HANOVER
BANK INTERNATIONAL
LOS ANCELES
This corporation is capitalized at $10

r?eprcsen/ofi<

ARGENTINA
Buenos Aires: Representative office.

AUSTRALIA
Sydney: Representative office.

Development Finance Corp. Ltd. ai
Oelfin Industrial Finance Ltd. MHIF
holds 3 substantial minority Interest
these Australian companies.

turers Hanove

Channel Islands.

FINLAND

Helsinki: Industrialization Fund of Fin-
land. MHIFC has a minority equity
interest in this development bank.
FRANCE

Paris: Representative office.

Manufacturers Hanover Banque Nor-

dique. Manufacturers Hanover Trust

holds a 60% interest in this eommer-

Frankfurt: One branch and representa-
tive office.
Hamburg: One branch.
Munich: Representative office.

GREECE

Athens: National Investment Bank for
Industrial Development. S.A. and
Credit Bank. Both banking institution*
are MHIBC affiliates.

HAITI

Port-au-Prince: Banque de I'Unlon Hal-
tiennc. S.A. MHIBC has a minority
Interest in this commercial bank.
HONG KONG
Hong Kong: Manufacturers Hanover
(Asia) Ltd. Is a wholly owned subsid-
iary of MHIFC.

INDONESIA
Jakarta: Representative office.

P.T. Finconesia Jakarta Indonesia.
MHIFC has a minority interest.

IRAN

Teheran: Representative office.

ITALY

Rome: Representative office.

JAPAN

Tokyo: One branch:

Tokyo Lease Co., Ltd MHIFC has a
minority equity interest in this Japanese
leasing company.

Private Investment Company of Asia.
MHIFC has a minority equity Interest
in this development institution for Asia.

KENYA
Nairobi: Representative office.

LEBANON
Beirut: Representative office.

Arab Finance Corp.. S.A.L. MHIFC
has a minority interest.

25-605 O - 78 - 7

February 22 1977

AMERICAN BANKER

19B

International Activities-

(Continue, I nom pte<-rc1ing page)
LUXEMBOURG
Luxembourg: Adtll Investment Co.
MHIFC hold! a minority Interest In
thit multinational private Investment
company operating In South America
to develop private enterprises and
capital markets.

Arab Finance Corp. (International).
MHIFC has a minority Interest as In
Arab Finance Corp. of Beirut, Lebanon.

Soclete Internationale Financier* pour
let tnveatissments et le Developpement
en Afrique (SIFIDA). MHIFC has a mi-
nority Interest In this multinational In-
vestment company organized to make
and promote capital Investment In
Africa.

MALAYSIA
Kuala Lumpur: Representative office.

Malaysian Industrial Development Fi-
ance, Ltd. Is a private development bank
In which MHIFC has a minority Interest.

South East Asia Development Corp.

Ltd. Is

l BC

ate.

office.

MEXICO
Mexico City: Representatii

NORWAY
Oslo: Representative office.

PERU

Lima: Representative office.

PHILIPPINES
Manila: Representative office.

Private Development Corporation
the Philippines. MHIFC holds a mini
lly Interest In this private developm<

Bucharest: O

ROUMANI
SCOTLAN

SINGAPORE
Singapore: One branch.

SPAIN

Madrid: Representative office.

SWITZERLAND
Zurich: One branch.

GATX International Finance Inc. la an
MHIFC affiliate.

Manufacturers Hanover Property
Services A G. MHIFC holds a 60% Inter-
est In this financing company.

THAILANO
Bangkok: Representative office.

Slam Cement Co. Ltd. MHIFC and
MHIBC have a minority equity intrrett
in this industrial company.

Industrial Finance Corporation of
Thailand. MHIFC haa minor equity In-
terest.

VENEZUELA
Caracas: Representative office.

C. A. Venezolano de Oetarrollo la a
private development finance company In
which MHIFC has a minority equity In-
terest.

Correspondent bo/once reloiiomhipt:

Manufacturers Hanover Trust main,
talna accounts with about 251 Interna-
tional banks while more than 1,600 for-
eign banks have correspondent balances
with Manufacturers Hanover Trust Co.

MARINE MIDLAND BANK,
NEW YORK
(A Subsidiary of Marine Midland
Banks, Inc., Buffalo)

International bonking policy:

"Marine Midland Bank and Its sub-
sidiaries, Marine Midland International
Corp. and Marina Midland Western In-
ternational Corp. carry on a complete
International banking business through a
combination of overseas branches, repre-
sentative offices and a group of affiliated

792

correspondent
verseas. Each
pabilitles that

New York Stat*

of these operation!
may be especially

and the facilities of Mj
statewide banking aysten
to overseas customers."

U. S. Subiidioiin:
MARINE MIDLAND INTERNA-
TIONAL CORP (MMIC),
NEW YORK
An Edge Act subsidiary with author

1,'d

1IC

of $5 million Marina Mid-
leas Corp. (MMOC), New
wholly owned subsidiary of

MARINE MIDLAND WESTERN
INTERNATIONAL CORP,
BUFFALO
MMWIC is an Edge Act subsldlarj
with authorised capital of 17 i million.

Rtprtunfofiof! overseas.

ARGENTINA
Buenos Aires: Representative efllca.

AUSTRALIA
Sydney! Representative office.

Intermarine Australia Ltd." a mer-
chant bank in which MMOC hoist*
Marine Midland's interest. Other share-
holders are Tokal Bank. Nagoya. and
Algema (Pty), Ltd., Sydney.

Midland Credit Ltd, a finance com-
pany. MMOC hold* a ••>■; Interest and
an additional minority Interest through
Intermarine Australia.

BAHAMAS
Nassau: One branch.

BRAZIL

Rio de Janeiro: Representative office.
Sao Paulo: Representative office.
CANADA

Montreal: RoyMarine Leasing Ltd., an
equipment financing and leasing com-
pany equally owned by MMOC and The
Royal Bank of Canada.

Toronto: MarMId Financial Services.
Ltd., is a -vholly-owned subsidiary of
MMWIC, engaged In commercial fi-
nancing. MM Builder* Funds. Ltd., •
90% subsidiary of MarMId Financial
Services, is engaged in Interim con-
struction financing.

CAYMAN ISLANDS

George Town: Arawak Trust Company
(Cayman) Ltd. is a trust company
with chartered bank status of which
the principal shareholders are MMOC
(28%), together with Kleinwort Ben-
son Ltd., London, and the Bank of Ber-
muda. Subsidiaries in Nassau and Isle
of Man.

COLOMBIA

Barranquilla: Corporaclon Financiers del
Norte (COFINORTE), a development
finance company. MMOC (17.9%)
and International Finance Corporation,

. Washington, D. C, are the two largeat
minority shareholders. Branch offices
in Cartagena and Bogota.

Bogota: Representative office.

COSTA RICA

San Jose: Almacenadora, S.A., a ware-
housing company. MMOC has a 22%
interest. Other shareholders are In-
versiones Gurdian, S.A, San Jose, and
rollo, S.A., Panama (FICENTRO).
Banco de Bogota and Albofisa, S.A,
Panama.

are Inversiones Gurdian, Banco de
gota and Ficentro, Panama.

ENGLAND
London: One full service branoh.
International Marine Banking

Ltd. (INTERMARINE)

ancicra Union C. A., Car

FRANCE
Paris: One full service branch.

Banque de I'Union Europeenne (BUE),
a commercial bank, 19.1% owned by
MMOC. Shareholders include Compagnie
Fmanclere de lUnlon Europeenne, Pari*
(67%); Westdeutsche Landesbank Clro-
zentrale, Duesseldorf. and other Euro-
pean financial establishment*. Several
branches and banking affiliates In and

Interumon-Banque, Paris, a merchant
bank operating particularly In the me-
dium- to long-term Eurocurrency loan
and bond market*. MMOC holds a 45%
equity Interest. Other shareholders are
Royal Bank of Canada, Montreal;
Banque de I'Union Europeenne, Paris;
Tokal Bank Ltd., Nagoya, and Bayer-
ische Vereinsbank, Munich.

Union Auxiliaire de Financement S A.
(UNIMAR), an Investment company
equally owned by MMOC and Omnium
de I'Union Europeenne.

GERMANY
Frankfurt: Representative office.

HONG KONG
Hong Kong: Representative office.

Marmld Finance Ltd., a merchant
bank, wholly owned by MMOC.

INDONESIA
Jakarta: Representative office.

IRAN

Teheran: Rtpreientatlv* office.

IRELAND
Dublin: Irish Inte continental Bank Ltd.,
a merchant bank who** principal
shareholder* are MMOC (41.5%) and
Irish Llf* Assurance Co. Ltd., which
directly and Indirectly own* 38.2%.
ITALY

Milan: Sitalfln S.p.A, a finance com-
pany. MMOC owns 24.9%. and Gener-
alfln S.p.A, Milan, 75.1%.

Rome: Representative office.

JAPAN

Nagoya: MMOC hold* a 9.9% Interest
in Central L*a*e Ce. Ltd.. an equip-
ment leaking company. Other ehare-
holder* Include Tokal Bank Ltd.,
Nagoya, and the Standard Chartered
Bank Group, London.
Tokyo: One branch.

KOREA
Seoul: Representative office.

LEBANON
Beirut: Representative office

ArinH S A , with subsldiarlas In Ber-
muda, th* United Kingdom and Llech-
tenslem, provide* financial and invest

ment facilifts In th* Middle East. MMOC
own* 25%.

LUXEMBOURG

Luxembourg City: Interna

t)"

i all phaic* of Investment bank-
I ing with branche* In major c It lee.
I Financial Leasing Cerp. Australia
ve*t-|Ltd. MGIFC ha* a minority Intcreit s*
lavia this lease financing company.

si joint venture*

trie*. MMOC ha* a 3 7%
MALAYSIA
Kuala Lumpur: Malaysia
nance Corporation Brrhad (MIFC).
a finance company, MMOC ha* a 13.3%
equity Interest.

MEXICO

Mexico City: Representative office.

NETHERLANDS ANTILLES
Curacoa: Interunion Bank Antille*. N.V.

MMOC holds

union Banque
a direct minority interest.

NEW ZEALAND
Auckland: Bremner- Intermarine (NZ)
Ltd.. MMOC owns 20% and W. R.
Bremner Ltd. owns 80% of title finance
company which engage* In leasing, and
consumer finance.

PANAMA

Panama City: One branch and a repre-
sentative office for Central America.
PHILIPPINES

Ine* regional office,
ance Corporation, equip.

Man, I

Euro ■ cle
MGIFC ha*
management

consumer credit.
Subsidiaries engaged In factoring, auto-
mobile finance. Industrial leasing, etc.
MMIC has a 10% equity Interest.

IFC Leasing A Acceptance Corpo-
ration: equipment leasing company
owned 20% by MMOC and 50% by In-
dustrial Finance Corporation.

SINGAPORE
Singapore: One branch.

SPAIN

Madrid: Representative office.

SWITZERLAND

Geneva: Sifida Investment Company
S.A. provides Investment banking serv-
ice* and direct financial support to
private sector of developing African
countries. Shareholders Include numer-
ous banks, financial Institutions and
some Industrial and commercial or-
ganization* In various countries. I
MMOC ha* a 16":. equity intercut. |
TURKEY

Istanbul: Uluilararasl EndustH ve Tl-
caret Bankasi AS. (UTE Bank), a
privately owned commercial bank
Other partner* Include Yapl v* Kredi
Bankail. Banque de I'Union Euro- , m i noI .j, v

peenne and Banque de Tlndochine et j

de Zuer. MMOC own* a 24% Interest
Nine branch office* in Turkey.

Ltd, Melbourne.

BELGIUM
Antwerp: One branch.
Brussels: One branch.

Soclete Nationale de Investl**
MGIFC ha* a minority Interest

Hj-

BERMUDA
Morgan Guara

Ltd. MGIFC wneny own* this special
purpose financial company.

BRAZIL

Sao Paulo: Representative office.

Banco Finaaa de Investimcnto 6 A.
MGIFC has a minority Interest In this
Inveetment and development bank.

Morgan Services e Partidpacces Ltda.
MGIFC owns this limited liability com.
pany.

CAMEROON
Yaounde: Societe Camereunaise ste
Banque. MGIFC has a minority In-
terest in this commercial bank which
has nine offices throughout the coun-
try.

CANADA

Toronto: J. P. Morgan of Canada Ltd.
MGIFC owns this financial services

CONGO

Brazzaville: Banque Commerclate Cen-
gelaise. MGIFC holds a minority In-
terest In this commercial bank which
has branche* In Pointe Nolr anal

ENGLAND

C lea ran
rrty

System Ltd.
terest In and
act for this Interna-
i clearance system,
gan Grenfell 4 C*. Ltd. MGIFC
minority interest In this merchant
which functions as a commercial

Saudi

• Al-Banl
MGIFC

ernatlonal Bank Limited
-Saudi Al-Alaml Limited),
a minority Interevt In thks

VENEZUELA
Caracas: Representative office.

Socledad Flnanclera Union C.A, a fi-
nance company owned 60% by the Banco
Union group of Caracas and 20% by
MMOC through Intermarine of London.

Correspondent bo/once relotionihipt:

Marine Midland maintains corre-
spondent balances with 200 banks in 30
countries and 736 foreign banks in 85
countries maintain them with Marine
Midland.

MORCAN GUARANTY TRUST
COMPANY OF NEW YORK
(A Subsidiary of |. P. Morgan & Co.
Inc., New York)

U. S Subtidioritt:
MORCAN CUARANTY INTER-
NATIONAL FINANCE CORP.
NEW YORK
MORCAN CUARANTY INTER-
NATIONAL BANK OF HOUSTON

MORCAN CUARANTY INTER-
NATIONAL BANK OF MIAMI
MORCAN CUARANTY INTER-
NATIONAL BANK OF
SAN FRANCISCO

MORFROP INCORPORATED
NEW YORK

Rtpmrnta'ion overleos:
ARGENTINA

Buenos Aires: Banco Frances del Rio de
la Plata. MGIFC has a minority in-
terest In this commercial banking

Industrie* Reconquleta 8 A. MGIFC
ha* a minority inter**t in thl* holding
company for Robert* S.A. de Ftnaazae.
Buono* Aire*, a financial company which
conduct* Invrttment banking actlvitie*
a* well a* a money brokerage operation

AUSTRALIA
Melbourne: Australian United Cerp,
Ltd. MGIFC kae a minority interest
In this merchant bank which Is ac-

Calsse de G est, on Mob, Here. MGIFC
h-j a minority interest in the* discount

Epargne-lntercssement. MGIFC ha* a
In this Investment
management company.

Morgan A Cle S.A MGIFC owns this
banque d'affaires.

GABON

Libreville: Union Gabonalae de Banque,
a commercial bank In which MGIFC
holds a minority interest, has a
branch In Port Gent. I

Port-Gcntil: Branch of Union Gabona.se
de Banque. Libreville

GERMANY

Duesseldorf: One branch.

Frankfurt: One branch.

Munich: One branch.

GHANA

Accra: National Investment Bank.
MGIFC holds a minority Interest In
this development bank.

HONG KONG
Hong Kong: Representative office.

INDONESIA
Jakarta: P. T. Merchant Investment
Corp. MGIFC has a minority Interest
In this Investment bank.

ITALY

Milan: One branch to open In 1977.
Rome: One branch to open In 1977.

IVORY COAST
Abidjan: Societe Ivoiricnne de Banque
MGIFC ha* a minority Interest In this
commercial bank.

JAPAN
Tokyo: On* branch.

LEBANON
Beirut: Representative office.

Bank Almaehrck. S.A.L. MGIFC ha*
a minority interest in thl* commercial

Kuala

Development Finance Berhed. MGIFC

ha* a minority Interest In thl* private

Rabat: Ban

on ale pour le De-
veloppement Economique (BNOE).
MCIFC ha* a minority interest in thl*
development bank formed by the Mo-
roccan government in 1949.

NETHERLANDS
Amsterdam: Bank Morgan L a Douche, e
N.V. MGIFC hae a 50% Interest In this
commercial bank which offers a wide
range of financial services, Including
securities transaction* and leasing.
(Continued on nr\t page)

February 22. 1977

AMERICAN BANKER

International Activities

DAUPHIN DEPOSIT BANK AND
TRUST COMPANY
HARRISBURC
(Subsidiary of Dauphin Deposit
Corporation)
International bonking policy:

"Dauphin Deposit Is prepared to offer
wr customers a full range of Interna-
tional banking services through our
correspondent bank relationships in
either New York or Philadelphia.

"Our staff of experienced perse
has provided personalized service
guidance to our customers for n
years. We are constantly analyzing
procedures and policy within the ii

FIDELITY BANK, PHILADELPHIA
(A Subsidiary of Fidelcor, Inc.
Philadelphia)

U. S. Suojid/ories:

FIDELITY INTERNATIONAL
BANK, NEW YORK

changed Its
3ank
in 1971.

efficient

rket

order to meet the

This Edge Act cor
name from America
to Fidelity International Ban
In combination with its p
wholly-owned subsidiary "offe
and specialized international

Lancaster

NATIONAL CENTRAL BANK,

LANCASTER
(A Subsidiary of National Central
Financial Corporation, Lancaster)

International banking policy:

services to co-respondents and customers
in New York, Philadelphia, through th«
United States and all over the world.'

DAVIS, ELLIOTT
INTERNATIONAL, INC.

FIB holds 20r„ of this combination ex-
port-management firm.

Representation overseos:

AUSTRALIA
Sydney: Computer Resources Pty, Ltd.

10.16%

computer softv*

National Central Bank, ar a regional] Hooker Corporation, a land develop-
k serving South-Central Pennsyl- ment and real estate company of which
iia, meets the growing needs of our j Trefoil Capital Corporation owns U%.
tomers for international banking fa- Network Finance, Ltd. FIB has a
ties by providing all the traditional 7.1 ■ stake in this Australian real estate
s on a local basis finance company.

our foreign

the ports of Philadelphia, Baltimore and
Harrisburg with complete export and im-
port services. National Centrals direct
fcreign lending activity is tailored to the
needs of our multi-national customers
while also providing U. S. financing fa-
cilities to our foreign correspondents."

Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

Correspondent balance relationships:
NatK

!n all

sal Central Bank maintains l
agency relationships with ban
ajor cities of the world.

Philadelphia

CENTRAL PENN NATIONAL
BANK, PHILADELPHIA

(A Subsidiary of Central Penis
Financial Corp., Philadelphia)
International bonking policy:

"The policy of Central Penn National
Bank Is to continue to expand our inter-
national banking facilities with the ob-
jective of increasing overall profitability
of the bank and offering customers, both
domestio and international, a wider range
of international banking services.

"We offer a full range of international
services including commercial letters of
credit, documentary collections, pay-
ment orders and provide financing for
Importers and exporters- Our overall
strategy remains flexible and will be
adjusted in response to change in the
International financial environment."
Representation overseas:

CAYMAN ISLANDS
George Town: One branch.
Correspondent balance relationships:

Central Penn Intends to strengthen its
present network of correspondent rela-
tionships with its existing 400 banks and
branches in 98 countries. By established
representative offices and or branches
In strategio financial centers abrcad
Central Penn Intends to supplement the
relationships with its correspondents as
the need arises to serve customers. It
may also include participations or joint
ventures In order to get established in a
particular area or market.

CONTINENTAL BANK,
NORRISTOWN AND
PHILADELPHIA

International banking policy:

"At present our policy is limited to
Such basic functions as letters of credit
In their various forms including financ-
ing thereof, foreign exchange, remit-
tances, collections and their financing
under FCIA and other services directly
those already

or Indirectly rel.
mentioned. Curre
of Continental Bank not to enter Into
foreign loans whether directly or on a
participation basis to companies, indi-
viduals or governments- Wo enjoy a
good worldwide relationship with our
International corespondent and agency
banks."

Correspondent balance relationships:
"Continental Bank has 11 due to ac-

BAHAMAS
Nassau: One branch. American Interna-
tional Bank (Bahamas) Ltd. is a
wholly-owned subsidiary of Fidelity
International Bank.
Fidelity International Corp. (Bahamas)
Ltd, a wholly-owned finance and Invest-
ment company formed in 1969.

BRAZIL
Sao Paulo: Representative office.

COLOMBIA
Manizales: Corporaclon Flnanclera de
Caldas. FIB owns 2.63% of this Co-
lombian regional development com-
pany.

ENGLAND
London: One branch.

FRANCE

Paris: The Fidelity Bank (France) ! *,
formerly Banque Europeenne de Fl-
nancrment. Is a commercial tank
wholly owned by I- IB.
Banque de la Mediterraneo (France)
S.A, Pans, which offers a complete line
of International and commercial bank-
ing services, is 22.*% owned by FiB.
GABON

Libreville: Sogafinex — Soclete Gabonalse
de Flnancement et DExpanslon — FIB
has a 10<\i interest In this government-
Supported investment banking firm.
HONG KONG
Hong Kong: Representative office.
INDIA

Bombay: Industrial Credit eV Investment
Corp. of India, Ltd. FIB owns 0.22%
of this private industrial development
Institution.

JAPAN
Tokyo: Representative office.

LEBANON
Lebanon: Representative office.

Banque de la Mediterranee. Fidelity
Bank has a 22.6% interest In thi, bank.

LUXEMBOURG
Luxembourg: ADELA Investment Co.
FIB holds 1.1% of this multinational
investment company which operates in

MEXICO
Mexico City: Representative office.

PHILIPPINES
Manila: House of Investments. FIB holds
3 751- of this Philippine Investment
banking firm.

Industrial Finance Corp., Is 1.56";
held by FIB.

SENEGAL
Dakar: Sofisedit - Societe Financiers
Senegalaise pour le Development In-
dustrie! et Tourlstlque — FIB has a
134% Interest in this newly-formed
development bank.

SWITZERLAND
Geneva: Business Associations S.A. Is
wholly-owned by FIB. It is a mergers
and acquisition tirm.
Greyhound Financial & Leasing Corp.,
A.G. an international leasing and finance
company, is 4.7S% held by FIB.

TAIWAN

Taipei: United Nylon Corp. is a nylon
manufacturing co. FIB holds 3.042%.
TURKEY

Istanbul: Turkey Smal Kalkinma Bank-
asi AS FIB holds 0.77% of this Turk

FIRST PENNSYLVANIA
BANK NA, PHILADELPHIA
(A Subsidiary of First Pennsylvania
Corp., Philadelphia)

International banking policy:

"First Penn has chosen to operate In-
ternationally through a combination of
correspondent relationships, branches,
representative offices and International
affiliations. The choice as regards partic-
ular marketing areas Is based upon our
own managerial capacity, the needs of

developing new patterns of International
business for the bank. Our policy is flex-
ible and reviewed constantly in light

Overseas

)

U. S. Subsidiary:
FIRST PENNSYLVANIA OVER-
SEAS FINANCE CORP.,
PHILADELPHIA
First Pennsylvania Overseas

Corp. is an Edge Act subsidiar

Representation overseas:
BRAZIL

Sao Paulo: First Pennsylvani
Development Company (Ciy
Ltd., a subsidiary of FPOFC,
50% Interest In Penco Lev
Ltda. S. C, which acts as a repre
tentative office for First Pennsylvania
Bank N. A.

CAN AOA
Montreal: Representative office:

First Northamerica Investments Ltd,
a subsidiary of First Pennsylvania Cor-
poration, is engaged in medium term
equipment financing and leasing. It also
has an office in Toronto.

CAYMAN ISLANDS
George Town: First Pennsylvania Over-
seas Development Co., (Cayman) Ltd.
I* a subsidiary of FPOFC.

COSTA RICA
San Jose: First Pennsylvania Overseas
Development Company (Cayman),
Ltd.. a subsidiary of FPOFC, holds a
majority Interest In Financiers del
First Pennsylvania, a consumer fi-
nance company. The company concen-
trates on dealer discounts financing for

customers. A broad correspondent net-
work would provide for us and our cus-
tomers the best Information and service
in any particular geographic area. Our
London branch was opened to give us
direct access to the foreign mcney mar-
kets, and to aid us In the development of
what we feel to be the bulk of the fu-
ture needs of our multi-national cus-
tomers, that being our ability to obtain

funds for them."

U. S. Subsidiary:

CIRARD INTERNATIONAL
BANK, NEW YORK
I GIB Is capitalized at 16 million.
Representation overseas:

CAYMAN ISLANDS
George Town: One branch.

ENGLAND
London: One branch.

Penn Investments (London) Ltd. Is a
subsidiary of GIB.

Penn Sharp Associates. Ltd , London.
Penn Investments Ltd. has an Interest In
this tax consulting firm.

FRANCE
Paris: Representative office.

MEXICO

Mexico City: Representative office.

SINGAPORE
Singapore: Representative office.

SWITZERLAND
" ch: Girard Zurich AG.

ENGLAND
Lonoon: une orancn.

GERMANY
Frankfurt: Representative office.

ISRAEL

Tel Aviv: First Pennsylvania Corp. Is a
major shareholder In F.I.B.I. Holding
Company, an Israeli financial holding
company which owns The First Inter-
national Bank of Israel.

Tokyo: Regional representative office
which also serves Hong Kong, Taiwan
and South Korea.

LUXEMBOURG

Luxembourg: FPOFC has a minority
equity interest In ADELA Investment
Co, S. A., a multinational private In-
vestment company operating through

MEXICO

Mexico City: Representative office.

PUERTO RICO
Santurce: CommoLoCo Inc, the third
largest consumer finance company In
Puerto Rico, is owned by First Penn-
sylvania Corporation.

SINGAPORE
Singapore: Regional representative of-
fice which also serves Indonesia.
Malaysia, the Philippines and Thailand.
FPOFC has a minority equity Interest
in Private Investment Co. for Asia
(PICA), a multinational private Invest-
ment company operating in Asia and the
Far East

VIRGIN ISLANDS
Charlotte Amalie: First Pennsylvania
Bank NA's Caribbean Region consists
of eight branches. They are located
here, on St. Thomas, St. Croix, and St.
John (U. S. Virgin Islands), en Tortola
(British Virgin Islands) and on An-
tigua, West Indies.

Correspondent balance relationships:

First Pennsylvania Bank N. A. main-
tains 152 accounts with foreign banks
and 232 balances from foreign banks are
maintained by First Pennsylvania Bank

iih

ENEZUELA

Venezolano de Desarrollo,
lopment finance com-

Caracas: C

pany It i 2 5 . held by FIB.
Correspondent balonce relationships:

Correspondent balances are maintained
with foreign banks and 435 fcreign

CIRARD BANK,
PHILADELPHIA

(A Subsidiary of Girard Co.,
Philadelphia)

International bonking policy:

"The development of a correspondent
bank network was the choice made by
Girard Bank over a branch system be-
cause we felt that through an efficient
foreign bank network we could best
serve the netds of our multi-national

INDUSTRIAL VALLEY
BANK AND TRUST CO.,
PHILADELPHIA

International banking policy:

"IVB provides International banking
services to its customers through cur
Cayman Islands branch and through the
facilities of our principal domestic and
foreign correspondents.

Representation oversees:

CAYMAN ISLANDS
George Town: One branch.

PHILADELPHIA NATIONAL
BANK

(A Subsidiary of Philadelphia
National Bank Corp.)

International bonking policy:

c( Its clients through associated and cor-
respondent banking Institutions abrcad.
The bank maintains at the same time a
flexible response to the International
banking problems of today with Its for-
eign branch offices In Nassau and Lux-
embourg and Its representative offices In
London, Sydney, Sao Paulo, Panama and
Bangkok." *
U. S. Subsidiaries:

PHILADELPHIA INTERNA-
TIONAL BANK, NEW .YORK
•MB, which commenced business In
1967. performs a full range of Interna-
tional banking services, with emphasis
on efficient dollar clearing tr?nsfcrs.

PHILADELPHIA INTERNATIONAL
INVESTMENT CORP.,
PHILADELPHIA

Established In 1960, PIIC holds debts
and equity investments In 69 enterprises
in 29 countries and specializes In financ-
ing developing businesses around tre
world. Forty-eight percent owned Clave-
American Corp. New York, arranges fi-
nancing for the exportation of U. 8.
manufactured equipment.
Representation overseas:

AUSTRALIA
Sydney: Representative office.

Australian Finance and Investment
Co. Ltd. PIIC has a 20% participation
In this diversified finance company.
PNB International Finance Ce, Aus-
tralia Ltd, Sydney, a commercial finance
company, is a wholly owned subsidiary
of PIB.

AUSTRIA

Vienna: Internationale Bank fur Aus-
senhandel A.G. PIIC hat a 10% equity
investment In thlt Jointly sponsored
banking firm formed to specialize In
financing East-West trade and com-

BAHAMAS

Nassau: One branch.

New World Development Corp., Ltd.
la a wholly-owned subsidiary cf PIIC.

Rawson Trust Co, Ltd, New World
Development Corp., Ltd. owns a 2C% In-
terest In this Nassau firm.

BRAZIL

Rio de Janeiro: Banco de Investlmento
do Brasil S.A. PIIC hold! a 5% equity

investment in this Brazilian investment

Sao Paulo: Representat
COLOMBI

PIIC holds a 7.08% equity

office.

7X8% i
Corporacion Financiera

investment
Del Norte.

(Continued on next pafe)

AMERICAN BANKER

February 22. 1977

International Activities

(Continued from preceding page)
DENMARK
Copenhagen: R. Henrique* Jr. Bank.

Met, the oldest private bank In

Copenhagen, le 16>S% owned by PIIC.
ENGLAND
London: Representative office.

Arbuthnot Latham A Co., Ltd. PIIC
hat a 5% equity Investment In this
British merchant bank.

Conoord Leasing Services Ltd. la a
subsidiary or Concord International S.A.
of Luxembourg.

Philadelphia International Company
Ltd., offering specialized financial serv-

Holdlngs

Ltd. PIIC owns a 78% Interest in this
oompany whose chief operating sub-
sidiary Is Western Trust <Y Savings
Ltd, • bank specializing in consumer
finance.

International investment Corporation
for Yugoslavia is a PIIC affiliate.
FRANCE

Paris: Banque Worms 4 Cle S.A. PIIC
hat a 7.5% equity investment in this
French banque d'affaires.
Concord Equipment, Paris, Is a sub-
sidiary of Concord International S.A.
•f Luxembourg,

GERMANY
Hamburg: Joh. Berenberg. Gossler A.
Co. PIIC holds a 15% equity invest-
ment in this private banking partner-
ship.

Tehe

Representative office.
IRELAND
Dublin: Trinity Bank Limited. PIIC holds
a 22% equity Investment in this Irish
merchant bank.

KUWAIT

Kuwait City: PIIC Is a 6% founding
shareholder in Arab Financial Con-
sultants Co.

LUXEMBOURG
Luxembourg City: One branch.

Concord International S.A. PIIC holds
a 26% equity Investment In this Luxem-
bourg-based leasing company.

NICARAGUA
Managua: Banco Caley-Dagnall S.A.
PIIC hat a 20% equity Investment
In this private merchant bank.
PANAMA
Panama City: Representative office.

Banco tnternacional de Panama, a
commercial bank and Primer Banco de
Ahorrot, a tavlngt bank, are both 20%
owntd by PIIC.

PHILIPPINES
Makatl: Private Development Corp. ol

the Philippines is a PIIC affiliate.
Manila: Southeast Asia regional repre-
sentative office.

PIB has a 6% equity Investment In
AEA Development Corp., Manila.

SPAIh

16% equity Interest
a holding company
itments in Spanish

Madrid: PIIC has i
In Eurcom S.A.,
with major Invi
financial instituti

THAILAND
Bangkok: Multi-Credit Corp.. a E
commercial finance company,
owned by PNB.

ZAIRE

n.has

5oc«

PIIC

Is primarily used for eqult

Representation overseas:

AUSTRALI A
Sydney: Provident International Corp,
Ltd. Is a majority owned subsidiary
of PIC, Philadelphia, and hat a wholly-
owned subsidary, P.I.C. Leasing, Ltd.
BAHAMAS
Nassau: Provldent's branch office which
Is used for our Euro-currency trans-

MEXICO
Mexico City: Representative offico.

PIC, Phila., holds an equity Interest
In Prodolmex, S.A, a subsidiary which
receivable financing along with
forms of secured financing

Pittsburgh

EQUIBANK N.A.,
PITTSBURGH
(A Subsidiary of Equimark
Corp., Pittsburgh)
International banking policy:

"Through Its International Depart-
ment, Equlbank serves its clients world-
wide by: providing short term trade fi-
nancing; granting medium term loans
and project financing especially for plant
and equipment exports on a turnkey
basis; accepting demand accounts, time
accounts and Eurodollar!; making avail-
able all of the usual international bank-
ing services related to collections, letters
of credit and development of trade and
direct investment opportunities."

U. S. Affiliate:

ALLIED BANK INTERNA-
TIONAL, NEW YORK
Equibank N.A. is one of 18 member
bankt of Allied. See listing for Allied In-
ternational under New York.

ENGLAND
London: Representative office.

HONG KONG
Hong Kong: Representative office.
Correspondent balance relationships:

Equibank N.A. maintains correspond-
ent balances with 47 foreign banks and

tlonal division of Pittsburgh National Is
to contribute to the bank s earnings, both
directly and Indirectly, by providing
Imaginative and financial assistance to
its clients around the world. Emphasis Is
placed on the maintenance and growth
of meaningful relationships with indus-
trial and financial institutions both In
the U. S. and abroad."
U. S. Subsidiary:

PITTSBURGH INTERNATIONAL
FINANCE CORP., PITTSBURGH
Representation overseas:

AUSTRALIA
Sydney: Representative office.

PIFC holds a 20% Interest in Seldon
4 Attociatet Pty, Ltd.

BAHAMAS
Nassau: One branch.

PIFC holds a amall Interest In Deltec
Panamenca, S.A.

Sao Paulo:
office.

ENGLAND
London: PIFC holds a 10% Interest In
Brown Harriman «V International
Banks, Ltd.

Correspondent balance relationships:

Pittsburgh National maintains corre-
spondent balances with 73 foreign banks
and 129 foreign banks maintain balances
with Pittsburgh National.

sentation overseas:
DOMINICAN REPUBLIC

ganized as a joint venture between In-
vertiones I ntemaclonales and Domin-
ican businessmen. Inversions* Inter,
nacionales. an offshore investment
company belonging to the stockhold-
ers of Banco Popular de Puerto Rico,
maintains an investment in Banco
Popular Dominicano.

HAITI

Port Au Prince: Banque da lUnlon
Hatienne S.A. is a private commercial
bank organized as a joint venture be-
tween Inversibnes Internacionals II,
Ltd, Banco Popular Dominicano, Fl-
naneiera Dominican* S.A, Manufac-
turers Hanover Trust Co, and Banqut
Canadienne Nationale.

Correspondent balance relationships'
Banco Popu

RHODE ISLAND
Providence

INDUSTRIAL NATIONAL BANK,
PROVIDENCE
(A Subsidiary of Industrial
National Corp., Providence!

International bonking policy:

"Industrial National Bank actively
promotes foreign trade and International
development through a complete range
I of international banking service* and
close relationships with a worldwide net-
work of correspondent banks."

U. S. Subsidiaries:

AMBASSADOR FACTORS CORP.,
NEW YORK

intam balances

Equ

MELLON BANK NA,
PITTSBURGH
(A Subsidiary of Mellon National
Corp., Pittsburgh)

International banking policy:

"The main purpose of Mellon Bank'i
International activities Is to render In
ternatlonal banking services to Its cut
tomert located in the United States am
abroad."

U. S. Suosicf/'oWei:

MELLON INTERNATIONAL
FINANCE CORP ,
PITTSBURGH

Reading

AMERICAN BANK AND TRUST
CO. OF PA., READINC

International banking policy:

"American Bank provides the full
range of International financial service]
to our domestic and multinational cus-
tomers in our exceptionally diversified Provides a broad range of factoring,
seven county trading area. Due to our receivables financing and other secured
domestic growth to 54 branches, we are ' lending services,
the largest regional bank in Pennsyl- imi CACiKir moo

vanla — excluding tht citiet of Pitts- INLEA5ING CORP ,

burgh and Philadelphia. Our interna- PROVIDENCE
tional growth has been through corre- Thll full „ rwlce i eaiinn MmB1BV ora .
pondent relationships
banks in Europe and
continuing to expand
correspondents accord!

.ate.

Correspondent balance relationships

Correspondent balances are main- !
talned with 146 foreign banks and 819 1
foreign bank* maintain correspond- 1
ont balances with the Philadelphia In
ttrnatlonal Bank and the Philadelphia
National Bank.

| Representation

PROVIDENT NATIONAL BANK,
PHILADELPHIA
(A Subsidiary of Provident
National Corp., Philadelphia)

International banking policy:

"Provident'* international banking pol
loy la to render full services t<

posits with Euro-currency transactions
channeled through our Nattau branch;
export financing with utt of Extm-Bank,
FCIA, and other government agencies;
full documentary service* Including let-
ter* of credit, remittance* and foreign
collection*; foreign exchange Including
• pot and forward transaction* along with
advisory tervic* to corporation* with
International exposure, credit informa-
tion for foreign buyer*; economlo and
political Information on foreign coun-
trie*: trade development Information and
tourist related service*.

U. S. S.fc.icWy:
PROVIDENT INTERNATIONAL
CORPORATION (PIC),
PHILADELPHIA
PIC I* a wholly owned Edge Act *ub- 'nferiiofiono/ banking policy:
•Idiary of Provident National Bank and' "The bat.c objective of the Interna

AUSTRALIA
Network Finance
(AurtValla). Mellon ha* a 24.8% equity

Melbourne: Repreientative office.
BRAZIL

Rio de Janeiro: Repreientative office.
Mellon ha* a 25% equity interest Ir

Banco Bozano, Simonien de luvtltl

mento, S.A.

CAYMAN ISLANDS
George Town: One branch.

ENGLANO
London: One branch.

First Boston (Europe) Ltd. Mellon hai
a i3'/s% equity Interest In thi* m*r
chant bank.

GERMANY
Frankfurt: One branch.

minority interest in thi* bai
JAPAN
Tokyo: One branch.

MEXICO
Mexico City: Representative i

PHILIPPINES
Manila: Representative office
SWITZERLAND
Zug: First Boston, A. G.

tidiar

of Fl

Boston (Europe) Ltd

PITTSBURCH NATIONAL BANK
(A Subsidiary of Pittsburgh
National Corp., Pittsburgh)

Canada. We

Our

for major capital u
assist lease plans
manufacturers.

investment leasing
ertakings and sales
capital equipment

is to continue to provide, on a INTERNATIONAL APPRAISAL
personal basis, the most ef- 1 _
xpert and comprehensive In- CO, FAIRLAWN, NEW JERSEY
available to our cu«- Thi* company I* active In the field of
ppraisal of real property, machinery
nd equipment for insurance, taxation,
minent domain and condemnation value
purposes.

Correspondent balance relationshi\

from accounts with forei(

PUERTO RICO
Son Juan

BANCO DE PONCE, SAN |UAN

International banking policy:

"Our international policy is based on
the bank's theme: 'With People in
Mind.' We serve our customers through
a centralized International department:
33 branches in Puerto Rico and 10
branches in New York City. We offer
facilities for incoming and outgoing col-
lections, cables and transfers, sale of
gold coins and bar* upon individual re-
quests, purchase and sale of foreign cur-
rencies, commercial letters of credit, im-
port financing, and some other impor-
tant services for travelers and foreign
negotiations. Our facilities and apoclal-
ized personnel are always available and
willing to supply the very best In our
area. The careful (election of corre-
spondent banks In all the corners of the
world serves as the key that opens the
door to our international operations."

Correspondent balance relationships:

Banco de Ponce maintain* balance*
with 53 correspondent bank* in five coun- 1
trie*, and 46 foreign bank* from tlx

BANCO POPULAR DE PUERTO
RICO, SAN |UAN

International banking policy:

"Banco Popular d* Puerto Rico It a
commercial bank operating under a
charter granted by the Commonwealth of
Puerto Rico with 74 branchet in Puerto
Rico, eight branchet In New York, one
branch in Lo* Angele* and four affiliate
banks In Florida. Our International
bankinf policy la to provide our cus-
tomer* and correspondent* with a com-
plete range of international banking
services In order to facilitate their over-
Our policy r* to eo-

Representotion overseas:
CANADA

Toronto: INB Appraisal Co. of Canada,
a wholly-owned subsidiary of Inter-
national Appraisal Co.

CAYMAN ISLANDS
George Town: One branch.

ENGLANO
London: Representative office.

EGYPT
Cairo: Representative office.

SINGAPORE
Singapore: Representative office.

Correspondent balance relationships'

Industrial National Bank maintains
accounts in 44 overseas banks and S3
foreign banks maintain accounta with
INB.

OLD STONE BANK,
PROVIDENCE
(A Subsidiary of Old Stone
Corporation, Providence)

International banking policy:
"We are oriented primarily to the

RHODE ISLAND HOSPITAL
TRUST NATIONAL BANK CO.,
PROVIDENCE
(A Subsidiary of Hospital Trust
Corp., Providence)

International banking policy:

"In the Northeast market which we
serve, we prefer pursuing our interna-
tional banking activities through foreign
correspondent banks. As a matter of
policy, we strictly limit the number of
correspondents who represent us in each

Question 4. Wettern writes "it is felt that interest payments will be possible
only if Panama has access to profits from Canal dues." Does the Administration
agree with this observation?

Question 5. If not, from what sources will Panama be able to pay interest
coming due in the near future?

Answer. The Administration does not agree with this observation. Taking
into account servicing requirements of existing debt along with currently plan-
ned loans plus other projected new borrowing, interest payments on public sector
debt should rise from about $111 million in 1977 to $132 million in 1981. The
Government of Panama has undertaken a number of domestic policy measures
in conjunction with a stand-by program with the IMF which should help to
establish the basis for sustained economic growth in the future. Additionally,
alleviation of uncertainty over the Canal through prompt ratification and im-
plementation of the treaty will bring renewed inflows of foreign capital. This
renewed economic vitality alone, arising from domestic policy action and in-
creased foreign investment, should enable the Government of Panama to fi-
nance interest payments on its debt.

While the increased payments to Panama under the new treaty arrangements
will strengthen Panama's financial condition, they were negotiated not as a
means of financing Panama's debt service obligations but rather as a means of
assuring that Panama would receive "a just and equitable return on the na-
tional resources which it has dedicated to the efficient management, operation,
maintenance, protection, and defense of the Panama Canal" (see Article XIII of
the proposed Panama Canal treaty).

Question 6. After Panama has complete control of the Canal and its opera-
tion, what will its expected annual income from the waterway be?

Question 7. Compare this anticipated figure with the $243,000,000 which
Panama received from the United States in 1976 in direct and indirect pay-
ments, including spending by United States personnel, adjusted for expected
continuing inflation.

Answer. Under the proposed treaty arrangements, Panama will assume com-
plete control of the Canal and its operation in the year 2000. In order to
estimate Panama's expected annual income from the Canal at that point, some
22 years from now, projections for a number of key variables would be needed,
including the number of transits, the level of tolls, and the cost of operating
the Canal. Since meaningful projections for these variables cannot be made for
a period beginning in 22 years, it is not possible to estimate Panama's expected
annual income from the Canal in the year 2000.

[Subcommittee note: Question 8 was inadvertently omitted when Mr. Snyder's
questions were submitted to Treasury. See Appendix D.]

[From the Washington Post, Dec. 14, 1976]
Otheb Nations' Debts May Plague U.S.

(By Hobart Rowen)

"International economic problems," President-elect Jimmy Carter told one of
his staff advisers, "are going to give me my biggest headache in the next four
years."

Indeed, as Carter and his advisers look down the road, they see an accumula-
tion of foreign economic hazards that seem overwhelming.

The chief threat, dramatically symbolized by near-crisis situations in Great
Britain and Italy, is the accumulation of an enormous debt by industrial and
less-developed countries (I.DCs) alike.

The poorer nations will have borowed about $190 billion by the end of this
year, including about $70 billion from private banks, and repayment has become
a burden. Moreover, the steadily increasing price of oil exacerbates the situation.

The fear, spoken of only in whispers at gatherings such as the International
Monetary Fund meeting last October in Manila, is that some major nation
might be forced into asking for a debt moratorium. One small country, Zaire,
has already obtained a rescheduling of its debt payments.

A highly pessimistic assessment comes from New York banker Felix Rohatyn,
who says the growing debt situation "could lead to disaster because the political
structures aren't there to cope with it."

Western financing of the deficit would be inflationary, Rohatyn says, leading to
the conclusion that only the oil cartel, with enormous money reserves, has the
available resources. . -

The magnitude of the problem cannot be precisely measured. But the chair-
man of a multinational corporation based in Europe has told colleagues in New
York that there may be as much as $200 billion in "bad loans" (to private
borrowers as well as governments) made through the Euro-dollar market.

"It would be something like dealing with the New York City crisis on an in-
ternational basis."

The parallel is not overdrawn. The problems of less developed countries, and
of Great Britain and Italy, is that their internal resources have been outstripped
by commitments made by their political leaders. The gap — the deficits — has been
financed externally, in part by international institutions, and in part by private

banks.

U.S. multinational banks account for an estimated half of the total volume
of private lending to the poorer nations. Of the U.S. share, six banks account
for two-thirds of the business, according to the Federal Reserve Board.

These are the First National City Bank (the largest lender), the Bank of
America, the Chase Manhattan Bank, Manufacturers Hanover Trust Co., the
Chemical Bank, and Morgan Guaranty Trust Co.

An accompanying problem is that Eastern bloc countries have also been major
borrowers. Unofficial estimates of loans to them run $25 billion to $35 billion.

Alan Greenspan, the outgoing administration's chief economic adviser, believes
that some nations have just about reached the outer edge of their borrowing
capacity.

Carter and other heads of state plan an economic summit meeting to try to
find ways of dealing with this and related problems. Because of the advance
preparations necessary, the meeting is not likely to take place before mid-year.

In addition, Carter and other Western leaders must deal with no-so-subtle
pressure from the Organization of Petroleum Exporting Countries (OPEC)
linking its decision on further price increases to Western acquiescence in meet-
ing demands from the poorer countries, including the suggestion that much of
their debt to private banks be postponed.

So far, the richer nations have said that this is just as unthinkable as LDC
demands for free transfer of technology, elaborate commodity price supports,
and wide-scale reduction of tariff and non-tariff barriers.

But an effort will be made to revise the North-South dialog in a Paris meeting
toward the end of December. The Westerners will attempt to hold off the LDCs,
arguing there is little point in doing serious bargaining before Carter takes
office.

If Greenspan and other analysts are right, a number of debt renegotiations
could have an impact on foreign exchange markets, as well as an adverse impact
on that elusive element called "confidence."

What the experts really fear is the great pressure of debt rescheduling, to say
nothing of actual defaults, that could lead to money market turmoil. Banks that
were unable to collect on their loans could have a problem of their own.

Some foreign banks also appear to have become overextended in loans for the
construction of huge oil tankers, which are in over-supply.

But as large a problem as the tanker loans are likely to be for German, British,
and Hong Kong banks, it pales along side that posed by the dimensions of the
LDC debt.

Simply to service the debt, the cost to the LDCs has risen from an estimated
$10.5 billion in 1975 to $12.5 billion in 1976. Because the total debt is likely to
grow, a report by the New York firm of Solomon Bros, says, "The burden of debt
payment will continue to enlarge."

Carter has been so impressed by the complicated and awesome international
financial problems that he said a week ago, to a group of economists meeting in
Plains : "My Secretary of the Treasury has to be a man of major international
experience."

But some outsiders suggest that the job facing the next Treasury Secretary,
regardless of his experience, may be well nigh impossible.

While the poorer countries' massive debt looms as a bomb that can go off at
any time, specific difficulties, showing the interdependence of international eco-
nomics, will confront Carter almost from the start.

First, there is the clear prospect that real economic growth in the major
industrial nations, including the United States, will be less in 1977 than in 1976.

A continuation of slow growth in the industrial world means increasing trouble
for the poorer countries, which depend on export sales to sustain their own
economies.

Second, Great Britain and Italy have specific problems that require immediate
international assistance. They may be joined next year by France, where double-
digit inflation and rising unemployment spell trouble.

Third, OPEC may increase the world's oil bill, already $125 billion a year. A
10 percent increase would add more than $12 billion annually to the cost of oil.
While the rise would be absorbed fairly easily in the United States, it would be
a sharp blow to less developed countries and to industrial nations such as Italy,
France, and Japan.

Fourth, the United States has failed to evolve an energy policy, which means
that the nation has become more rather than less dependent on imported oil.
Before the embargo, the United States imported less than 20 percent of its oil.
Today it imports 44 percent — and the figure may approach 50 percent by 1980.

Fifth, as William Rogers, under secretary of state for economic affairs, has
pointed out, the world's food supply remains a major problem, but good harvests
this year have made almost everyone complacent. Experts such as Democratic
adviser John Schnittker agree with Rogers that development of international
food reserves must become a top priority.

Sixth, nowhere has international interdependence become more apparent than
in foreign trade. The United States is heavily dependent on imports for many
materials and supplies other than oil. Against the historic figure of 4 percent of
the U.S. GNP represented by exports, today's $115 billion export level is closer
to 7 percent. Yet, the urgent need to gain export earnings is pushing all industrial
nations into protectionist postures.

Already, Common Market nations complain bitterly about the "invasion" of
Japanese cars and color television sets. In the United States, Carter will face
major demands for protection from television manufacturers and the steel
industries. He will be saved from a third decision — on shoes — because the Inter-
national Trade Commission apparently will complete an investigation in time
for President Ford to act on it.

Questions 1 wnd 2. By "political structures" did Mr. Rohatyn probably mean
lending institutions other than the private banks? If not, what did he likely
mean? Were they in being, (a) how would they cope with the growing debt
situation? (b) what would their relationship be to the U.S. taxpayer?

Answer. It is difficult to know precisely what Mr. Rohatyn meant by "political
structures." It is likely that Mr. Rohatyn was not referring to the need for a
new international institution to deal with the developing country debt situation
but was rather referring to "political structures" within the debtor nations
themselves. Debtor countries require strong political institutions to implement
effective economic stability programs, since these programs are often unpopular
domestically as a result of the short-term social and economic costs they entail.

The deveioping countries have a number of policy options available as a means
of coping with an increasing debt servicing burden. Most of these options, which
include various fiscal and monetary policies, have little effect upon the U.S.
taxpayer. However, in rare instances when a particular country is unable to
avoid default on its service payments to the U.S. Government, and these debts
have to be rescheduled, there is a marginal cost to the Treasury and the taxpayer
due to the deferral of payments. «■ , ■

Question 3. a. Do U.S. multinational banks still account for roughly half of the
total volume of private lending to poorer nations?

b. Submit annual totals of those banks since 1968.

Question 4. a. Do the same six banks mentioned by Rowen still account for
some two-thirds of that business? . •

b. Submit annual totals of each of the present top twenty U.S. banks since
1968

Answer. Consistent data on the claims of banks of other developed countries
(as reported to the Bank for International Settlements [BIS]) are availab e
onlv for the period December, 1975 through June, 1977. The /oUowing table
shows the proportion of outstanding claims on non-oil LDCs of U.S. banks i to
claims reported to the BIS of all banks in G-10 countries and Switzerland

(including claims of branches of U.S. banks in Hong Kong, Singapore, Panama,
Bahamas, and the Cayman Islands).

COMMERCIAL BANK CLAIMS ON NONOIL DEVELOPING COUNTRIES
[Dollar amounts in billions]

U.S. banks

U.S. bank

including

claims as

foreign

BIS

percent of

branches

total

BIS total

December 1975

$34.

$63.

June 1976

38. 8

70.2

December 1976

43. 4

80.9

June 1977

- 45.8

83.2

Note: The G-10 countries are: Belgium-Luxembourg, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden,
United Kingdom, and United States.

We do not have the information on individual banks requested.
Question 5. What is the total of U.S. bank loans to :

(a) "Eastern bloc?"

(b) Cuba?

Question 6. Is Castro's Cuba included within the so-called "Eastern bloc?"

Question 7. Identify which, if any, U.S. banks that have made loans to Panama
have also made loans to Castro's Cuba and what is the total amount loaned by
each to Cuba?

Answer. As of June 30, 1977, U.S. bank claims on East European countries and
the Union of Soviet Socialist Republic amounted to $5.6 billion. U.S. banks re-
port no outstanding loans to Cuba.

Question Sum up briefly any OPEC pressure over the last two years on
Western powers, especially the U.S., to postpone payment of the debt of LDCs,
and the reactions to date to such proposals.

Question 9. Did the Republic of Panama figure specifically by name in any
such OPEC proposal?

Answer. There has been no "pressure" from the OPEC as a group for an
LDC debt moratorium, nor have there been an increasing or significant number
of developing countries which have sought debt reschedulings. Panama has paid
its debts on time. Although the developing-country bloc in the U.N. (which in-
cludes the OPEC countries) has advocated a number of debt relief proposals in
recent years, Panama has not figured specifically in any of these proposals, and
the U.S. and many of the other developed countries have steadfastly opposed all
proposals for generalized debt relief.

Question 10. Would you agree with Rowen that the "poorer countries' massive
debt looms as a bomb that can go off at any time"?

Answer. The Treasury does not concur with Mr. Rowen's assessment that
"the poorer countries' massive debt looms as a bomb that can go off at any
time." While the external indebtedness of the developing countries is large
in absolute terms, it is the Treasury's belief that these countries as a group
possess the capacity to meet their repayment obligations. Indeed, the repayment
record of the developing countries is excellent, and only in a few isolated in-
stances have developing countries sought to reschedule their foreign debts. For
a more detailed discussion of the international debt situation, please refer to the
statement of Under Secretary of Treasury Solomon attached to Question 12 in
this section.

It should also be noted that the economic situation of the developing countries
has improved considerably since Mr. Rowen wrote his article in December,
1976. In particular, the aggregate current-account deficit of the developing coun-
tries declined in 1977, while holdings of international reserves increased.

Question 11. In its conclusion, the Church Report spoke of the fear that some
debtor nation would default and this would start a domino effect that would
"set the multinational banking system teetering". What precisely would be the
likely chain of events and effect on that system if Panama defaulted on

( a ) its present debt ?

(b) any subsequent debt even if present debt were rolled over and/or addi-
tional private loans were to be forthcoming?

Answer, (a) There is no reason to believe that Panama will default on its
foreign debt obligations to either public or private obligors. Despite a relatively
heavy debt burden, the Panamanian Government has made its debt-service pay-
ments on time, and it is expected to continue to do so in the future. Furthermore,
even if Panama were to experience difficulty in meeting its debt service payments
we would expect that it would be more likely to seek a rescheduling of its foreign
debts than to default. However, in the unlikely event that Panama did default
on its present debt, this would be expected to have very minimal effects on the
international banking system. Panama's debt to the commercial banks, some
$650 million, represents a very small fraction of the banks' total exposure in
developing countries and only one-tenth of G-10 bank claims on foreigners.
According to information supplied by the Federal Reserve Board and the Comp-
troller of the Currency to Senator Proxmire, no bank is more heavily exposed
in total claims with maturities over one year in Panama than it is authorized
to be exposed to a single domestic corporate borrower. Only two banks, both
State banks, had claims on capital equal to more than 10 percent of capital.

(b) Given current trends, it is not expected that any additional debt incurred
by Panama will change the outcome suggested in 11 (a) .

Question 12. What would be the effects on :

(a) U.S. private banks

(b) The U.S. economy in a situation in which

(i) Non-industrial, developing countries like Panama all were to default on
their debt to those banks?

(ii) In addition to such default, the Communist dominated socialist bloc
countries also defaulted?

(iii) Beyond (ii), the OPEC nations also withdrew all their short-term de-
posits from those banks? (According to the Church Report "of the $18.2 billion
in OPEC deposits at the 21 largest U.S. banks here and at their overseas
branches, nearly half had a maturity of 30 days or less.")

(iv) What steps would be available in each of the above situations (a) for
the banks to take? (b) for the government to take?

Answer. The Treasury Department does not believe that the scenario en-
visioned in this question is likely to be realized. The Treasury's analysis of the
international debt situation is provided in the attached statement of Under
Secretary Solomon to the Senate Committee on Banking, Housing and Urban
Affairs.

It is always possible to postulate a "worst-case" scenario, such as the one posed
in this question. However, this appears so remote that we find it analytically
meaningless to speculate about its policy implications. The generally excellent
repayment record of the developing countries, their improved economic perform-
ance in 1976-77, the desire of the middle- and upper-income developing coun-
tries to preserve their access to private capital markets, the self-interest of the
OPEC countries in preserving the stability of the international financial system,
and the lack of adequate alternative repositories for their funds, all suggest that
the scenario posed by this question is not likely to be realized.

Statement of the Hon. Anthony M. Solomon, Under Secretary for Monetary
Affairs, U.S. Department of the Treasury

The Subcommittee is performing a valuable service by providing this oppor-
tunity for public discussion of the rapid growth of international debt in recent
years, and the questions this may raise for world monetary stability.

The structure of international debt in large measure reflects the structure of
the international balance of payments. Thus, a description of the pattern of
world payments sets the proper framework for considering the questions which
the Subcommittee is addressing.

The five-fold increase in oil prices in 1973-74 not only transformed profoundly
the pattern of world payments, it also altered traditional attitudes toward pay-
ments deficits and surpluses. With OPEC countries suddenly accumulating
export revenues far beyond their capacity to spend, it became obvious that the
oil importing countries had to accrue large and unprecedented deficits as the
counterpart. The industrial nations as a group had to accustom themselves to
running payments deficits and borrowing capital, in contrast to their usual
role of running surpluses and lending capital, while the developing nations had
to adapt themselves to much larger deficits and much larger borrowing thai*
they had previously experienced.

100

In the initial phases of these wrenching changes in the world payments pat-
tern, there were deep-rooted fears that the oil importing nations, trying indi-
vidually to balance their own payments positions, would all harm each other by
external restrictions and excessive domestic retrenchment, as they tried to
eliminate deficits which as the counterpart of the OPEC surplus were collectively
irreducible. Recognizing these dangers, the IMF membership agreed in January
1974 in the Rome Communique to forswear such self-defecting actions.

Accordingly, in the early aftermath of the oil price increases, emphasis was
placed — and appropriately placed — on assuring the adequacy of resources for
financing the balance of payments costs of higher oil prices. Nations were en-
couraged, at least temporarily, to "accept" the oil deficit and finance it, rather
than to try individually to eliminate their deficits at the expense of other oil
importing countries. To facilitate the financing, the IMF established a temporary
"Oil Facility," which channeled nearly $8 billion to member nations, allocated
largely in relation to the increase in oil import costs, and with much less than
the usual emphasis on the IMF's traditional requirement that its financing be
linked to carefully negotiated adjustment programs on the part of the borrowers.

In the circumstances, nations therefore borrowed very heavily in the years
1974-76 to finance large payments deficits — deficits swollen not only by high
oil costs but also by severe world inflation and recession, by inappropriate
domestic policies in some cases, and by a variety of other factors. The borrow-
ing took many forms. While official financing through the IMF during this
period was far above historical levels, private markets provided about three-
quarters of total financing during the three year period.

Conditions on the supply side of the market were also conducive to a rapid
growth in private financing during that period. Huge OPEC surpluses, of course,
brought large deposits and placements to the banks and other financial inter-
mediaries, and greatly expanded the liquidity of those institutions. In addition,
the period was one of rapid secular expansion of the international banking sys-
tem. Many institutions were competing eagerly for new customers, as they sought
to establish themselves in new activities and new geographic areas, and endeav-
ored to broaden their scope of operations so as to spread risks and diversify
portfolios at a time when domestic loan demand was less buyant than in im-
mediately preceding years.

Using such data as are available — unrealiable, inexact and incomplete — we
can sketch out a pattern of world payments in the period 1974 through 1976
with roughly the following dimensions :

The cumulative current account deficits financed equaled about $225 billion
Or so (after the receipt of grant aid), representing the counterpart of the
lendable surpluses of OPEC plus those of certain industrial countries registering
surpluses during the period.

About $15 billion of these deficits or 7% of the total was financed through
the IMF, the bulk of it through the temporary "Oil Facility" and the "Compen-
satory Finance Facility," both of which provide financing largely on the basis
of "need" with relatively little emphasis on "conditionally" or the adoption of
corrective adjustment measures by the borrower.

About $40 billion of the deficits or 18% of the total was financed through a
variety of other official sources — development lending by industrial countries
and OPEC by the IBRD and regional development banks and other sources.

The remaining current account deficits some $170 billion plus about $40 bil-
lion of debt repayments were financed largely through market-oriented borrow-
ing. Most of these funds were obtained through banks and securities markets.
Some came from governments seeking investment outlets for their surpluses or
as export financing.

As these numbers suggest the accumulations of debt, especially debt owed to
private lenders, have been large, by historical standards extremely large. While
the above estimates extend only through 1976 the pattern has probably con-
tinued this year

It is the purpose of these hearings to examine whether this rapid and un-
precedented enlargement of lending activity and debt has reached a danger
point for the monetary system — either in the sense that large numbers of
countries have borrowed beyond their capacity to service debt or in the sense
that our banks and other institutions are overextended

My own assessment is that the system is not in any such position of danger,
either as a result of excessive borrowing by large numbers of debtor nations —

101

though some have doubtlessly approached or reached the limits of financial
prudence — or as a result of our financial institutions being over-stretched.

In formulating its judgments on the "burden" of these debts on borrowers, the
Subcommittee should be aware of certain reasons why the burden may not be
as severe as the numbers suggest. Let me mention several such reasons :

First, economic growth and expanding trade tend to increase a nation's capacity
to service debt. Some continuing increase in debt can thus be accommodated
without added burden. Some of the debt increase is simply the increase in trade
financing that accompanies the increase in the value of imports. For instance,
the debt service ratio for developing countries as a group was no higher at the
end of 1976 than it was in 1973.

Second, inflation has substantially reduced the burden of previously incurred
debt measured in real terms. Furthermore, in real terms interest rates which
countries are paying on funds they borrow are substantially less than the
nominal rates.

Third, the borrowing is not being undertaken on balance by the poorer less
developed group of nations. IMF studies show that as a group non-oil developing
nations are borrowing little or no more at present — adjusted for inflation and
real growth — than they borrowed in the years before the oil price increases of
1973-1974. The main structural change in world payments since that time is
that the industrial nations, as a group, now borrow large sums from OPEC —
sums which finance both the current account deficits of the industrial countries
and their exports of capital to the developing nations. The developing countries
now obtain some capital directly from OPEC while continuing to obtain the
bulk of their credit from industrial nations.

Fourth, statistics often exaggerate debt servicing needs, by listing as "short-
term" loans for which there are commitments or understandings to extend or
roll-over. Also, the most commonly used aggregated data on foreign loans by
banks involve a substantial amount of double counting because they include
loans to other banks in major industrial countries. An accurate appraisal re-
quires the elimination of most inter-bank loans.

Fifth, many of the countries which have increased their debt have also in-
creased their official reserves.

On the question of whether the banks are getting over-extended, you will
receive testimony from commercial bankers and from the Federal Reserve
through Governor Wallich. I will offer only a few comment* which might be
relevant :

Historical data on loan losses incurred through international lending by U.S.
banks do not support the view that such loans jeopardize bank stability. Various
studies indicate that the loan losses from foreign loans have been considerably
less than for domestic loans in recent years.

The statistics on the volume of bank credit overstate the extent of bank
exposure since some of these credits are guaranteed either by a government
agency or by a multinational corporation whose head office is in the lending
country.

Statistics on the maturity structure of international loans by banks also provide
some encouragement. A high percentage of loans to foreigners represents self-
liquidating trade credits with a maturity of less than one year.

In his appearance April 5 before a House Committee the Acting Comptroller
pointed out that the extensive examinations his agency performs on national
banks engaged in international lending did not reflect cause for serious concern.
He also said that the loan problems of major banks were concentrated in the real
estate field and in various domestic industries.

I am encouraged that as our international banking system grows and evolves,
both the institutions themselves and the government regulators are developing
more sophisticated procedures, and gathering more detailed information, to
increase understanding and to protect depositors. A number of banks are devot-
ing more care and more resources to analysis of individual borrowing countries.
Both the Comptroller of the Currency and the Federal Reserve have introduced
major new measures to obtain more timely and more useful information. These
moves will improve and strengthen the system.

But it is not good enough, clearly not good enough, simply to assure that
debtor nations, as a group have not thus far overborrowed, or that our private
credit institutions as a group are not at present overextended. Combining all
borrowers in a group or all banks in a group can conceal major differences in
individual cases.

102

The poorer countries which have never had significant access to the private
markets will, no doubt, continue to be dependent primarily on bilateral aid and
loans from international development lending institutions. They will no doubt
have to continue to limit their deficits basically to the amount of the new flow
of funds which they can expect from these official sources. If the flow of aid
increases steadily as now expected they should be able both to service their
accumulated debt and run somewhat larger current account deficits.

There are other countries — certainly not a large number but a significant
number — that have reached or are approaching the limits of their ability to
borrow. These are countries that are beset by economic distortion, that still
face large payments deficits, where the need for corrective measures and adust-
ment is compelling.

We must assure ourselves that such countries, and others which may in future
face similar difficulties, are encouraged, and permitted, to adjust their economies
in ways that are compatible with our liberal trade and payments objectives, in
ways that avoid discrimination against others and disruption of the world
economy. We must assure ourselves that our monetary system will foster such
adjustment, and that it will be able to cope with new stresses that may arise in
the future.

While our international monetary system is at present strong and functioning
effectively, we do not have in place all the machinery needed to insure against
such future risks. It is for that reason that the Administration is proposing
that the United States and other strong industrial nations join with major
OPEC creditors to establish within the IMF a new facility — the Witteveen
facility — to fill that critical need. We will shortly be proposing legislation to
authorize United States participation in this facility, and I would like to describe
its main features today.

The rationale for the Witteveen facility — its formal name is the IMF Supple-
mentary Financing Facility — rests on three main premises :

First, that large payments imbalances will continue for the next several years.
Certainly our expectation is that the OPEC surplus will diminish only gradually,
in line with the growth of OPEC spending and with the implementation of
effective energy conservation programs in the United States and elsewhere.

Second, that there will be a need for greater emphasis on "adjustment" of
imbalances, rather than simply "financing" imbalances, especially by those coun-
tries facing relatively large payments deficits. With the passage of time, the
need for countries to adapt to higher energy costs and other economic develop-
ments has been increasingly recognized. At the Manila IMF meeting last fall,
it was recognized that : adjustment should be symmetrical ; deficit countries
should shift resources to the external sector and bring current account positions
into line with sustainable capital inflows ; countries in strong payments positions
should maintain adequate demand consistent with anti-inflationary policies :
exchange rates should play their proper role in adjustment.

Third, that the resources of the IMF must be adequate both to enable it to
foster responsible adjustment policies by members facing severe payments dif-
ficulties, and also to provide confidence that it can cope with any potential
problems that may arise.

There is concern that without additional funds the IMF's resources may not
be adequate to meet demands which may be placed on it over the next several
years. With the relatively large amount of use in the past three years, the
IMF's usable resources are at present extremely low at about $5 billion. These
usable resources will be increased by about $6 or $7 billion with the coming
into effect of the sixth quota review approved in 1976 and now being ratified,
and about $3 billion remains available under certain conditions through the
General Arrangements to Borrow. Even with those additions, and the repay-
ments which may be expected, the IMF's resources look sparse in a world in
which total imports are running at an annual level of nearly a trillion dollars,
and in which OPEC surpluses are likely to decline only gradually from the
current $40-45 billion level.

In order to provide the added resources, at a meetincr in Paris earlier this
month, the United States agreed with six other industrial countries and seven
OPEC countries on an arrangement which would assure the availability of
about $10 billion to the IMF for the proposed Witteveen facility. The industrial
countries would provide $5.2 billion, of which the U.S. share — subject to Con-
gressional authorization— would be about $1.7 billion. The OPEC members

103

would provide about $4.8 billion, or nearly half the total, with Saudi Arabia
the largest single participant at $2.5 billion. *

This $10 billion would be used for a special facility in the IMF. It is a tem-
porary facility— countries could apply within the next 2 to 3 years, and could
draw 'down funds over a period of 2 to 3 years, though the total period of dis-
bursements could not exceed 5 years. It would be available for use by members
only in clearly defined circumstances. Specifically, a member drawing under

the facility : ■«•■•■*•*

Must have a balance of payments financing need that is large m relation to
its IMF quota and exceeds the amount available to it under the IMF's regular
policies ; , . _ ^ ' _ . .

Requires a period of adjustment that is longer than provided for under regular
IMF policies; a ;■ ■ .

Must enter into a standby agreement with the IMF in which it undertakes
to adopt corrective economic policy measures adequate to deal with its balance
of payments problem.

The facility, in short, is designed to encourage those countries with particu-
larly severe payments problems to adopt internationally responsible adjustment
programs — and to avoid the unwelcome alternatives of resort to the controls,
trade restrictions, and beggar-thy-neighbor policies which can be so harmful
to world prosperity and so disruptive to our liberal trade and payments order.
It is not a device for augmenting development assistance. The IMF provides
only balance of payments support. The member drawing on the facility receives
more financing than is otherwise available from the IMF: a longer period of
adjustment (a 2 to 3 year program as compared with the 1 year normally
applicable in the IMF) ; and a longer period of repayment (3 to 7 year maturity,
as compared with the IMF's normal 3 to 5 year maturity). Since interest on the
financing provided to the Fund is market-related, the borrowing country would
also pay a somewhat higher charge.

Participation in the facility is also advantageous to the United States and
others who are providing the financing. In addition to our interest in assuring
a strong and smoothly functioning international monetary system, we receive
in exchange for our participation a strong, liquid and interest-earning monetary
asset. Technically, the United States (or other participant) agrees to provide
currency to the IMF in exchange for an automatic drawing right on the IMF,
which is counted as part of our international reserve assets and which can be
drawn down at any time the United States can sell or transfer the asset to
others if there is agreement to do so. The interest rate we receive is linked to
U.S. Treasury issues of comparable maturity, so there is no net cost to the
Treasury. As the drawings are repaid by the borrower, the IMF returns the
dollars to the U.S., U.S. reserve assets are reduced, and the transaction is
reversed.

The Witteveen facility will make a major contribution to strengthening the
international monetary system against the problems the Subcommittee is ad-
dressing. First, it encourages countries to initiate needed adjustment measures
before their debts become too large for them to handle or credit is no longer
available, and it encourages them to adjust through sound and internationally
responsible policies. Second, the fact that the facility is available will improve
the creditworthiness of the international monetary system and confidence in
the system. It is not constructed and will not be used to help any banks that
may have lent excessively or unsoundly. It will help countries that are in need,
not financial institutions. Nor will it be used to take over the private banks'
regular lending activities. For one thing, the amounts involved are far, far below
the levels of private lending — although the IMF may in the period ahead ac-
count for a share of total balance of payments financing larger than the 7
percent provided in 1974^76, it will remain small in comparison with the share
channeled through the private market. For another, experience indicates that
after the IMF enters into a standby agreement with a borrowing country, pri-
vate lending tends to expand rather than contract. The banks will benefit from
the Witteveen facility, but only indirectly — through an improved international
environment and stronger monetary system that will benefit all parties, includ-
ing American industry, workers and farmers.

The Subcommittee has asked whether consideration should be given to other
new forms of cooperation between public and private institutions to improve
assessments of creditworthiness. The Federal Reserve has shown considerable
interest in this question and I know Governor Wallich will want to discuss it,
so I will comment only briefly.

104

I think we must be receptive to new ideas along these lines, and be willing
to explore the prospects for closer interaction. The IMF is at present examining
its procedures, and considering whether the provision of more information about
individual economies would be of value to both borrowers and lenders and thus
facilitate the continued flow of private capital. Looking beyond the question of
providing more information, the idea of cooperation between the IMF and
private banks, through joint loans to country borrowers, or IMF guarantees of
private loans, has been mentioned. There is great reluctance on the part of many
IMF members to move in this direction— which they see as a fundamental shift
in the character of the IMF— and it is not realistic to expect such moves in the
foreseeable future. Nonetheless we must, as Secretary Blumenthal has said,
be prepared to review old premises and consider innovations, to assure that
our institutions grow and adapt, and are used with maximum effectiveness.

A final question raised by the Subcommittee relates to formalizing procedures
for debt reschedulings. Under Secretary Cooper will discuss this issue in greater
detail. I merely want to say that it is not in the interest of either debtors or
creditors to undermine the basic principle that reschedulings should be ac-
cepted only in absolutely unavoidable cases. I think the arrangements by
creditor clubs have worked well, although there is room for some improvement.
Presently the IMF role, in actual creditor club negotiations, is limited to that of
a technical observer and supplier of statistical information. I have an open
mind as to whether a greater IMF role in rescheduling than presently exists
would be helpful, but in general I think there is some advantage in keeping
these cases ad hoc and informal.

CONCLUSION

The conclusions I would like to leave the Subcommittee with are as follows :

1. Debt is not necessarily bad. As shown by the experience of the United
States in the nineteenth century, and Canada and others at present, borrowed
money, if productively invested, provides the capacity to service the underlying
debt, and need not represent a serious burden.

2. The large growth in international debt is a natural consequence of the
pattern of world payments of recent years, and of the recognized need to
finance the imbalances resulting from the oil price increases, while we put in
place energy policies needed to reduce the imbalances.

3. There is no evidence that the international monetary system is presently
in danger either from general overborrowing by uncreditworthy countries or
general overextension of the banking system. Several countries have niade en-
couraging progress in their adjustment efforts.

4. Several oil producing countries will continue to run substantial payments
surpluses with some resultant strain on the world payments system, for some
years to come.

5. A few countries are approaching or have reached the limits of prudence in
borrowing and may experience considerable difficulties in financing their current
account deficits. The countries experiencing such difficulties should pursue poli-
cies which will reduce their deficits and preserve their creditworthiness so that

private lenders may, without undue risk, continue to provide the bulk of the
needed financing.

6. Adequate conditional financing should be made available through the IMF
to encourage the adoption of stabilization programs by countries which need to
take such steps and to give such countries the financing needed to permit them
to adjust at a politically tolerable pace by policies acceptable to the world
community, and without an undue impact on world growth.

7. Bank supervisory agencies should continue to exercise surveillance over
external lending, as they do with domestic lending, to preserve the soundness
of banking systems.

8. And, finally, counntrles should resist pressures for domestic protection and
keep their markets open for international trade.

In sum, Mr. Chairman, the system has performed well under difficult circum-
stances. Yet it contains some weaknesses and we are moving on a number of
fronts to strengthen it. Your Subcommittee will shortly be considering legislation
to authorize U.S. participation in a central aspect of this effort — the supple-
mental IMF facility — and I hope you will give it your strong support.

105

VII

In 1976, Nicolas Arditto Barletta, Planification Minister, submitted a memo-
randum to Eng. Demetrio B. Lakas, Panama's President of the Republic, regard-
ing the financial perspectives for 1977. In this memorandum, which was inserted
by Senator Helms 1 of North Carolina in the Congressional Record for February
22, 1977, (S2819ff ), Mr. Barletta said the following :

"We feel it will be extremely difficult to syndicate loans with the commercial
banks in the amounts previously mentioned, taking into account that during the
present fiscal period we must contract for a total of B/823.6 million with those
sources, who in turn have become more demanding each time that an accord has
to be finalized. Besides, the relation between servicing the debt and current
revenues of between 38.9 percent and 39 percent suggest a deteriorated capacity
to service this debt and thus will increase the risk as realized by the lending
institutions."

Question 1. Specify how the banks have become more demanding with Panama
with each new transaction.

Answer. We have no information as to what Mr. Barletta may have been
referring.

Question 2. What is the average relation between debt service and current
revenues of all debtor countries outside the Soviet bloc ?

Question 3. Name those countries whose debt service percentage is equal to or
greater than Panama's 38.9% to 39%.

Answer. Due to the wide diversity among countries of governmental struc-
tures and budgetary reports, it is not meaningful to provide the international
comparisons which have been requested.

One major problem is that the level of total central government receipts
depends on the division of budgetary responsibility between the central and
local governments for matters such as roads, education, health, and police. Also
many governments own or operate railways, power plants, etc. which in other
countries are in the private sector. Furthermore, budget accounts may be shown
on either a gross or net basis, i.e., receipts before or after deductions of certain
refunds and transfers.

Finally, when figures for different countries are compiled, interest paid on
total public debt is not reported by all countries, and amortization payments
are almost never reported.

Question 4- Detail how Panama's debt service percentage compares to that of
New York City.

Answer. New York City's debt service for its 1978 fiscal year, which ends on
June 30, 1978, is $1.6 billion for its general obligation bonds and $437 million for
bonds issued by the Municipal Assistance Corporation. The City's total expense
budget is $13.8 billion.

It is misleading, however, to compare New York City's debt service on its ob-
ligations (as a percentage of revenues) with other jurisdictions or with Panama
for a variety of factors. One such factor is that debt service on City bonds, which
is $1.6 billion in the current year as noted above and for certain short-term in-
debtedness, is paid out of an unlimited tax on real estate. If the City had no gen-
eral obligation debt, it could not levy or use that portion of the real estate tax
for operating purposes. Thus, the City is not using for debt service revenues
which would otherwise be used for budgetary expenditures.

MAC debt service, however, which is $437 million, is paid out of general fund
revenues.

Question 5. If the present economy of Panama does not improve, can that
country repay interest and principal coming due on loans of the commercial
banks?

Answer. At year end 1976, Panama owed $650 million to commercial banks in
disbursed external debt. Although the Panamanian economy has stagnated dur-
ing the past three years, all debt service payments to the commercial banks are
being made on time. In connection with an IMF stand-by, the Panamanian gov-
ernment has : undertaken steps which will ensure prompt repayment, placed ceil-
ings on the government deficit and borrowing for 1977, and postponed public in-
vestment in order to reduce expenditures. Even if the economic situation does
not brighten immediately, we expect these measures will improve Panama's abil-
ity to service its debts.

At the same time, ratification of the Canal treaties would help to improve the
economic outlook by significantly improving investor confidence.

1 See Appendix I, B (Exhibit 3).

106

Question 6. If Planification Minister Barletta has submitted a similar memo-
randum for 1978, please submit a copy for the record.

Answer. We are not aware of the existence of any such memo for 1978.

Question 7. Specify how Panama's loans have been secured.

Answer. Please see the response to Question 17 concerning the London Times
article.

Question 8. Detail how the annuity and the method by which it is paid to Pan-
ama by the United States relates to payments by Panama on its indebtedness to
U.S. banks.

Answer. In compliance with the provisions of Article XIV of the Convention
of 1903, as amended by Article VII of the Treaty of 1936 and Article I of the
Treaty of 1955, the U.S. pays Panama a yearly annuity of $2,328,200. In 1962, the
Republic of Panama requested and irrevocably authorized the Government of the
United States henceforth to pay from the annual annuity payments the sum of
$500,000 to Chase Manhattan Bank, $1,000,000 and $828,200 to the First National
City Bank of New York as Fiscal Agents for disposition as provided in the Fiscal
Agency Contract between said banks and the Republic of Panama. Remittance
of these checks makes possible annual payments on loans of the Republic of
Panama to U.S. banks.

VIII

The New York Times on February 5, 1974, carried this story datelined Panama
City by H. J. Maidenberg titled, "The Gnomes of Panama are Creating A Mush-
rooming 'Latindollar' Market".

107

The Gnomes of Panama Are Creating
A Mushrooming' Latindollar' Market

By H. J. MAIDENBERG

Sp*cl»l to Tht Nt» York Tlnua

PANAMA CITY— Whether
one's dollars are hc<t or cold,
an increasing number of
friendly bankers in this new
tropical Switzerland are
waiting to receive them —
with interest instead of a
service charge.

Numbered accounts, ordi-
nary deposits or however the
money is designated — its
combined flow here jumped
61 per cent to $2-billio"> by
official reckoning last year.
But many bankers hold that
the total may have been
understated by half.

It is known that the num-
ber of banks here mush-
roomed from only four a few
years ago to 58 at last count,
and the Panama Banking
Commission is constantly
processing new applications.
Of the total banks, 45 are
foreign, and they represent
almost all the leading names
in international banking.

By its hospitality to for-
eign banks, Panama has be-
come the center of the boom-
ing "Latindollar" market.
Bankers here estimate that
the volume of such trading
in the Caribbean Basin may
approach $10-billion, or ,a
tenth of the Eurodollars held
in Europe and other areas.

And if the current talks
between Panama and Wash-
ington over the disputed
Canal Zone are successful,
the Latindollar volume is ex-
pected to soar.

Panama's chronic dispute
over the waterway doesn't
worry the bankers because,
as one explained the other
day: "A few Telex messages
and most of the money could
be out of the country in min-
utes." But he added: "The
solution to the long dispute
over the Zone's sovereignty
would encourage less sophis-
ticated holders of dollars to
bring them here." >

Most of the Latindollars
that flow in and out of Pan-
ama represent dollars owned
by Latin Americans, although
an .increasing number of Eu-
ropeans and v Asians are

bringing their funds here as
well.

A typical depositor could
be a Colombian businessman
who does not want to bother
getting his Government's ap-
proval for funds with which'
to Import goods. Such delays
can be costly. By keeping a
supply of dollars here, he
avoids such expensive red
tape. Seven Colombian banks
operate branches' here main-
ly to serve these business-
men.

And others have untaxed,
illegal or other funds they
Want to hide. However, no
American bank will accept
numbered accounts, which
are illegal in the United
States.

The borrowers of Latin-
dollars may be oil wildcat-
ters financing a venture in
the Persian Gulf or they may
be entrepreneurs buying
goods here that they hope to
smuggle into a Central or
South American country.

Other borrowers, for one
reason or another, will not
or cannot obtain funds from
banks closer to home.

As a ruL, the interest rates
on deposits and loans are set
at one-half to three-quarters
of i percentage point above
the Eurodollar rate on any
given day.

About one-fourth of the
Latindollars reported to be
held by the banking system
here is owned by Panaman-
ians. Although all "paper"
monies used here are termed
balboas, the only legal tend-
er is the United States dollar.
All United States coins and
, their Panamanian equivalents
are widely used here as well.

Panama's traditional wide-
open business climate and
her unusual geographic posi-
tion have long made this na-
tion of 1.5 million a major
trading center for legftimate
and contraband goods. In the
absence of a central bank or
Federal Reserve, the bankers
police themselves under the
watchful eyes of the State
Banking Commission, upon
whose board many of them
sit.

However, the rapid growth
of the banking community is
a result of the currency con-
trols that have been imposed
in most Latin American coun-
tries. In South America, for
example, only Venezuela and
Paraguay permit the free en-
try and exit of dollars.

Basically, the banks here
are divided into three groups.
Most hold Class 1 licenses,
which e*nable them to engage
in all lines of banking. About
a dozen, including the Swiss
Bank Corporation, have Class
2 permits that restrict them
to non-Panama or offshore
operations. And three have
Class 3 licenses — Banque Na-
tional de Paris, the Korea
.Exchange Bank and the Ma-
rine Midland Bank of New
York — that allow them to
maintain a representative of-
fice that refers business to
their headquarters.

Panama's banking com-
munity has benefited not only
from the nervousness sweep-
ing European and Asian
money markets, but also
from the growing national-
istic fevers in many Carib-
bean islands. These tradition-
al havens for legal and illegal
money are now growing
hostile to foreign banks.

The foreign bankers have
contributed to the current
building boom here as bank
buildings have sprouted
around the city and have
helped provide jobs and busi-
ness loans. , t

The First National City
Bank of New York, recently
raised $1 15-milIion to help
refinance Panama's foreign
debts. And the Chase Man-
hattan has financed low-cost
public housing and other
needed social improvements.

All told, banking is fast
becoming Panama's ■ long
sought economic catalyst.

25-605 O - 78 - 8

108

Question 1. Does Treasury think, as the writer indicates, that the combined
flow of dollars to Panama banks is actually double what is reported?

Answer. Published data on capital flows to Panama are presented in terms
of net flows or in terms of changes in assets and liabilities. Data are not available
on gross flows. Thus the Treasury is not in a position to evaluate the accuracy
of the writer's statement. The most recent data on bank flows to Panama are
contained in the answer to Representative Snyder's third question relating to
the London Times article.

Question 2. The article indicates that seven (at that time) Colombian banks
operate in Panama to aid Colombian businessmen who want to avoid red tape of
their own country's government regulations on business. How does this serve
the best interest of the Colombian government and the people as a whole?

Question 3. What is the attitude of that government towards this practice?

Answer. These questions were checked with the State Department and neither
Treasury nor State has any information on the operation of Colombian banks
in Panama. We are therefore not in a position to provide an informed answer
to these questions.

Question 4- What other nations' banks have been set up in Panama for sim-
ilar purposes and what is the attitude of those nations' governments?

Answer. The Treasury and State Departments do not have information on
banks of third countries set up in Panama "to avoid red tape of their own coun-
try's government regulations on business," and cannot comment on the attitude
of their governments.

Question 5. The article states "the borrowers . . . may be entrepreneurs buying
goods here that they hope to smuggle into a Central or South American country."
Is the U.S. another destination?

Question 6. Since, as Maidenberg states, "Panama's traditional wide-open busi-
ness climate and her unusual geographic position have long made this nation of
1.5 million a major trading center for legitimate and contraband goods,"

(a) List the major items of contraband known over the years to have been
smuggled in and out of Panama.

(b) Cite those, and their estimated annual amounts, destined for the U.S.
Question 7. What role has the Panama Canal played in contraband traffic to the

United States?

Answer. We will attempt to respond to these questions for the record as soon

as possible.

[Subcommittee note : Answers to Question 5, 6 and 7 were not forthcoming. See
Appendix D, cover letter.]

Murray N. Rothbard, Professor of Economics at the Polytechnic
Institute of New York, wrote an article in "Inquiry" dated Decem-
ber 5, 1977, entitled, "The Treaty that Wall Street Wrote".

The Treaty that Wall Street Wrote

(By Murray N. Rothbard)

If You Think the New Panama Canal Treaty Means an End to the Big
Stick and Dollar Diplomacy — Think Again

The Panama Canal question has already established itself as the hottest
political issue for the coming year. Ronald Reagan, who almost rode to the
Republican nomination last year on a promise to keep the canal, is back again,
leading the powerful forces opposing the new Carter treaties with the government
of Panama. Alert to the polls that show Americans overwhelmingly opposed to
giving up the canal, the Republican National Committee and most Republicans
across the country have gleefully seized upon this issue, thus going flatly against
the counsel of former President Ford, who vigorously supports the treaty.

In the liberal and "moderate" press, the contending forces are lined up in an
all-too-familiar morality play. Opposed to the treaty are reactionaries and jin-
goists, emotionally and irrationally devoted to the mystique of American "sov-
ereignty" in a foreign land ; in its favor are sensible and moderate international-
ists, people who believe in friendly cooperation between the United States and
Third World nations, and who wish to jettison the last remnants of a naive
and outdated American imperialism left over from the innocent if clumsy swag-
gering of Theodore Roosevelt. What could be a more clear-cut moral lineup : for

109

the treaty all the Good Guys, from Carter to Ford to the New York Times
and the Washington Post ; against, all the certified Bad Guys from Reagan to the
American Conservative Union to the John Birch Society ?

But you can't always tell all about the game from a list of the players ; and
there is more to be said than the standard account in the Establishment media.

The Reaganite bluster about sovereignty can easily be dismissed; there is,
however, a more important question about the new Panama treaty : Does it really
abandon U.S. imperial domination of the canal and the Canal Zone? Does the
treaty really turn this area of Panama back to the Panamanins? If we consider
the treaty in the light of these questions rather than in relation to jingoist
notions, we will come up with a very different view of the big political issue of
the year.

Particularly revealing are the statements of high American officials and other
advocates in assuring the American public of the fallacy of right-wing fears about
the treaty. Thus, Henry Kissinger announced his "strong view" that the treaty
"is in the national interest of the United States." Kissinger went on to explain
that "the new treaty marks an improvement over the present situation in that
it assures continuing, efficient, nondiscriminatory, and secure access to the Pan-
ama Canal with the support of the countries of the Western Hemisphere instead
of against their opposition and eventually their harassment." (New York Times,
August 18, 1977. ) In short, it is better to stay in more subtly and induce Panama
and the rest of the world to support our dominion, than to stay in nakedly and
face the hostility of the Panamanians and most other nations.

In his public statement announcing the agreement on the basic elements of
the Panama treaty, President Carter stressed that he and the Joint Chiefs of
Staff agreed that the pact will be "important to our long-term national interests."
Specifically, the United States will formally continue in charge of the canal until
the year 2000 : "We will have operating control and the right to protect and de-
fend the Panama Canal with our military forces until the end of the century." But
even after that, "we will have the right to assure the maintenance of the perma-
nent neutrality of the canal as we may determine necessary. Our warships are
guaranteed the permanent right to expeditious passage without regard to pro-
pulsion or cargo." (New York Times, August 13, 1977.) Or, as the Carter admin-
istration's summary of the Panama agreement put it: "The U.S. will have the
permanent right to defend the neutrality of the canal from any threat, for an
indefinite period." President Carter himself has stated flatly, "If it is attacked
by any means, I will defend it" He has assured the public that "if we ever have
to go into Panama, there will be no legal question under these treaties." (Los
Angeles Times, October 23, 1977.) In short, there are no limits in this treaty on
the actions that the United States will be able to take, even after the year 2000,
to preserve what it deems to be the "neutrality" of the canal. 1

Thus, in exchange for the mystique of sovereignty and formal national owner-
ship, the United States has acquired the agreement of the Panamanian govern-
ment in its perpetual ultimate control of the canal. Or, as Ellsworth Bunker, one
of the two American negotiators of the treaty — the other was Sol Linowitz —
admonished the critics: "It is not ownership but use that is important." He
could have added the fact that ability to use and control property is precisely the
function of ownership. 2

When the new treaty was announced, Bunker and Linowitz spelled out one of
its major advantages to U.S.. dominion. As the August 13 New York Times
phrased it, Bunker and Linowitz "said they thought that continued operation
of the canal was threatened more by possible Panamanian sabotage or disorders
that might follow a failure to carry out the agreement than by external threats
that they asserted the United States would be free to curb."

But particularly fascinating is the argument on behalf of the Panama treaty
by the most sophisticated of American conservative organs, National Review.
National Review begins its editorial by assuaging the hurt to the "national pride"

1 For a confirming view, see the report on the broadcast by Sol Linowitz over the Voice
of America, in Harry B. Ellis, "Carter Still Presses for Canal Treaty," Christian Science
Monitor, August 31, 1977.

2 Actually, it is unclear that even our existing status in Panama is one of sovereignty
and ownership over the Canal Zone. The 1903 treaty with Panama merely grants to the
United States "in perpetuity the use, occupation, and control of a zone. . . ." The Supreme
Court of the Canal Zone on May 6, 1907, in the case of Canal Zone v. Coulson, ruled, quite
in the spirit of the treaty, that "the United States is not owner in fee of the Canal Zone ; it
has only the use and occupation as long as it complies with the terms of the treaty." It is
true, however, that the U.S. Supreme Court chose to disregard such limits in the same year,

asserting fhat "the title of the United States to the Canal Zone is not imperfect. . . ."
(Wilson v. Shaw.)

110

of conservatives, and assuring their conservative followers that it understands
their "soul-searing" pain. Then, NR proceeds to instruct its constituency in the
realities of today's world. "Conservatives are realists, and here is a test of
realism." Specifically, and echoing Kissinger, Linowitz, and Bunker, NR points
out that "our own military men support the treaty on the ground that the canal
can be better defended with the treaty than without." First of all, under the new
treaty Panama agrees that the United States may continue to use its air and sea
forces to defend the Panama Canal against an external attack. NR then turns
to the "most realistic kind" of military threat to U.S. rule over the canal, namely
"guerrilla warfare, and defense against that is very difficult under any circum-
stances." And then NR adds the clincher : "One thing is sure — it could be done far
better together with Panama than without it ; or worse, against it." In short, the
Panamanian government would now be ranged against such guerilla warfare
rather than overtly or covertly supporting it.

Addressing a common fear of the treaty critics, NR supposes that Panama
violates the treaty. In that case, the magazine concludes, "we will still be in a
position to act if and when necessary. And what is most important, we would
almost surely be in a stronger position to act at some later time in response to an
actual threat or violation of the treaty than we would be now in defense of our
own refusal to ratify." ("The Proposed Treaty : Preliminary Thoughts." National
Review, September 2, 1977.) In other words, far better for the United States
to exercise its power in defense of a treaty — and therefore in command of wide
international support — than in isolation after refusing to ratify.

In a similar vein, Carter's national security adviser, Zbigniew Brzezinski,
told a White House meeting of prominent Georgians and Floridians that "if he
were in the Kremlin and he could think of anything that . . . might alienate
countries against the United States even further, it would be defeat of these
treaties." (Don Irwin, "Rusk Sees Chance of War in Panama," Los Angeles
Times, August 31, 1977.)

A common conservative charge is that the treaty will hand over the canal to a
"Communist" Torrijos regime in Panama. Far from being a "Communist," how-
ever, General Torrijos is in hot water in his own country, especially among the
antiimperialist critics on the Left. 3

Panamanian newspapers were highly reluctant to reveal to their readers
the details of the agreement with the United States. The New York" Times
reported that "rather than expressing joy at the culmination of the long negotia-
tions, most Panamanians appeared today to be uncertain and confused. . . ."
Addressing a meeting of the Panamanian Student Federation, that country's chief
negotiator of the agreement, Dr. Romulo Escobar Bethancourt, admitted that
many aspects of the treaty were "bad" and even "ugly" ; in defense, Escobar
demagogically posed the only alternative to the treaty as a "confrontation"
with the United States and the "massacre of the best of our youth."

The Panama government announced its intention to hold an early national
plebiscite to decide on ratification of the treaty, but it is clear that the plebiscite,
which endorsed the treaty by 2 to 1, was held in the midst of a propaganda
campaign branding any criticism of the treaty as "treason against our father-
land." More important, it was held while many of the leading opponents of the
treaty were languishing in exile. For, over the past three years, the Torrijos
regime has systematically deported its most outspoken critics, including likely
opponents of the new treaty, to Miami, Mexico, and Venezuela. (New York Times,
August 11.)

Indeed, one of the major unsuccessful demands of the Panamanian Left was
that Torrijos keep his promise to declare a general amnesty for political pris-
oners, and that he allow all the exiles to return to Panama and challenge the
treaty. In the light of this situation, it must be considered a joke in questionable
taste for Dr. Escobar to condemn the Panamanian exiles in Miami for urging
U.S. senators vote against the treaty. Obviously, a simple way for Panama to
put a stop to this activity would be to allow the exiles to return to their Panama-
nian homeland.

'The other major charge by the Right is that Torrijos is a "dictator." This is true
enough, but the charge comes with peculiar ill-grace from a movement that has expressed
its devoted admiration for every dictatorial and fascist regime in the world, from South
Africa to Chile, South Korea, and the Philippines.

Ill

Moreover, a full and fair debate over the plebiscite was precluded by the
Torrijos regime's iron control of the media. Every one of the newspapers and
television stations is owned or controlled by the government, and the radio
stations are also effectively ruled by the regime.

Press censorship and restrictions on public assembly were officially lifted
during the 40 days prior to the plebiscite, but Torrijos refused to grant any addi-
tional time for public debate. As Marlise Simons reported in the Washington
Post of October 13, "Officials say that Panamanians know enough about the
treaties and only troublemakers want more time."

Mounting criticism of the treaty has come from conservative as well as leftist
critics of the Torrijos regime. The conservative Movement of Independent Law-
yers of Panama has denounced the treaty for approving the "first American
intervention in our country of the twenty-first century." The MILP went on to
assert that "the ordinary Panamanian will easily understand that . . . there will
be a new version — perhaps slightly less grotesque than before — of the hated
American perpetuity on the canal issue. Both the Christian Democratic and
Social Democratic parties also came out against the treaties, "pointing out that
in 1926 and again in 1947, Panama had rejected drafts attempting to legalize
the U.S. military bases [there]." (Washington Post, October 13.) And Panama's
Trotskyist Revolutionary Socialist League made the significant statement that
the present would be a particularly auspicious time to confront American Im-
perialism : "Today we have the eyes of the world on us, today we have inter-
national support, today imperialism has been weakened by Watergate and
Vietnam." (New York Times, August 11.)

On September 6, the Panamanian Left made known its displeasure with the
treaty; 1500 students demonstrated in Panama City against the "dirty treaty"
and its provisions for maintaining American military bases and perpetual rights
of American intervention. The protest was stamped out by Torrijo's National
Guard, which injured dozens of demonstrators and arrested over 30 students.

If the Panama treaties merely provide a sophisticated fig-leaf for continued
American domination of the canal, why then did the Torrijos regime sign the
accord, in face of the domestic troubles that would predictably ensue? One
answer to this question might be that venerable motive, money — a vital aspect
of the treaty is U.S. agreement to sugarcoat the pill by multiplying many fold
the annual revenues going into the coffers of the Panamanian treasury. Cur-
rently, the U. S. government pays $2.3 million a year to Panama for use of the
canal. The treaty proposes to increase this amount by giving Panama $0.30 per
ton out of the current canal toll of $1.29 per ton. With corrections for inflation,
this share is expected to amount to a revenue of $40-$50 million per year. In
addition, operational revenues will be paid for such services as ship repair and
dockage ; this is expected to amount to $20 million per year.

But this is far from all. The United States also pledges to undertake a five-year
program of supplying financial goodies to Panama: $200 million of Export-
Import Bank credits ; $75 million in Agency for International Development hous-
ing credits ; and $20 million in loan guarantees from the Overseas Private Invest-
ment Corporation. This amounts to a five-year boodle of nearly $300 million,
which, added to $70 million per annum, makes a handsome subsidy package, and
perhaps worth the risk of a few student demonstrations.

Apparently, the Carter administration feels that it cau sell this package to
the American public with the argument that none of this money will come di-
rectly out of taxes ; the annual sum will initially come out of the toll revenues of
the U.S. -government-owned Panama Canal Company, and later out of the budget
of the new, frankly governmental American agency which is scheduled to replace
the Panama Canal Company in running the canal. The five-year plan, too, con-
sists of loans and loan guarantees. While all this is ultimately guaranteed by
the U.S. taxpayer, the subsidy package, being long-run and indirect, might be
slipped by the American taxpayer without causing an outcry.

Focusing on the money enables us to ponder the seemingly curious phenomenon
that American big business, unlike our conservative ideologues, is overwhelm-
ingly in favor of the Panama treaty. The advocates include such influential
business leaders as Irving S. Shapiro of du Pont, head of the Business Round-
table, and such groups as the National Association of Manufacturers. One gen-
eral reason for this support is that these sophisticated business groups under-
stand and welcome the treaty as a more subtle and acceptable form of American

112

imperialism. iA more specific reason is the effect the treaty will have for those
firms with trade and investment in Latin America. Rejection of the treaty might
mean anti-U.S. unrest throughout the region and might have a "destabilizing"
effect on American investments there. Private U.S. investment in Latin America
is estimated at .$24 billion, while total two-way U.S. trade there amounted to
$34 billion in 1976. As John M. Goshko reported in the August 22 Washington
Post:

"These economic factors could produce some startling surprises about where
different interest groups line up in the battle.

"There is the strong likelihood that the normally conservative, Republican-
leaning business establishment will be solidly on the side of a Democratic
president. . . .

"Where the business community is concerned, Carter administration strate-
gists contend, the case for supporting the treaties seems ironclad. In fact, the
administration privately is counting on big business to provide some potentially
crucial help in getting the treaties past the hurdle of Senate ratification."

Already, Henry R. Geyelin, president of the Council of the Americas, a non-
profit business association comprising every major U.S. firm doing business in
Latin America, has testified in behalf of such a treaty before the House Panama
Canal Subcommittee.

But explanations in terms of groups or classes are never as rewarding as the
concrete unveiling of specific monetary interests. Thus, there needs to be further
investigation of which U.S. business or financial groups might be benefiting
specifically from the hundreds of millions of dollars that the U.S. government
will be pouring into Panama. One clear group of beneficiaries is the American
exporters who will receive orders from the $300-million package. U.S. foreign
aid is a clever mechanism by which American taxpayers and the U.S. govern-
ment subsidize American export firms : The dollars are extracted from the tax-
payer and are then funneled by the U.S. government to the foreign recipients,
who in turn spend the dollars on American exporters. In this case the process is
clear: The Panama treaty explicitly applies "Buy American" provisions to the
aid, making sure that the lAmerican exporters receive the dollars as rapidly as
possible.

But there is another use that the Panamanian government will have for the
U.S. aid, one that may prove to be a more intimate lead to the underlying reason
for concluding this treaty. Panama is heavily in debt to U.S. banks, and the
influx of hundreds of millions of dollars will certainly ease its burden in paying
the interest and principal on the debt ; it may even save Panama from bank-
ruptcy — and the American banks from severe embarrassment. We must there-
fore contemplate the possibility that the nub of the Panama treaty is a covert
bail-out operation, by which the American taxpayer is being gulled into sub-
sidizing, and even salvaging, a handful of U.S. banks.

This suggestion does not seem very outrageous if we consider the history of
how the United States got involved with the Panama Canal in the first place.
It's not just, as Senator Hayakawa (R.-Cal.) said, that "we stole it [the canal]
fair and square." Or that President Theodore Roosevelt engineered a phony
"revolution" in 1903, by which employees of the American-owned railroad de-
clared the Panama section of Colombia independent and American ships pre-
vented Colombia from putting down the rebellion. The similarity with the present
theme comes from the hidden motive behind Teddy Roosevelt's flamboyant
actions.

In order to build the canal, the United States felt that it had to purchase the
right to do so from the bankrupt French-owned company that had failed in its
attempt to dig the canal. Teddy Roosevelt explained that he acted out of indig-
nation at the Colombian government's insisting on a $10-million "holdup" of
American taxpayers for the right to build a canal in Panama. Actually, the U.S.
government was perfectly willing to pay $40 million to the French Panama Canal
Company. The $10 million to Colombia would have come, not from the taxpayers,
but out of the $40-million cut going to the French company.

Why, then, did Teddy Roosevelt swing the big stick and foment a phony
revolution in Colombia, in order to save $10 million for the coffers of a bank-
rupt French-owned company? The answer, which came out years later, is that
the "French" company was French no longer : its shares had been secretly
bought up shortly before by a syndicate of Wall Street bankers, headed by J. P.

113

Morgan and Company. The syndicate hired the eminent Wall Street lawyer,
William Nelson Cromwell, to get the American money, and it was Cromwell,
sitting in the White House itself, who wrote TR's dispatches and orders, and
engineered the entire operation. After the syndicate got the $40 million, they
were able to sell their shares to the U.S. government for twice what they had
paid.

Moreover, one of the syndicate members was none other than Teddy Roose-
velt's brother-in-law, Douglas E. Robinson. Not only did Robinson benefit as a
syndicate member, but most of the $40 million from the U.S. taxpayers was
funneled by Cromwell into the New York real estate firm of the same Douglas
Robinson.

And so we should not be surprised to discover that U.S. government action
in Panama today is for the purpose of subsidizing the Wall Street bankers.
Judging from the facts available to us, the current treaty may well be a rerun
of the original bail-out.

Commercial banks refuse to make public the details of specific loans, like
those to Panama, and the Panamanian government is not exactly generous with
such information, either. However, some broad information is available. When
General Torrijos seized power in the 1968 coup, Panama's national debt abroad
was $167 million; its estimated total current debt is more than $3.5 billion.
More pertinently, the total debt of the Panama government to U.S. banks is
reported by the Library of Congress at $1.7 billion. In a memorandum to the
president of Panama, the Department of Planning stated that no less than 39
percent of Panama's budget is being used to service its foreign debt, which
amounts to $42 million per year and includes $25 million in interest and $17
million in amortizing principal.

Leading the parade of American banks involved in Panama are the First
National City Bank and the Chase Manhattan Bank, the flagship bank for the
far-flung Rockefeller financial interests. Both of these banks serve as fiscal
agents for the government of Panama. In one advertisement for a $115-million
loan to Panama, for example, the First National City Bank is listed as the agent
for the loan. Other participating banks included the Bank of America. Bankers
Trust, Chase Manhattan, the First National Bank of Boston, the First National
Bank of Chicago, the Republic National Bank of Dallas, and the Marine Midland
Bank.

We might well ask, Why did the New York banks pour all these loans into
Torrijos' Panama? It seems clear that the money was a quid pro quo for Tor-
rijos' decision — on the advice of leading New York banks — to reorganize
Panama's banking laws in July 1970. This reorganization provided a favorable
haven, free of taxes and onerous regulations, for foreign banks in Panama, much
as Panama has long provided a flag of convenience for world shipping. Since
the 1970 legal change, total banking assets in Panama have expanded enormously
from a few banks with a few million dollars to 73 banks with total assets of
$8.6 billion, conducting transactions throughout the world. Prominent among the
U.S. banks expanding rapidly in Panama since the 1970 legislation are the First
National City Bank, the Bank of America, Chase Manhattan, and the Marine
Midland Bank.

It was a deal that benefited the U.S. banks and the Torrijos regime, which
could thereby expand its wealth as well as its political power in Panama. But
now the U.S. taxpayer is being subtly asked to pick up the tab.

If a handful of large U.S. banks will be the major beneficiaries of the Panama
Canal treaty, have they also had any role in lobbying for or negotiating the
treaty itself? Or will their gains be merely a lucky windfall from decisions made
by the U.S. government for very different reasons? Let us see. While the treaty
was being negotiated, then-Senator Gale McGee (D.-Wyo.), one of the leading
protreaty people in Congress, held a meeting at the State Department at the end
of October 1975 to organize a protreaty lobby. In attendance were lobbyists for
the Chase Manhattan Bank, the Bank of America, such large corporations as
Gulf Oil and Rockwell International, as well as representatives of the Council
of the Americas. A campaign kitty was raised at that meeting, estimates of the
size ranging from $100,000 to $500,000. Subsequent meetings brought in lobbyists
for other large banks and corporations, including Pan American World Air-
ways. Plans wpre made at the«e me^tiners to j>rpssnre the U.S. Chamber of Com-
merce into supporting the fufurp treaty. (See Russell W. Howe and Sarah H.
Trott, The Power Peddlers, Doubleday, p. 123. )

114

who's who for the canal tbeaty

On November 1, the New York Times carried a large advertisement paid for by
a group called the Committee of Americans for the Canal Treaty, Inc. The follow-
ing is a partial list of the 200 prominent Americans whose names appeared as
members of the Committee, along with pertinent associations :

Stephen Ailes — lawyer ; director of Riggs National Bank.

Hoyt Ammidon — U.S. Trust Co.

Robert O. Anderson — Atlantic Richfield Co.

George W. Ball — investment banker ; Lehman Bros.

Robert S. Benjamin — lawyer ; director of Transamerica Corp.

Eugene Black — former president of the World Bank.

Shirley Temple Black — former Ambassador to Ghana ; director of Del Monte

Corp.

William McC. Blair, Jr. — investment banker, William Blair Co.

William Boeschenstein — Owens-Corning Fiberglas Corp.

Edgar Bronfman — Distillers Corp. — Seagrams Ltd.

John W. Brooks — Celanese Corp.

Philip Buchen — counsel to President Ford.

Henry Catto, Jr. — former U.S. Chief of Protocol.

Gardner Cowles — Cowles Communications, Inc.

J. Dewey Daane — Commerce Union Bank.

Richard Debs — Federal Reserve Bank of New York.

C. Douglas Dillon — Rockefeller Foundation; director, Dillon, Read & Co.,;

Secretary of the Treasury for Presidents Kennedy and Johnson (1961-1965).
Thomas K. Finletter — former Secretary of the Air Force.
Max Fisher — Manufacturer's National Bank of Detroit.
Peter Flanagan — investment banker, Dillon, Read & Co.

Michael V. Forrestal — Wall Street lawyer ; formerly on White House National
Security Staff.

Henry H. Fowler — investment banker, Goldman, Sachs & Co. ; former Secretary
of the Treasury.

J. Wayne Fredericks — Ford Motor Co.

Orville Freeman — Business International Corp. ; former Secretary of
Agriculture.

Richard M. Furlaud — Squibb Corp. ; American Express Co. ; Chase Man-
hattan Bank.
W. L. Hadley Griffin— Brown Shoe Co.
Armand Hammer — Occidental Petroleum Corp.

W. Averell Harriman — Brown Bros., Harriman & Co. ; former presidential
adviser, Ambassador, Secretary of Commerce, and Governor of New York.
Ben Heineman — First National Bank of Chicago.
Andrew Heiskell — chairman of the board, Time, Inc.

Robert H. Knight — Wall Street lawyer, former Deputy Assistant Secretary
of Defense.

Arthur Krim — United Artists Corp.

R. Heath Larry— U.S. Steel.

Harding W. Lawrence — Braniff Airways.

Henry Cabot Lodge — former U.S. Ambassador to UN.

John Loeb — investment banker, Loeb, Rhodes & Co.

Peter Loeb — investment banker, Loeb, Rhodes & Co.

John H. McCloy — Wall Street lawyer; former chairman of the board, Chase
Manhattan Bank.
C. Peter McColough — Xerox.
George Meany — president, AFL-CIO.
G. William Miller — Textron.
J. Irwin Miller — Cummins Engine Co.
Paul Nitze — former Deputy Secretary of Defense.
General Lauris Norstad — former Commander of SHAPE.
Jane Cahill Pfeiffer— IBM.

Peter G. Peterson — investment banker, Lehman Bros. ; former Secretary of
the Treasury.
David Reynolds — Reynolds Metals Co.

General Matthew Ridgway — former Chief of Staff, U.S. Army.
David Rockefeller — Chase Manhattan Bank.
Nelson Rockefeller.

Robert Roosa — Brown Bros., Harriman & Co.

115

Franklin D. Roosevelt, Jr.

Theodore Roosevelt IV — investment banker, Lehman Bros.
Walt Whitman Rostow — former national security assistant to President
Johnson.

Arthur Schlesinger, Jr. — former special assistant to President Kennedy.
Benno Schmidt— J. H. Whitney & Co.

Irving Shapiro — du Pont ; director, First National City Bank.
George P. Shultz — Bechtel Corp. ; director, Inter- American Development Bank ;
former Secretary of the Treasury.
Arthur Taylor— CBS.

General Maxwell Taylor — former Chairman, Joint Chiefs of Staff.
Walter Thayer — Whitney Communications Corp.

Alexander Trowbridge — Allied Chemicals Corp. ; former Secretary of Com-
merce.

Lew Wasserman — MCA, Inc.
James Wilcock — Mellon Bank.

The influence of the bankers and the corporations, however, has been even
more direct. When Carter took office he appointed the dynamic and highly influ-
ential Sol Linowitz, former ambassador to the Organization of American States
and long an advocate of a new treaty, to join the octogenarian Ellsworth
Bunker on the Panama Canal negotiating team. Bunker himself is a former
director of Bankers Trust, and his brother, Arthur Hugh Bunker, is a longtime
director of Lehman Brothers.

Linowitz's connections are more numerous and impressive. He is a member of
the powerful Council on Foreign Relations, which is dominated as well as chaired
by David Rockefeller, who is also chairman of the Chase Manhattan Bank. More-
over, Linowitz is a member of the exclusive and now-famous Trilateral Com-
mission, which was founded and is dominated by David Rockefeller and which
includes so many foreign-policy and economic-affairs leaders of the Carter admin-
istration — from Carter himself to Vice President Mondale, Secretary of State
Cyrus Vance, and National Security Advisor Brzezinski. In addition, Linowitz
is a trustee and former chairman of the policy committee of the Center for
Inter-American Relations, an organization founded and chaired by David Rocke-
feller, whose directors interlock heavily with the Council for Foreign Relations.
Linowitz was also a member of Nelson Rockefeller's personal vehicle for his
abortive presidential run, the National Committee on Critical Choices for Ameri-
cans. As a member of the board of directors of Time, Inc., Linowitz also wields
a degree of influence on the media.

Even more pertinently, upon his appointment as negotiator of the canal trea-
ties, Sol Linowitz was a member of the board and the executive committee of
Marine Midland Bank and of Pan Am. He was also a large stockholder in
Marine Midland. The Marine Midland connection is clear and direct; for, as
Congressman George Hansen (R-Idaho) has disclosed, the government of
Panama owes Marine Midland Bank nearly $8 million. Furthermore, it was only
after Hansen and Senator James McClure (R-Idaho) fiiled suit on April 20 for
a temporary restraining order against Linowitz as canal negotiator, that Linowitz
finally resigned his positions with Marine Midland. The suit sought the restrain-
ing order on the ground of conflict of interest on the part of Linowitz, at least
until this presidential appointment should be confirmed by the Senate.

Linowitz, however, insisted on keeping his high positions at Pan Am while
negotiating and arguing on behalf of the canal treaty. Pan Am's connection,
while intriguing, does not seem as direct as Marine Midland's. Pan Am has for
decades been within the Rockefeller financial ambit, as is indicated by James
S. Rockefeller's presence on the airline's board of directors. Other directors are
Frank Stanton of CBS and Donald Kendall of Pepsico, both of whom are direc-
tors at Atlantic Richfield Company, whose president, Robert O. Anderson, is a
member of the board of Rockefeller's Chase Manhattan Bank. Until he became
secretary of state, Cyrus Vance was also a director of Pan Am. While too much
should not be made of a list of corporate interconnections, the above establishes
a clear pattern of Linowitz-Rockefeller commonality of interest and action.

We have already seen that Pan Am participated in the McGee-organized cor-
porate lobbying in favor of a Panama treaty. What does Pan Am have to gain
from Torrijos? One obvious benefit is the protection of the company's landing
rights in Panama. It just might be important that Panama serves as Pan Am's
headquarters for Latin America.

One of the most important influences in the drive toward a treaty was the new
Washington-based Commission on U.S.-Latin American Relations. The commis-

116

sion was organized in 1974 by the Center for Inter-American Relations and was
largely financed by Ford Foundation and Rockefeller funds. Its chairman until
recently was Sol Linowitz, with Dr. Robert A. Pastor serving as the staff direc-
tor. Other members of the Linowitz Commission included such influential Tri-
lateral Commission members as W. Michael Blumenthal, who is now secretary
of the treasury ; Samuel P. Huntington, now an aide to the National Security
Council ; Peter Peterson, chairman of Lehman Brothers ; and Elliott Richardson.

In December 1976, Pastor wrote a report for the Linowitz Commission, urging
a new treaty and substantial funds for Panama; the Council on Foreign Rela-
tions promptly held a special colloquium on the subject and endorsed the Lino-
witz Report. The next month, Brzezinski, national security adviser to Carter,
appointed a special assistant on the Panama question, who turned out to be none
other than Dr. Robert Pastor.

Without delay, Pastor drew up a National Security Council memorandum
recommending a new Panama Canal treaty. The paper was approved by Brzezin-
ski, and then, after checking with longtime Nelson Rockefeller foreign policy
aide Henry Kissinger, endorsed by Carter. As the culmination of the Linowitz-
Rockefeller drive, Linowitz then got himself appointed negotiator for the new
Panama treaty.

There are several ironies that emerge from a careful look at the Panama Canal
treaty fight — especially the picture of this country's liberals and progressives
battling to pour money into the coffers of a handful of Wall Street banks in the
name of a treaty they mistakenly believe represents a withdrawal of U.S. power
abroad. It doesn't, and those who automatically oppose anything the right wing
favors, need to do some hard rethinking of their reflexive support for the new
Panama Canal treaties.

Questions 1 and 2 were referred to the State Department, which provided the
following responses :

Question 1. In view of the former banking connections of Ambassadors Ells-
worth Bunker and Sol Linowitz, please submit the following information :

(a) The involvement of Marine Midland Bank and all its branches, subsidi-
aries, and affiliates in loans to the Republic of Panama.

( b) The same for Bankers Trust.

Answer. Ambassador Bunker has no connection with any of these banks.
Ambassador Linowitz has no connections with Bankers Trust or Lehman
Brothers. His connections with Marine Midland Bank and its involvement in
Panama are detailed in the attached extracts from the Congressional Record of
March 10, 1977. (Attachment provided in Question 5, Twin Circle Series of
questions.) 1

Question 2. Would the connections with banking and other corporate interests
in Panama this article shows Sol Linowitz to have had, have made his confirma-
tion by the Senate as Ambassador and treaty negotiator much more difficult —
perhaps explaining why President Carter appointed him for a limited six-month
period instead ?

Answer. No. See the extract from the March 10, 1977 Congressional Record.

Question 8. Do any American banks, even if they are not themselves operating
in Panama, hold majority ownership in any corporation (») presently operating
in Panama or (b) that has indicated plans to operate in Panama which stands
to profit from the economic package being offered Panama in connection with the
treaties?

Answer, (a) Treasury knows of no public sources which describe ownership in
U.S. banks of corporations operating in Panama, and is precluded by statute
from disclosing such information as it may have on this subject that has been
furnished by individual taxpayers. We wish to note, however, that several
statutes, including the Bank Holding Company Act, severely restrict the ability
of banks (themselves or through subsidiaries) to engage in non-financial
activities.

(b) We have no knowledge of any company, including subsidiaries of U.S.
banks, that plans to establish a new subsidiary to operate in Panama in order to
benefit from the economic cooperation package. We do expect that American
exporters and perhaps investors will benefit from the economic cooperation

package.

1 See Appendix I, A (Exhibit 2)

117

HI Question 4- In view of the implications of this article, will you please provide
tg a list of leading American international bankers who have publicly announced
t- their opposition to the treaties. Please submit copies of their statements, adver-
i tisements, or the like.

7 Answer. This information is not compiled in either the Treasury Department
r or the Department of State.

Hi Question 5. Professor Rothbard says, "We must therefore contemplate the
z possibility that the nub of the Panama treaty is a covert bail-out operation, by
li which the American taxpayer is being gulled into subsidizing, and even salvaging
> a handful of U.S. banks." If you disagree wtih this statement, please explain
r ( thoroughly why this possibility is not true,

e Answer. The Treasury Department does not agree with this allegation, which
is not substantiated by any evidence. The payments provisions of the Treaty
tt were intended not as a means of financing Panama's debt service obligations but
rather as a means of assuring that Panama would receive "a just and equitable
return on the national resources which it has dedicated to the efficient manage-
ment, operation, maintenance, protection, and defense of the Panama Canal"
; (see Article XIII of the proposed Panama Canal treaty). The sums Panama
will receive under the treaties will come from Canal operating revenues. Con-
I cerning the economic cooperation arrangements, which are separate from the
i treaty, the proposed U.S. assistance to Panama will be in the forms of guarantees
! and non-concessional loans which will be repaid with interest. The largest compo-
• nent of the arrangements consists of Export-Import Bank loans, loan guarantees,
and insurance. The funding for these Export-Import Bank programs is provided
not by tax revenues but by reflows on outstanding loans, borrowing from the
Federal Financing Bank, and various fees charged by the Bank.

Question 6. Submit for the record detailed information on the severe losses
suffered by Bankers Trust Company (of which Ellsworth Bunker is supposed to
have been a former director), Chase Manhattan, First Chicago, and City Corp.
around 1974 and 1975.

Question 7. Submit information on similar losses, if any, suffered by other
banks which have operations in Panama.
Answer. The Annual reports of most U.S. banks generally contain data and a
, discussion of their loan loss experience. If possible, we will forward to the Sub-
committee as soon as possible any information contained in the Annual Reports
of the banks named concerning loan losses.
See Appendix C.

Question 8. At the respective times of failure of the Franklin National Bank
and the United States National Bank of San Diego, it was rumored that the Fed-
eral Reserve System supplied rediscount services in sufficient amounts and for
enough period to enable most or all holders of large certificates of deposit to run
off their deposits. It is certainly true that the Fed in each case purchased large
amounts of paper, for the purpose of permitting time for an orderly disposition
of affairs so as to protect all depositors. Congress only intended that deposit in-
surance should be available to domestic depositors, and then only to a maximum
of $40,000 per account.

Therefore, the question arises as to whether the Fed has effectively acted as
insurer of last report for larger deposits than contemplated by Congress, in the
pursuit of its essential objective of being lender of last resort and supplier of
liquidity to the banking system as a whole. Looking to the future, we can imag-
ine a similar situation arising in the event of widespread defaults on loans to
less developed countries. If the loans are made in or through "off-shore" banking
centers, such as Panama, the possible problem might be larger or smaller than
might be indicated on the face of the banking ledgers. Relevant to this situation,
kindly respond to the following questions :

(a) In the event of serious political instability in the Republic of Panama,
what would be the net exposure of U.S. banks to losses in their loan portfolios?

(b) Is such exposure sufficiently covered by loan loss reserves already
established?

(c) If not, or on the assumption that losses are unexpectedly large, what
would be the contingent exposure of the FDIC and the Federal Reserve?

(d) Please demonstrate through relevant financial statistic that the FDIC or
the Federal Reserve will not, in the event of a collapse of loan portfolios in Pan-
ama, become effectively lender or insurer of last resort with respect to deposits
or loans of U.S. banks and their subsidiaries in Panama.

118

Answer. It is unclear as to the types of potential losses these questions seek
to address. Only a relatively small proportion of total assets on the books of U.S.
banks operating in Panama represent claims on Panamanian residents. The hulk
of the claims of these banks are on non-residents and, accordingly, would not be
subject to the same risks as claims on residents in the event of "political insta-
bility" in Panama. One of the elements which U.S. bank examiners watch care-
fully is the adequacy of bank reserves available in the event of losses. Examina-
tion reports of individual banks are not available publicly.

Under the Agreed Minute to the new Panama Canal Treaty, the 1901 Monetary
Agreement with Panama and subsequent exceptions are abrogated.

1. What various immediate courses of action could Panama now take regard-
ing its currency, and what would be the effect of each in relation to the U.S.
dollar?

2. What might the impact of each be on trade, especially Panama exports, bal-
ance of payments, repayment of debts, etc. ?

3. Which course is Panama most likely to take?

4. What other steps, if any, might Panama take at a later date if its indebted-
ness situation worsens?

5. What would be the impact of these actions on the UjS. and other banks op-
erating in Panama?

Answer. Under the Agreed Minute to the new Panama Canal Treaty, the 1904
Monetary Agreement and its subsequent exceptions are not abrogated. This may
be confirmed by referring to the Department of State Bulletin of October 19,
1977, page 495.

The Wall Street Journal, May 5, 1977, reported on an IRS investigation of the
Bahamas branch of a Panama-based bank in the following article :

Bahamas' Castle Bank Ceases Its Operations, Blames Pbobe by IRS

New York. — A Bahamian bank ceased its operations, blaming adverse publicity
triggered by a U.S. government investigation that has been seeking to determine
if certain offshore banks are serving as havens for tax evaders.

Castle Bank & Trust (Bahamas) Ltd., Nassau, said it voluntarily gave up its
Bahamian license last March. It said it intends to move activities to Panama,
which is headquarters for its parent bank, Castle Trust Co. The Bahamian
government, which revoked the bank's license last month, said the parent bank
gave full indemnity against any losses or contingencies that could result from
the bank's Bahamian operations.

Castle Bank was bitter, saying that despite a probe by the U.S. Internal
Revenue Service, "not one shred of evidence" has surfaced to show that the bank
violated any nation's laws.

"Mud Sticks"

"You know how mud sticks," A. J. T. Gooding, managing director of Castle
Bank & Trust, said in a phone interview, "How can you do business with this
hanging over your head? How can you function? We've got to regroup, re-
organize." He said he didn't know if the bank would attempt to do business again
in the Bahamas.

Mr. Goodling wouldn't tell how much was deposited in the Nassau branch. In
a 1975 congressional subcommittee hearing on the IRS investigation, called
Project Haven, an IRS agent reported that the Bahamian bank had 308 cus-
tomers, representing $250 million in assets in various trusts. A purpose of the
probe was to see how many businessmen, entertainers and organized crime figures
evade taxes by concealing income in offshore banks.

List of Account Holders

Castle Bank's activities have been surrounded by controversy since disclosure
that the IRS obtained a list of the bank's secret account holders under strange
circumstances. A Castle Bank executive had taken a list of the account holders
on a trip from Nassau to Miami. In Miami, the banker was introduced to a
woman by an IRS informer. The banker left the list of names in a briefcase

119

in the Miami woman's apartment. While the two went out on a date, IRS agents
photographed the list.

Last week a federal judge in Cleveland ruled that the IRS had acted im-
properly and said the evidence obtained by the IRS in its investigation of the bank
was inadmissible. The ruling by Judge John M. Manos was in connection with a
government case against a Cleveland businessman whose name was allegedly
on the list of Castle Bank depositors. The businessman had been indicted on
charges he lied on his 1972 tax return when he said he hadn't any foreign bank
account.

Yesterday, Cono R. Namorato, chief of the Justice Department's criminal sec-
tion, said a decision whether to appeal the Cleveland judge's ruling is under
review.

Richard Jaffe, an IRS agent in Miami who helped develop the IRS investiga-
tion of Castle Bank and other offshore banks, participated in the photographing
of the Castle Bank account holders. After Judge Manos suppressed the evidence,
Mr. Jaffe was suspended from all operations on the investigation, according to
Jack B. Solerwitz, a Mineola, N.Y., attorney representing Mr. Jaffe, Mr. Jaffe,
according to the lawyer, has been reassigned to different work for IRS.

A federal grand jury in Miami last year reportedly investigated Mr. Jaffe's
conduct and found no evidence to accuse him of any wrongdoing.

1. (a) Did this bank have one or more branches in the United States?

(b) If so, describe the nature of such branch or branches and the size and
scope of activity.

2. What nationalities are the major owners of this Panama-based bank?

3. Describe any affiliation with any U.S. bank or branch in Panama.

4. What developments have taken place in this bank's subsequent activities,

(a) relative to U.S. authorities?

(b) relative to Panama's authorities?

5. Sum up the results of

(a) the IRS probe.

(b) the Congressional probe.

6. What percentage of the Bahamas branch bank's accounts were transferred
to the Panama parent bank?

7. Has the same secrecy been afforded those accounts in Panama as was
maintained in Nassau?

8. List all banks that, like Castle Bank and Trust, are based in Panama and
afford or seem to afford U.S. citizens secret bank accounts there and/or through
branches in the United States or elsewhere.

9. Provide information on each similar to that requested in Questions 1, 2,
and 3 above.

10. (a) Have any of these banks or their branches run afoul of U.S. law?
(b) If so, describe the incidents.

Question 1. (a) Did this bank have one or more branches in the United States?
(b) If so, describe the nature of such branch or branches and the size and
scope of activity.

Answer. According to information available in the Treasury Department, the
Castle Bank does not have any branches in the U.S.

Question 5. Sum up the results of (a) the IRS probe, (b) the Congressional
probe.

Answer, (a) "Project Haven," which grew out of an earlier operation named
Operation Tradewinds," was conceived as a broad investigation of interna-
tional tax avoidance and tax evasion. The emphasis of the investigation, however
has been upon the operations of the Castle Trust Co. and related entities. Allega-
tions concerning fraudulent use of these entities were investigated. Indictments
have been handed down against lawyers of U.S. citizens utilizing Castle Trust
Co., on charges that they conspired to defraud the United States by impeding the
internal Revenue Service. To date, there has been one conviction and one acquit-
tal of lawyers concerning transactions involving Castle Trust Co Two bank
officials have also been indicted to date on various charges and are presently
fugitives. The investigation is continuing, and further indictments are possible
(b) This information can be obtained from the relevant Congressionai

CMH Hi 1 L C G£S.

The Treasury Department does not maintain the information called for bv
the remaining questions. *

120

XII

The November 1977 issue of West Watch published quarterly by the Counci
for Inter-American Security carried the following story titled "Torrijos an«

Narcotics? The Panama Connection".

torrijos and narcotics?
The Panama Connection

Is there a connection between the Torrijos regime and the massive narcotic*
traffic in Central America and the United States? Much to the embarrassment
of the Carter Administration, this is the question being raised by leading Treats
opponents, Senators Robert Dole and Jesse Helms. Preliminary evidence suggest*
that the Panama Connection is one of the most important in the Western Hemi-
sphere, involving hundreds of pounds of heroin and other drugs and millions oi
dollars. At issue is nothing less than the activity of a gigantic criminal syndicate,
operating extensively throughout the Caribbean and even penetrating into the
United States. The issue of narcotics traffic could be the sleeper in the Canal
'Treaty debate, and its emergence could be explosive.

Preliminary reports from Congressional sources suggest a pattern of intrigue
and conspiracy reaching into the highest levels of the Panamanian regime. The
Merchant Marine Committee of the House of Representatives in 1973 estimated,
in a special report on the question, that approximately 20,000 drug addicts in the
United States were being supplied from Panamanian sources. It has been further
estimated that one twelfth of all heroin and cocaine entering the United States |
came through the Panama Connection.

On October 14, 1977, Representative McDonald of Georgia read into the
Congressional Record a 1973 report of the Merchant Marine Committee, detailing
the operations of the Panama Connection.

The facts of Panamanian involvement in the drug traffic are intriguing.
Panamanian nationals, Rafael Richard, Nicholas Polanco, and Guillermo Gon-
zalez were arrested in New York City on July 8, 1971. Gonzalez, who headed the
operation to smuggle two shipments of heroin into New York, weighing 70 kilos,
was arrested by Customs Officials after he had been tricked by Federal agents
into coming to New York to supervise the dope delivery.

Found guilty of the narcotics charge, Gonzalez was sentenced to seven years
in prison in New York State. It turned out, however, that Guillermo Gonzalez
was also, in the language of the Merchant Marine Committee Report, "a long
time friend and former bodyguard" of Moises Torrijos, the brother of Panamanian
dictator General Omar Torrijos. It was subsequently learned that Rafael
Richard's passport was signed by Panamanian Foreign Minister, Juan Tack, as
a "diplomatic passport", even though the 23-year-old Richard himself had no
qualifications for such a passport. Before his arrest by Customs Officials in
New York, Gonzalez had accompanied Richard on four previous smuggling ven-
tures into that city, carrying big shipments of 70 kilos each.

In Dallas in 1971, Federal authorities apprehended Joaquin Him Gonzalez for
conspiracy to smuggle a shipment of heroin worth over $1 million. Like Guillermo
Gonzalez, Joaquin Gonzalez was closely connected with the Torrijos government,
serving as the chief of International Transit at Panama's Tocumen Airport. Ac-
cording to BNDD officials, he used his high level position at the airport to
facilitate the transportation of drugs.

Upon his arrest in Dallas, a full scale effort was launched by the Panamanian
Government, led by Foreign Minister Juan Tack, to have him released. The
Panamanian officials expressed outrage at his arrest.

On December 3, 1972, Manuel Rojas Sucre, nephew of Panama's Vice President
Arturo Sucre, was arrested at Kennedy International Airport with shipments of
cocaine and hashish. Like Rafael Richard, young Sucre was carrying a special
diplomatic passport".
Referring to tho New York arrests and related information, the 1973 Merchant
Marine Committee further observed :

"The briefing team concluded that based on the Customs Investigation this
case reached into the highest levels of Panamanian Officialdom and included
Moises Torrijos, the brother of General Omar Torrijos, and the Panamanian
* oreign Minister, Juan Tack. This involvement was confirmed bv BNDD officers
in the Republic of Panama on February 23 during a Subcommittee briefing in
that country. • (See Congressional Record. October 14, 1977. E 6318 )

121

In the Congressional Record of October 17, 1977, Senator Jesse Helms released
what appears to be a "facsimile" of an intelligence report prepared by officials
of the Federal Drug Enforcement Agency on Torrijos and the Panama Connection.

According to the report released by Senator Helms, one Ramiros Rivas, a
Panamanian national with bank accounts totaling $750,000 in Miami, Florida,
entered into partnership with General Omar Torrijos. The object of their joint
venture was to purchase a transportation company in order to facilitate inter-
national narcotics traffic. Rivas disclosed to an undercover agent that the Panama
Connection is fueled by several different sources of supply, including Peru,
Colombia, and Fidel Castro's Cuba. Carried by Panamanian aircraft, narcotics
are shipped from these bases to Panama, where they are then transported by
various and sundry means to the United States through Mexico and other ports of
entry. Rivas further stated that Omar Torrijos brother, Hugo, and a group of high
level government and business leaders were involved. As Senator Helms reminded
Attorney General Bell, a sealed indictment already exists against Moises Torri-
jos, brother of the Panamanian General, for drug trafficking in the United
States.

The files of the FDA have not, as of this printing, been released, though they
are alleged by several sources to contain information detailing Torrijos opera-
tions, the participations of members of his family, government officials, along
with assassination plots and the ubiquitous Cuban involvement. Files are avail-
able but they have not been released for public or Congressional scrutiny. CIS
has contacted the officials of the FDA, confirming the existence of Panamanian
files, and has asked for their release under the Freedom of Information Act. Sen-
ator Helms has written Attorney General Griffin Bell, asking him to confirm
reports that Torrijos, members of his family and his government, are heavily
involved in narcotics traffic.

In a Senate speech of October 13, 1977, Senator Robert Dole of Kansas stated
that there was indeed an attempt by the Drug Administration "to keep informa-
tion out of public purview by moving the intelligence files to another location for
temporary safekeeping."

The central ingredient in international agreements is the trust, mutual respect,
and integrity of the parties involved if the integrity of a government is of such a
calibre that professions of good faith cannot even be considered, let alone in-
corporated into normal processes of diplomacy, international agreements are
worthless. If the Torrijos government and Torrijos himself is indeed involved
in merchandising the destruction of thousands of lives, there is little reason to
believe his intentions would be honorable in the interpretation or the enforce-
ment of a new treaty.

1. The Merchant Marine and Fisheries Committee has published information in
the past on Panama's drug traffic into the U.S. and the complicity of top Pan-
amanian officials in that traffic.

(a) Expand in detail on drug smuggling into the U.S. from Panama.

(b) What are the connections with illicit drug traffic on the part of Panamanian
Government officials as known by official U.S. agencies?

(d) Specify which members of the Torrijos family have been and are so
implicated.

(e) How do Panama banks, or how could they, facilitate illicit drug traffic in
that country?

(f ) How could a U.S. bank or other lending institution in this country facili-
tate such traffic?

2. Has the Panamanian Government at any time cracked down on any bank
for involvement in financing drug traffic?

3. Has the U.S. government ever cracked down on any U.S. bank for such a
practice? If so, give details.

4. Has any U.S. banker been indicted for such a practice? If so, give details.

5. Is such indictment expected in the near future?

6. How does merchant shipping play a role in Panama's drug traffic?

7. How could the control of the Panama Canal by Panama enhance interna-
tional drug traffic, assuming complicity in such illicit trade on the part of very
high level Panamanian officials?

8. Is the Mafia or other criminal elements known to have an interest, con-
trolling or otherwise, in any bank (a) in Panama? (b) in the U.S.?

9. How does the mushrooming banking system in Panama with its secret
accounts, tax advantages to bankers and clients, et cetera (a) benefit the citi-
zens of the U.S. as a whole? (b) disadvantage them?

[Subcommittee note: Answers in large part were not forthcoming. See cover
letter, Appendix B. See also Appendix D.]

APPENDIX C

Department of the Teeasuby,
Washington, D.C., January 20, 1918.

Hon. Ralph H. Metcalfe,

Chairman, Subcommittee on Panama Canal, Committee on Merchant Marine and
Fisheries, House of Representatives, Washington, I).C.
Dear Mb. Chatbman: On December 30, I forwarded to the Subcommittee
responses to a series of questions submitted for the record following my testimony
on the Panama Canal Treaties on November 30, 1977. Enclosed are answers to
some of the questions we did not answer at that time. The remainder of the
questions require further interagency coordination and will be submitted as soon
as possible.

Sincerely,

Abnold Nachmanoff.

Enclosures.

Questions Based on "The Times" of London Aeticle

Question 7. Please list and explain the nature of each tax incentive granted to
international banks by decree No. 238.

Answer. Cabinet Decree Number 238 is basically a banking law, and does not
itself contain tax incentives. A publication describing Panamanian tax and
incentive laws is attached.

taxation

Every company operating in Panama is required to file Panamanian income
tax returns. Branches of foreign corporations are subject to the same taxes and
rates as Panamanian corporations. With the exception of certain statistical
reports which may be requested by various government offices, no other financial
reports are required. (A Panamanian company which does not operate in the
Republic of Panama is not required to file any financial reports or tax returns).
A company doing business in Panama must maintain its legal accounting books,
correspondence and other supporting data in Panama.

Income Tax. — Income tax is levied only upon net income derived from opera-
tions within Panama. Income not taxed includes: that derived from invoicing
the sale of merchandise or products which move solely outside the Republic
from an office in Panama ; income from directing transactions which are com-
pleted outside the Republic; and dividends from foreign entities derived from
income not subject to Panama income tax. A company operating the Colon Free
Zone, with sales within the customs territory of the Republic, is treated as a
domestic firm and is taxed on the income derived from such sales.

For Panama-source taxable income, the corporate rate starts at 10 percent on
the first $15,000 and increases progressively in four steps to $205,500 on the first
$500,000 plus 50 percent on the excess.

Dividend Tax. — Amounts distributed as dividends, whether in cash or stock,
are subject to a 10 percent tax which must be withheld by the company declaring
the dividend. The recipient of the dividend is not required to report the dividend
as taxable income. A company which does not declare a dividend or declares an
amount less than 40 percent of its net income after income taxes is subject to an
imputed dividend tax of 10 percent on the first 40 percent.

Companies operating in the Colon Free Zone are subject to the tax on dividends
only on that part of income derived from sales in the Republic. Companies in-
corporated in Panama but with no operations in Panama are not subject to a
dividend tax.

(123)

25-605 O - 78 - D

124

Capital Gains and Interest. — Capital grains taxes are applicable to the sale of
real property, and on securities under limited circumstances. Profits obtained
from sales of securities do not constitute taxable income except when such
transactions are the usual activity of the seller.

Interest and royalties are deductible expenses and are tavable income to the
recipient. The full amount is taxable, but only one-half of the amount of
royalties is subject to tax. When interest and royalties are paid to non-resident
individual or corporate entities, Panama income tax must be withheld at ap-
plicable corporate or individual tax rates.

Source. U.S. Department of Commerce, "Overseas Business Reports: Marketing in Pan-
ama, July 1976."

Question S. If it is true, as Wise wrote, that foreign loans and deposits are
not required to have a cash or legal reserve, please comment on the various ef-
fects of such provisions.

Answer. Decree No. 238 indicates that Mr. Wise is correct that banks need not
maintain a cash or legal reserve in connection with foreign deposits. (See Ar-
ticle 36.) The main consequences of this provision are: (1) banks can earn in-
terest on total foreign deposits, while they must maintain a partially non-in-
terest bearing reserve for "local" deposits; and (2) the absence of reserve re-
quirements on foreign deposits, and the possibility of earning interest on all
such deposits, may tend to make Panama a more attractive country to deposit
funds in than a country which imposes reserve requirements on foreign deposits.

Questions from Twin Circle Article

Question 8. What is the current ratio of international earnings to total earn-
ings of the 13 (or more) U.S. banks operating in Panama?

Answer. Information on the proportion of total earnings of individual banks
derived from international activities is generally available in the annual reports
published each year by the banks. The following information has been taken
from the 1976 reports of the major U.S. banks operating in Panama.

International earnings as a percent of total earnings 1 for 1976

Percent

1. Bank America Corp 40.

2. Chase Manhattan Corp 78.

3. Citicorp 72.4

4. Wells Fargo 12.

5. Marine Midland 32.

6. Security Pacific 7.

7. First National Boston Corp 31. 7

8. Bankers Trust 64.

1 Total earnings before securities transactions.

Question 9. In each of those banks, what portion of international earnings are :
id) From assets in Panama?

(&) From assets in other countries earned by way of Panama branches?
Answer: Treasury is precluded by statute (in particular, Section 6031 of the
Internal Revenue Code) from disclosing such information as it may have on this

subject.

Questions Based on Aragon Letter

On August 28, 1977, Panamanian citizen Leopoldo Aragon sent a letter to
President Carter from Sweden where he resided. In that letter, Aragon, who died
by self immolation two or three days later, stated the following:

"In that manner Torrijos had the means to silence the Panamanian people by
sheer terror, crushing all freedoms and human rights, including freedom of speech
and assembly, and banning all political parties, so he could perpetrate the role
assigned to him — the deliverance of the canal treaties — without interference or
criticism. Meanwhile, with U.S. connivance, he, with hte sole signature, could
Obtain foreign loans in the name of the Republic of Panama, and pocket the pro-
ceed! at his discretion. In fact, he has. by name, the constitutional right to do so
according to Article 277 of his tailor-made "Constitution" of 1972, approved by
his rubber stamp Assembly. Thus Panama is saddled today with the highest per
capita foreign debt, again, with the exception of Israel, in the whole world."

125

(1) Is it true that Torrijos could obtain foreign loans for Panama with his
signature alone?

(2) If not, what individual, or group of individuals, must sign for such loans?

Answer. Article 277 of the Panama Constitution inter alia provides Brig. Gen-
eral Omar Torrijos with the authority "to approve the execution of contract and
the negotiation of loans. . . ." In actual practice neither Torrijos nor the Presi-
dent signs loans approved by the Cabinet Council. Instead each loan approval by
the council is accompanied by a decree authorizing a specific government official,
usually the chief of the organization concerned, to sign the loan agreement. The
agreement must also be signed by the Minister of Treasury. The Cabinet Council
is composed of the ministers of state and the Vice President of the Republic who
functions in this capacity under the direction of the President of the Republic.
Article 277 also impowers General Torrijos to attend the meeting of the Cabinet
Council. 1

Questions Based on Rothbard Article

Question 12. Submit for the record detailed information on the severe losses
suffered by Bankers Trust Company (of which Ellsworth Bunker is supposed to
have been a former director), Chase Manhattan, First Chicago, and City Corp.
around 1974 and 1975..

Answer. The attached detailed information on loan losses in 1974 and 1975
for the four banks specified in the question was obtained from the annual report
of these banks.

Question 13. Submit information on similar losses, if any, suffered by other
banks which have operations in Panama.

Answer. Information on loan losses of any other banks of interest to the Sub-
committee may be obtained either from the banks themselves or by requesting a
copy of Form 10-K from the Securities and Exchange Commission.

Annual Report 1974 — First Chicago Corp., The First National Bank of

Chicago

Although domestic loans rose somewhat above our plan, we succeeded in hold-
ing down the level of our foreign loans. As a result, in December, our average con-
solidated loans (domestic and foreign) were $12,372 million, eight-tenths of one
percent below our May plan. We are pleased to have been able to accommodate
our customers while also maintaining such precise control over our volume.

The prospect of slower loan growth in the period ahead presents difficult choices
to make between priorities. If our national economy is to regain a rising trend
in its standard of living, the required increase in our productive facilities and
the development of our national energy resources will require massive amounts
of capital financing. It is estimated that in the aggregate, over the next decade
more than a trillion dollars will be needed. While most of this financing should
come from personal savings through purchases of stocks and bonds, it is inevi-
table that corporations will turn to the banks for an increased volume of interim
financing. This argues for bank loans not being held to serve limits, either in
dollar amounts or in relation to capital funds.

1 This information was provided by the State Department.

126

Consolidated Loans — 1974
(In Billions)
$14

J FMAMJ J AS OND

Nevertheless, under present circumstances, a more moderate growth rate in
our own loans is desirable. Competition among banks to add new business and
thereby increase assets had reached excessive proportions, resulting in a pro-
gressively lower net return per dollar of assets.

In the context of the relatively high degree of leverage which has developed
In the banking business generally, and the current Tegulatory and market environ-
ments, the banking industry is now under some pressure to augment its capital
more rnpidly than assets. As of the year-end, your Corporation had a higher
ratio of capital (including reserves) to assets than any of the other top ten bank
balding companies. Nevertheless, we intend to increase the ratio of our capital to
assets still further. We desire to achieve this goal primarily through the reten-
tion of earnings. But we recognize the possibility that the nation's need for addi-
tional credit later this year or next may dictate a greater increase in loans than
DOW seems desirable. If this should develop, our priorities might be changed. In
such an event, or in the event that the market for bank stocks improves during
the course of the next year or two, as we believe it will, then in either case we
may decide to supplement retained earnings with an issue of additional equity-
type securities in order to strengthen further our capital position.

127

To achieve any meaningful increase in our capital through retained earnings
necessitates a continued policy of relatively modest dividends. In 1974 we paid
out only 34 percent of our earnings (before security gains and losses). We have
increased our dividends each year for the past six years in recognition of our
obligation to those of our stockholders who rely heavily on dividend income. It is
our intention, at least for the immediate future, to continue a policy of increases
as warranted, but to limit our payout ratio to about the recent level as a percent-
age of earnings.

Loan quality and provision for loan losses

It is important to note that the satisfactory growth of our earnings is meas-
ured after deducting from income, as a provision for possible loan losses, an
amount more than twice the amount deducted in any prior year. We have stepped
up the additions to our reserve for bad debts in 1974, and intend to continue to
provide sufficient additions to maintain reserves fully adequate to absorb what-
ever loan losses might develop in the years ahead. The year 1974 was a period of
declining output, rising prices and reduced unit sales. Many businesses experi-
enced lessened liquidity. As the economy continues to slide, we can expect a fur-
ther deterioration in 1975.

Our principal assets are our loans to numerous corporations all over the United
States (and beyond) engaged in the whole gamut of industry, commerce and
merchandising. Our borrowers tend to prosper as the economy prospers, and their
income tends to slow as the economy slows. We also have a large volume of loans
to customers who invest in real estate. These loans are also of wide diversity :
construction financing, residential mortgages, mortgage bankers, real estate in-
vestment trusts and the real estate affiliates of large multinational companies.
There is a wide geographic distribution of these various types of loans.

As lending is our principal activity, loan losses are a part of our normal cost
of doing business. Such losses tend to increase in periods of economic decline.
Our portfolio is under our continuous scrutiny and all known losses have been
charged off.

It has been, and remains, our policy —

(a) not to accrue interest, and

(b) to charge against current earnings any prior accrued and unpaid
interest,

on loans which either (i) we regard as of doubtful collectibility as to either
principal or interest, or (ii) on which the interest rate has been reduced through
agreement with the borrower because of its deteriorating circumstances.
Our reserve for bad debts is made up of two components :

First, the valuation reserve, which since 1969 includes amounts charged to
operating expense ; and

Second, the non-valuation reserve, which, in effect, includes amounts trans-
ferred from undivided profits.

The distinction between the two is that losses charged against the valuation
reserve do not directly affect current earnings. In the unlikely event that losses
were to exceed the valuation reserve, the excess would be charged directly to
current earnings and could not be charged to the non-valuation reserve. This
distinction is not as significant as it might seem, however, because if losses
charged to the valuation reserve should reduce this reserve to a level in relation
to the size and quality of the loan portfolio which the management felt was
inadequate, it would make sufficient provisions from earnings to restore the
reserve to a level it deemed appropriate.

At the end of 1973 we had a valuation reserve of $83,269,000 and a non-valua-
tion reserve of $73,758,000, a total of $157,027,000. During 1974, we deducted
from income and added to our valuation reserve some $52,750,000, and charged
net bad debts against this in the amount of $40,253,000. We also transferred
$27,937,000 (before tax benefit) from undivided profits to the non-valuation re-
serve. Consequently, at the end of 1974, after all charge-offs which we thought
appropriate, the valuation reserve amounted to $95,766,000 (an increase during
the year of $12,497,000) , and the non-valuation reserve amounted to $101,695,000
(an increase of $27,937,000). Total reserves were thus $197,461,000, an increase
during the year of $40,434,000.

As a result of a proportionately more rapid increase in loans (from $9,362,991,-
000 to $12,392,684,000) during the year, the ratio of the valuation reserve to loans

128

declined from .89 percent to .77 percent. This places our ratio about in the middle
of those of the top ten bank holding companies. We believe that adequate provi-
sion has been made in the loan loss reserves for all anticipated losses, but we
intend to continue significant monthly additions in order to preserve and enhance
the adequacy of our reserves.

Pricing

Our intention to moderate loan growth suggests that our objective of a con-
tinued annual rise in earnings will require that we increase the rate of return
on our assets. Over the past seven years, our ratio of after-tax earnings to aver-
age assets declined from .83 percent in 1968 to .60 percent in 1974. Our return
on assets continues to be one of the highest of the top ten bank holding com-
panies, but nevertheless an improvement in this respect is a priority objective.
Thus, early in 1974, when we shifted our emphasis away from volume, we ad-
justed our pricing for both the credit and the services which we offer.

Since May, 1973, we have generally established our corporate base ("prime")
rate on a formula tied to the commercial paper rate. For most of the period since
its adoption, the formula has proved to be a useful guide. However, we did not
follow the formula last summer when it called for rates above 12 percent. We
feared that higher rates would further disrupt securities markets already
nearly paralyzed. Later, when rates trended downward, we again followed the
direction indicated by the formula, though our rates lagged a bit, as indeed
they had during the earlier period when we did not move upward at the rate our
formula would have indicated.

In view of the changed world economic environment, and the dilemma of the
authorities in their effort to fight inflation while also stimulating the sagging
economy, the determination of appropriate levels of interest rates will require
greater judgment than heretofore. As a result, from time to time the applica-
tion of our formula may be superseded by a less mechanistic determination of
an appropriate corporate base rate level. This will permit taking more fully into
consideration not only competitive factors but also Federal Reserve policies.

In July, 1974, we revised our pricing, putting greater emphasis on commit-
ments. Implicit in this decision was the determination that the overall level of
our commitments should be under closer management control, and that com-
pensation to the Corporation should be reasonably level irrespective of utilization.
We reasoned that an overall ceiling on commitments was necessary since it would
be related to our capital base. It is not sufficient to consider only the return on
assets, the amount of which will vary depending on utilization. By pricing on
outstanding commitments, we will be able to maintain an improved stability in
the level of our loans and provide a somewhat more predictable level of return
to the Corporation. Overall, this change tends to standardize a wide variety of
pricing arrangements to a common policy applicable to virtually all classes of
customers.

It is also our objective to put greater emphasis on compensating balances as a
part of our program to reduce our dependence on purchased money. Until branch
banking is permitted in Illinois, it remains difficult to achieve from one single
location our desired growth in retail demand and savings deposits.

We are convinced that the nation and our customers individually are best
served by a strong banking system. This can be achieved only through increasing
capital funds. Such increases in capital can best be derived from retained earn-
ings, and should be adequate to provide for the capacity and flexibility that is
required to meet borrowing needs. We intend to maintain and enhance our posi-
tion as one of the most strongly capitalized financed institutions within the
banking system.

Supplementing the price revisions on loans and commitments, for the past
several months we have also been improving our pricing of non-credit services.
This is the result of a comprehensive review of costs and prices and is the first
repricing of such services since early 1971.

Fund itiff

It is also our objective to enhance our capacity for effective spread manage-
ment. The dollar spread between what we earn on our domestic assets and the
cost of the money to fund these assets increased in both the first and second
quarters. Although the spread declined slightly in the third quarter — reflecting
recurrent tightness in the money market — it was much improved in the fourth
quarter, reflecting the decline in short-term interest rates.

129

Domestic spread income

1973 Fourth quarter.
1974:

First quarter

$75, 944, 000

Second quarter.
Third quarter..
Fourth quarter.

77, 895, 000
82, 899, 000
82, 797, 000
87, 381, 000

In mid-1974 we adopted the more conservative policy of leveling out and ex-
tending the maturities of our outstanding certificates of deposit ("C/D's").
Looking ahead, we believe that the trend toward lengthened maturities in the
purchased money portfolio will continue, perhaps accelerating in the months
immediately ahead as short-term rates move lower. The Comptroller of the Cur-
rency has urged the banking industry to move toward this objective. Federal
Reserve practices also encourage the lengthening of maturities by requiring a
reserve of six percent against certificates of deposit maturing in 180 days or less,
whereas C/D's of over six months maturity require only a three percent reserve.

As a consequence, there may be an effort throughout the banking system to
place less reliance on short-term purchased money for funding asset growth in
favor of more stable relationship money, particularly in the area of savings
certificates. Of course, purchased money will remain an important component
in funding your Corporation's growth. However, its relative importance should
diminish the extent that we are able to attract increased deposits. Ideally, greater
liberalization of Illinois branch banking laws, and of the regulations of the
Comptroller of the Currency with regard to unmanned teller facilities, would
help achieve this objective more quickly and without adding unduly to operating
expense.

We believe that short-term interest rates will continue to decline for some
months, but neither as precipitously as they have recently nor to the low levels
considered normal in previous years.

Our expectation is that the corporate base rate will generally trend down-
ward for several more months, plateau, and then later, perhaps before year-end
begin to rise again. The need of the Federal government to borrow extensively
throughout the balance of this fiscal year and next may nudge longer and
medium-term interest rates to levels which again will discourage corporations
(at such time as they begin to need additional funds) from public offerings and
cause them to seek at least interim financing through the banks. By year-end
or early 1976 money may once again become tighter and more expensive.

The structural weaknesses in the world economy — evidenced principally by
accelerating inflation and payments imbalances in 1973 — were seriously ex-
acerbated in 1974 by the efforts of large increases in the prices of petroleum and
other major commodities. The resulting shift in international wealth and power
forced a number of developed countries to borrow unprecedented amounts to
compensate for large and growing trade deficits.

The Organization of Petroleum Exporting Countries (OPEC), one of the most
effective price cartels in economic history, has enabled its members to amass an
estimated $50 billion in foreign exchange reserves — an amount which it was
feared would test the absorptive capability of the private international financial
system, and which increased the OPEC countries' reserves to 20 percent of the
world total, compared with 8 percent at the end of 1973.

This rapid accumulation of foreign exchange reserves by the OPEC members
generated a widespread fear that unless oil prices are sharply reduced or mas-
sive aid given (neither of which seems likely) many countries would find it
necessary to reduce substantially either imports for current consumption or
capital goods for the development of a productive economy, with a consequent
decline in their standards of living.

International Banking Department

130

moderated, but only temporarily, by increased prices for other exported raw
materials, and by some large borrowings from private capital markets. Thnsi
wo are concerned that the present euphoria may be dispelled and the impact oil
the dramatic increase in the cost of imported oil again may be recognized asi
one which may lead to serious economic deterioration and resultant political!
instability in several countries.

The growing feeling of uneasiness resulting from the early concern with the*
effect of the shifts in reserves was aggravated in June by the collapse of the*
Herstatt Bank, the largest private bank in the Federal Republic of Germany.
Tension was further increased by revelations of large foreign exchange losses \
suffered by a few prestigious European banks and by the Franklin National in
New York. Small and medium-sized banks abroad encountered significant diffi-
culty in funding themselves, a situation most pronounced in the June- September
period. Foreign exchange markets became thin and highly erratic, and there was
a growing concern that the financial mechanism necessary for world trade and
investment might not be able to cope with these disturbances.

Your Corporation has emerged from these travails without serious burdens,
though not entirely unscathed. In the second quarter the Herstatt failure caused
us to charge off $3 million in anticipation of a possible loss of 50 percent of a $6
million deposit we had placed with that bank. Throughout the entire year we
continued to follow a policy of maintaining only very limited foreign exchange
positions. As a consequence, we finished the year with only a very modest loss
in foreign exchange. Hedging and translation losses for the year were $1,600,000.
of which $1,500,000 was charged to the reserve created in 1973 for this purpose.

The combination of the write-off of one-half of the Herstatt deposit, a foreign
exchange performance well below 1973's record earnings, and loan losses on
United Kingdom property loans reduced the International Banking Department's
1074 profit contribution. The Department accounted for 30 percent of the Cor-
poration's gross income in 1974. compared with 29 percent in 1973. On the basis
of internally developed allocations which are subjective and to an extent arbi-
trary, we estimate that the Department accounted for only 3 percent of the Cor-
poration's income before securitv transactions in 1974. compared with 12 percent
in 1973.

A highly positive development during 1974 was the improvement in interest
rate spreads on international loans. Because of the turbulance in the interna-
tional financial markets, as mentioned above, banks became much more selec-
tive in their choice of credits and insisted on a reasonable return for the risks
taken. In 1973, we became convinced that the very narrow spreads being taken
by many banks abroad did not adequately compensate them for credit risks and
operating costs, and we declined to make any loans below what we considered
appropriate levels. We have continued our policy of pricing international credits
at intelligent rates and are now able to secure spreads on our international port-
folio considerably above those of a year ago — approximately double in the cas*
of newly acquired or renewed prime business.

During 1974, 26 new installations were opened in 12 countries where First
Chicago had not been represented before, resulting in a total of 74 installations
in 39 countries.

Virtually all of the Bank's international loans are set at a floating rate over
our cost of purchased funds. This protects us against interest rate variations.
Nevertheless, as mentioned previously, we will continue our efforts to broaden
significantly our base of relationship money consisting of demand deposits,
savings accounts, and stable sources of corporate and governmental time deposits.
Several of our new installations are designed primarily to attract such deposits.

We anticipate that in 1975 the International Banking Department will be able
to take advantage of. and consolidate, the rapid, ten-year expansion of our inter-
national activities. We anticipate significantly higher profits and a greater rela-
tive contribution to overall Bank earnings.

Annual Report 1975 — First Chicago Corp., the First National Bank of

Chicago

the tear in review

Nineteen seventy-five was a year of consolidation for First Chicago Corpora-
tion, as it was for the general economy. Although we were naturally disappointed

13;

that the recession proved to be protracted and deep, the slowdown brought focus
to the basics of banking and business in general. Unpleasant as it was, the
recession and its resulting problems may in the long run restore a greater sense
of fiscal responsibility to those in public and private life.

The uncertain economic outlook during the early part of the year, and the
Corporation's rapid growth in previous years, prompted us to concentrate our
energies on strengthening our more traditional activities.

An overview of earnings

The Corporation's earnings in 1975 derived their principal incremental strength
from the International Banking Department. Several of our newer overseas
installations became profitable for the first time. Spreads on international loans
improved significantly over 1974, loan volume increased moderately, foreign
exchange trading and fee income increased considerably, and carefully moni-
tored, but aggressive, funding policies produced excellent results.

The Corporate Banking Department's earnings increased significantly from
last year, but Real Estate Department results were severely depressed due to
adverse conditions in that industry.

In spite of reduced domestic loan demand, particularly in the second half, net
interest differential income increased by $27 million to $407 million in 1975. Part
of this growth was attributable to substantially greater holdings of U.S. govern-
ment securities.

Both the bond trading and Trust Department activities produced record profits.
First Chicago Leasing Corporation also established a new high in earnings. In
the Personal Banking Department, the emergence of Bank Americard as a
solidly profitable operation was a notable achievement. Throughout the Corpo-
ration, expenses were tightly controlled and non-interest expenses (excluding
provisions for loan losses) increased only 5.2 percent over 1974.

In summary, most departments turned in very strong performances in their
basic operations. However, these operating gains were almost wholly offset by
several negatives, including a very substantial increase in provisions for loan
losses, the reversal of interest previously accrued on a number of loans which
were placed on a cash basis, and reduced revenues because of lower interest
income on some loans than was originally negotiated. Each of these factors will
be described in more detail in the following paragraphs.

Provisions for loan losses

It continues to be our policy to write off all known losses as they are identified,
and to replenish and strengthen our reserve for loan losses by making adequate
provisions against earnings. In 1975 we wrote off (net of recoveries) $93 million
of loans and made provisions against earnings of $118 million, thus absorbing
all the write-offs and adding $25 million to our loan loss reserve. At year end,
the reserve for possible loan losses was $121 million, or 1.02 percent of total
loans outstanding, compared with $96 million or 0.77 percent of total loans a
year earlier.

Of the $93 million written off, $23 million involved loans secured primarily
by real estate, and $11 million was accounted for by loans to REITs.

In addition, $9 million of consumer loans, primarily originated through Bank
Americard, were written off. The balance of the write-offs, $50 million, repre-
sented loans to a wide variety of industries of which retailing was the most
significant.

The 1975 balance sheet reflects new accounting requirements for banks, which
provide that the reserve for bad debts be separated into three components : first,
the valuation* portion is now referred to as the reserve for possible loan losses,
which is deducted from loans; second, the deferred tax portion is included in
other liabilities : and third, the contingency portion is included in undivided
profits. The 1974 balance sheet was reclassified to reflect the accounting changes,
which increased undivided profits by $58,537,000 as of December 31, 1974.

Interest reversals and shortfall

Whenever the collectibility of principal or interest on any loan becomes uncer-
tain, that loan is immediately placed on a cash basis for purposes of income
recognition, and any interest accrued in the current or prior years, but unpaid,
is reversed. Thereafter, interest is recognized as income only as it is collected
in cash. Further, whenever the interest rate on any loan is negotiated downward
due to the deteriorating financial condition of the borrower, that loan also is
placed on a cash basis.

132

In 1975, earnings were adversely affected by the shortfall in interest income,
as well as by the reversal of interest previously accrued. We have defined short-
fall as the difference between the amount of interest we actually collected on
these cash basis loans and the amount that would have been accrued based on
the original contract terms. Interest reversals of $27 million, and interest short-
fall of $52 million had an adverse pre-tax impact on 1975 earnings of $79 mil-
lion or $1 per share after taxes.

Interest reversals and interest shortfall in part arose because of the continuing
cash flow problems experienced by a number of our customers in 1975, par-
ticularly those operating in the real estate industry. In some of these instances,
we agreed to reduced rates of interest for a period of time in order to help the
borrowers work out their difficulties.

The total of interest reversals and shortfall is a significant number, and great
care must be used in relating it to current earnings. For example, it should not
be inferred that when a renegotiated loan is collected, the total amount of
the related shortfall can be restored to earnings. When and to the extent these
loans are collected, the funds must be used in new loans and investments at
prevailing market rates, which might be greater or lower than the original terms
of the renegotiated loans.

More recently, there have been expressions of relief based upon the interpreta-
tion of figures for the past year which would suggest that many countries have
not suffered nearly as significant declines in their foreign reserves as had been
previously feared. This would indeed be welcome news, but we are inclined
to feel that it is a little premature to arrive at such conclusions. Several coun-
tries lost significant proportions of their reserves and the severity of other
losses was moderated, but only temporarily, by increased prices for other ex-
ported raw materials, and by some large borrowings from private capital
markets. Thus, we are concerned that the present euphoria may be dispelled
and the impact of the dramatic increase in the cost of imported oil again may
be recognized as one which may lead to serious economic deterioration and re-
sultant political instability in several countries.

The growing feeling of uneasiness resulting from the early concern with the
effect of the shifts in reserves was aggravated in June by the collapse of the
Herstatt Bank, the largest private bank in the Federal Republic of Germany.
Tension was further increased by revelations of large foreign exchange losses
suffered by a few prestigious European banks and by the Franklin National in
New York. Small and medium-sized banks abroad encountered significant diffi-
culty in funding themselves, a situation most pronounced in the June-September
period. Foreign exchange markets became thin and highly erratic, and there was
a growing concern that the financial mechanisms necessary for world trade and
investment might not be able to cope with these disturbances.

Your Corporation has emerged from these travails without serious burdens,
though not entirely unscathed. In the second quarter the Herstatt failure caused
us to charge off $3 million in anticipation of a possible loss of 50 percent of a $6
million deposit we had placed with that bank. Throughout the entire year we
continued to follow a policy of maintaining only very limited foreign exchange
positions. As a consequence, we finished the year with only a very modest loss in
foreign exchange. Hedging and translation losses for the year were $1,600,000,
of which $1,500,000 was charged to the reserve created in 1973 for this purpose.

The combination of the write-off of one-half of the Herstatt deposit, a foreign
exchange performance well below 1973's record earnings, and loan losses on
United Kingdom property loans reduced the International Banking Department's
1974 profit contribution. The Department accounted for 30 percent of the Cor-
poration's gross income in 1974, compared with 29 percent in 1973. On the
basis of internally developed allocations which are subjective and to an extent
arbitrary, we estimate that the Department accounted for only 3 percent of the
Corporation's income before security transactions in 1974, compared with 12
percent in 1973.

A highly positive development during 1974 was the improvement in interest
rate spreads on international loans. Because of the turbulence in the inter-
national financial markets, as mentioned above, banks became much more selec-
tive in their choice of credits and insisted on a reasonable return for the risks
taken. In 1973. we became convinced that the very narrow spreads being taken
by many banks abroad did not adequately compensate them for credit risks
and operating costs, and we declined to make any loans below what we considered
appropriate levels. We have continued our policy of pricing international credits
at intelligent rates and are now able to secure spreads on our international

133

portfolio considerably above those of a year ago— approximately double in the
case of newly acquired or renewed prime business.

During 1974, 26 new installations were opened in 12 countries where Jnrst
Chicago had not been represented before, resulting in a total of 74 installations
in 39 countries!. #

Virtually all of the Bank's international loans are set at a floating rate over
our cost of purchased funds. This protects us against interest rate variations.
Nevertheless, as mentioned previously, we will continue our efforts to broaden
significantly our base of relationship money consisting of demand deposits,
savings accounts, and stable sources of corporate and governmental time de-
posits. Several of our new installations are designed primarily to attract such

de We lt anticipate that in 1975 the International Banking Department will be
able to take advantage of, and consolidate, the rapid, ten-year expansion of our
international activities. We anticipate significantly higher profits and a greater
relative contribution to overall Bank earnings.

ASSET AND LIABILITY MANAGEMENT

The adverse earnings impact of carrying cash basis loans will be substantial
during the first quarter of 1976. However, as the year progresses and collections
are received on these loans, the proceeds will be reinvested at going market

The modest amount of the increase in 1975 earnings was disappointing, but
we are highly gratified that our basic earnings stream was strong enough to
absorb the aggregate burden of $118 million in loan provisions (up from 853
million in 1974), $27 million in interest reversals, and $52 million interest short-
fall, yet still show a gain.

Loan Quality

Constant attention to the quality of the loan portfolio is achieved through a
formal loan review process. The lending officers assign a credit quality classifica-
tion to each loan when it is recorded on the books. Subsequently, the Loan Review
Unit — staffed by experienced and able credit officers — independently evaluates
and ranks each loan greater than $50,000 annually or more frequently. Through
this ongoing process, management is advised of the condition of individual credits
and the quality and profile of the entire portfolio. This information, in turn, en-
ables management to make whatever changes in lending policies it deems
necessary.

As might be expected following a severe recession, the loan portfolio currently
reflects some deterioration in the financial condition of a number of companies,
particularly those in the real estate industry. However, the majority of our bor-
rowing customers are in sound condition, and among those that are experiencing
difficulties, improvement is being achieved. The reserve for loan losses will be
maintained at an adequate level to cover any potential losses.

Loans to REITs continue to represent the most troublesome part of the loan
portfolio. However, substantial progress in reducing our exposure was achieved
in 1975, and recent signs of increased activity in the real estate sector are
encouraging.

At year end, our loans to REITs were $693 million, down from $788 million
at the end of 1974. This $95 million reduction was accomplished by $66 million
of net cash payments, $18 million of specific assets obtained from trusts in ex-
change for our loans, and $11 million of write-offs. In addition to the REIT
loans written off, the quality of the remaining REIT portfolio was an important
consideration in the addition made to the reserve for possible loan losses. At
year end, $402 million of our REIT loans were on a cash basis. The average
interest rate earned on the entire REIT portfolio during the year was 5.4
percent.

A comment on the shipping portfolio is also appropriate in view of recent
publicity concerning the financing of this industry. As of December 31, 1975, our
credits secured by oceangoing ships amounted to $191 million, and we also had
additional commitments of $109 million. Our risks are well diversified, both as
to obligor and type of ship, and our losses on shipping credits have been modest.

Although we have our share of loans to manufacturers, retailers and others
hard hit by the 1974-75 recession, with the exception of the REIT and other real
estate-related loans, the overall portfolio is in good balance and of appropriate
quality.

134

At the Annual Meeting on April 11, 1975, it was stated: . . if business
remains soft, then interest rates may stay at current levels or decline further,
loan demand will continue to be slack, and our own spreads, which began to
narrow in the second half of March, may come under additional pressure."

That observation turned out to be reasonably accurate. While the recession
bottomed out early in the second quarter, the recovery has progressed at a
moderate pace. Short-term rates declined rapidly early in 1975, but in May an
upswing in rates began. The upswing persisted through September and into
October before rates declined again late in the year.

%
8

Average Monthly
Short-Term Interest Rates
1975

6 -

# # ♦

♦
♦

— Fed Funds

v+ Treasury Bills

■ Commercial Paper

J I I I L

I I I

J FMAMJ JAS OND

Within this uncertain economic environment and changing interest rate pat-
tern, the Asset and Liability Management Committee attempted to maximize
the Corporation's interest spread income, while maintaining adequate liquidity
and acceptable capital ratios.

135

Loan volume

The inventory liquidation and reductions in capital spending which accom-
panied the recession had a dampening impact on domestic loan demand through-
out 1975. However, this decrease was partially offset by steadily increasing loan
volume in the International and Personal Banking departments. Consequently,
consolidated loans declined only modestly during the year, to $11.8 billion at
year-end, compared with $12.3 billion at year-end 1974.

Average Consolidated Loans
First Chicago Corp.
Billions 1975
$12.5

12.0 -4

11.5 — :

11.0 _i

1st
Qtr.

2nd
Qtr.

3rd
Qtr.

4th
Qtr.

Investments

While domestic private credit demand slackened, the borrowing needs of the
Federal government and its agencies rose as the federal deficit soared to a record
level. Consequently, significant additions were made to the U.S. government and
Federal agency portfolios during the year, raising the total to $1.4 billion at year
end, an increase of $804 million over the $634 million as of December 31, 1974.
These additions were concentrated in the shorter maturity ranges to permit re-
duction of security holdings when loan demand strengthens, without the need
to liquidate bonds at prices below original cost.

136

Investment Account Holdings
U.S. Government and
Federal Agency Securities

Billions 1975

$1.5 I

1.2

3/31 6/30 9/30 12/31

3 yrs. 2 yrs. 1 yr. 1 yr.
2 mos. 4 mos. 7 mos. 4 mos.

Outstandings in the municipal portfolio declined during the year because the
proceeds of maturing bonds were reinvested in other assets. The portfolio at year
end amounted to $83S million, compared with $879 million the previous year, and
it does not contain any obligations of New York City or of the New York Munici-
pal Assistance Corporation.

Purchaxrd money

As bank assets grew at a rapid pace during the early 1970's, First Chicago, like
most other money center banks, relied heavily on "purchased money" — primarily
CDs (negotiable certificates of deposit) — as a means of financing domestic loan
growth. In early 1974, however, the growth of new loans was restrained in order
to insure adequate resources to fund existing and prospective requirements of
long-standing customers without the necessity to rely on more volatile sources of

137

funds. Simultaneously, greater emphasis was placed on developing new sources
of relationship money, and on increasing the average maturity of the liability
structure. During 1975, the Corporation registered progress in achieving both of
these objectives.

CD portfolio

After lengthening the maturity structure of the CD portfolio during the first
half of 1975, the strategy was reversed in midyear, causing both the size and ma-
turity of the portfolio to decrease in order to take advantage of favorable rates
on short-term funds. As of December 31, i975, the portfolio totaled $3.9 billion
compared with $4.7 billion on December 31, 1974. The average maturity at year
end was 70 days, slightly higher than the average maturity of 68 days a year
earlier.

Funding Related Activities

The use of commercial paper to finance holding company and related activities
was significantly reduced during the year. This reduction was made possible
because of new funds generated by a $60 million private placement of 18-month
notes arranged in November, and an additional private placement of shorter term
notes, which totaled $127 million at year end.

As of December 31, 1975, total commercial paper outstanding was $397 million,
compared with $502 million as of December 31, 1974.

In keeping with previous policy, the Corporation maintains bank lines which,
together with overnight money market loans, short-term investments, and other
liquid assets, provide greater than 100 percent back-up for outstanding commer-
cial paper.

At year end the combined assets of our nonbank subsidiaries were $954 million.
These assets were principally financed by $80 million of equity capital and bor-
rowings either advanced from or guaranteed by the parent. Included in the
borrowings guaranteed by the parent were $127 million of short term privately
placed notes and $49 million of intermediate-term notes. The parent's sources of
funds used to finance the advances to the subsidiaries included $200 million of
intermediate-term debt and the $60 million of privately placed 18-month notes,
with the balance funded by commercial paper and other short-term liabilities.

Demand Deposits and Savings

Average demand deposits rose $74 million, or three percent, for the year. While
this is not a significant increase, it was achieved during a period when money
supply grew modestly, and when average domestic loans were actually one per-
cent below 1974. The increase under such circumstances was a source of satisfac-
tion since it resulted from efforts to attract new balances as compensation for
operating services, and to rely more heavily on balances instead of fees in pricing
certain lending commitments.

Average passbook savings increased $67 million, or 8.2 percent, during the year,
to a level of $889 million. The average of other savings-type deposits, primarily
consumer savings certificates, also increased from $1.2 billion to $1.4 billion.

International

Approximately 67 percent of offshore deposits are denominated in Eurodollars,
9 percent in other Eurocurrencies, and the balance of 24 percent in local curren-
cies of the countries where we have branches or subsidiary banks. As to the mix
of our sources, 67 percent of our funds are obtained from commercial banks, 16
percent from central banks and official government institutions, and 17 percent
from companies and individuals.

Most of the funding is accomplished through installations in London, Paris,
Singapore, and Panama. Approximately 25 percent of international deposits are
obtained from American commercial banks and companies operating abroad. The
remaining sources are well diversified, with depositors of no single nation ac-
counting for more than 10 percent of total offshore funds.

The international network is heavily invested in cash or cash equivalents. The
primary source of liquidity is represented by short-term deposits placed with
other major banks, which aggregated $1.7 billion as of December 31, 1975.

Interest Differential Income and Spreads

Total interest income declined in 1975 from 1974 reflecting the lower rates in
the second half of the year. Interest paid declined even more sharply, however,

138

with the result that net interest differential income (our gross margin) increased
from $380 million to $407 million. This income is detailed in the interest differen-
tial statement in the financial section.

The overall increase in net interest income obscures some important changes
in its composition. The most notable increase in net interest differential resulted
from substantially improved overseas spreads (the difference between the yield
on assets and the cost of the supporting liabilities) in our international opera-
tions. The contractual spreads on international loans averaged 1.60 percent in
1975, up from 1.33 percent in 1974. Moreover, favorable funding provided sub-
stantial additional earnings over and above the contractual spreads.

Spreads earned on both U.S. governments and municipals also improved from
1974. The decision taken early in the recent year to expand the government port-
folio therefore had a favorable impact on 1975 earnings.

Spread Between
Investment Yield and

— 1974

1 1 I I I I » 1 1 I 1

JFMAMJJASOND

On the other hand, spreads on domestic loans narrowed throughout the
year, partly because the loans were more sensitive to changes in interest rates
than the liabilities used to fund them. Of greater significance, however, was
the adverse effect on domestic lending spreads caused by the increase in cash
basis loans.

139

Spread Between
Commercial Loan Yield and

I I I t I I I I I I I I I
J FMAMJ J AS OND

A reduction in the level of these loans is one of your management's highest
priorities.

Capital

In recent years the general adequacy of capital in the banking industry and
the ability of the industry to finance additional loan growth have been widely
discussed. Such discussions tapered off as loan demand softened in 1975, and
attention turned to the asset side of the balance sheet. Nonetheless, the banking
industry is much more aware that a strong capital position is desirable. Although
no specific agreement has developed on what constitutes a proper level of capital,
the importance of the issue has not diminished in any way.

First Chicago has traditionally been one of the most strongly capitalized major
bank holding companies. We had hoped to further augment capital in 1975 by
going to the public market, but market conditions were not propitious for an
equity-type offering on reasonable terms. Consequently, we will rely on re-
tained earnings until market conditions become more favorable.

In 1975, after paying $37 million in dividends to shareholders, the Corporation
retained $71 million in earnings and increased the reserve for loan losses by

25-605 O - 78 - 10

140

$25 million. This, together with proceeds of stock options exercised, raised the
total of net worth and the loan loss reserve by $98 million, from $909 million to
slightly more than $1 billion.

INTERNATIONAL BANKING DEPARTMENT

Relative calm characterized international financial markets in 1975, a sharp
contrast to the turmoil of recent years. As the worldwide recession sharply
reduced demand for funds, the growth of international bank credit to developed
countries slowed. Demand by socialist and developing countries, however, was
relatively strong. Interest rate spreads remained significantly greater than in
the past, although they began to weaken slightly in the last months of the year.

Part of the reduced demand for Euro-currency loans by industrialized coun-
tries was attributable to a record level of new issues in the international bond
market. Interest rates on both long and short-term obligations moved lower over
the course of the year in response to lower levels of inflation.

A significant development in the world economy was the sharp improvement
in the U.S. balance of trade to a record surplus of about $11 billion. The result
was a stronger dollar on the international exchange markets.

DISTRIBUTION OF LOANS— OVERSEAS OFFICES

Dec. 31, 1975

Amount Percent of
(thousands) total

North American-Caribbean. $382,727 12

Middle East-Africa 393,384 12

Asia-Pacific. 558,995 17

Continental Europe 711, 176 22

Latin America 599,293 19

British Isles-Scandanavia... 560,829 18

Total.. 3,206,404 100

The International Banking Department achieved a level of profits over three
times greater than in 1973, the best previous year. The Department accounted
for 32 percent of the Corporation's gross income in 1975, compared with 30 per-
cent in 1974. Based on internal reporting procedures, which involve certain sub-
jective allocations and adjustments, we estimate that the Department accounted
for 34 percent of the Corporation's income before security transactions in 1975,
compared with three percent in 1974. Strong profit performances in each geo-
graphic area contributed to the overall earnings growth.

Loans outstanding at year end in each geographic area were as shown in the
table above.

While loan spreads and income from fees and commissions registered substan-
tial increases over last year, an important element of the Department's total
profit contribution was the manner in which the asset portfolio was funded. By
altering the maturity structure of deposits taken, income was earned in excess
of contractual spreads. During most of the first three quarters of the year when
interest rates were falling, additional earnings were derived by funding a pru-
dent percentage of the assets with deposits having shorter maturities. They could
therefore be "rolled over" at progressively lower rates. Later in the year funding
profits were maintained by lengthening the maturities of our deposits taken,
thus locking in the favorable spreads.

Throughout the year, foreign exchange trading was mostly limited to buying
and selling for customer account and produced a bef ore-tax profit of more than
$fl million.

Responsibility for the worldwide shipping portfolio was assigned during the
year to a new Marine Finance Group headquartered in London. This Group,
composed of credit officers with special skills in marine finance, has credit re-
sponsibility for existing shipping loans, and approves all new extensions of

credit.

The marketing of fee-income services was improved by expanding these activ-
ities around experienced specialists.

We continued the extension of our global network, to a total of 81 installations
£ ttT 1 ^ 7 es - ^ nGW units In dude branches in Abu Dhabi and Sharjah in
the United Arab Emirates, a participation in an internationally controlled bank
in ^ew York, and an addition to our subsidiary branch network in Jamaica.

141

Moreover, many installations opened in previous years are contributing to over-
all profitability.

We are proud of the correspondent relationship initiated in November with
the Bank of China. We intend to use this link with the People's Republic of
China to enhance trade between our customers and this potentially important
participant in world trade.

HISTORICAL FINANCIAL SUMMARY
LOANS AND LOAN LOSS STATISTICS
FIRST CHICAGO CORP. AND SUBSIDIARIES

[Dollar amounts in thousands]

19/3

13/4

1070

vile

iy/i

Balances:

Average loans for the year

$11,826, 839

$11, 497, 376

$8, 610, 799

$6, 025, 157

$4, 914, 236

Loans outstanding at end of year

11,871, 731

12, 368, 337

9, 350, 562

7, 074, 941

5, 449, 914

Net chargeoffs for the year

92, 914

40, 253

17, 406

13, 793

24, 102

Reserve for possible loan losses at end of

year _ „

121, 352

95, 766

83, 269

77, 277

71, 908

Provision for loan losses _

118, 500

52, 750

23, 398

19, 162

16, 766

Ratios (percent):

Net chargeoffs to average loans

0. 79

0. 35

0. 20

0. 23

0. 49

Net chargeoffs to loans outstanding

0. 78

0. 33

0. 19

0.19

0. 44

Net chargeoffs to provision for loan losses...

78.41

76.31

74. 39

71.98

143. 76

Reserve for possible loan losses to average

loans..

1. 03

0. 83

0. 97

1.28

1.46

Reserve for possible loan losses to loans

outstanding _

1. 02

0. 77

0.89

1.09

1.32

Provision for loan losses:

5-yrformula

$45, 347

$33, 494

$22, 573

$17, 928

$16, 367

In excess of formula...

73, 153

19, 256

825

1,234

399

Analysis of net chargeoffs:

Chargeoffs:

In domestic offices:

Commercial

34, 583

28, 773

8, 676

9, 289

19, 355

Secured primarily by real estate...

23, 369

4, 595

5, 651

541

Real estate i n vestment trusts

11, 522

Consumer

11,019

6, 578

2,714

2, 466

1,997

Other...

9, 991

140

1,692

2, 797

162

In overseas offices

5, 099

5, 568

425

3, 368

Total chargeoffs

95, 583

45, 654

18,812

14, 981

25, 423

Recoveries:

In domestic offices:

Commercial...

204

2, 553

620

712

866

Secured primarily by real estate...

230

Real estate investment trusts

533

Consumer

1,918

1,342

654

444

453

Other

671

In overseas offices

(313)

808

130

Total recoveries

2, 669

5, 401

1,406

1, 188

1,321

Net chargeoffs

92, 914

40, 253

17, 406

13, 793

24, 102

(In thousands]

Dec. 31

1975

1974

Loans— Composition:

In domestic offices:

Commercial

S4. 419. 288

$4, 995, 100

Secured primarily by real estate >.

1, 383, 665

1, 282, 152

Real estate investment trusts

693, 500

788, 000

Other financial institutions

1,011,667

1, 104, 953

Consumer

501, 485

313,801

Other

680, 763

924, 619

Total in domestic offices

8, 690, 368

9, 408, 625

In overseas offices ...

3. 206. 404

2, 984, 059

Total gross loans

11,896,772

12, 392,684

i Includes residential and other mortgages.

142

[In thousands]

Dec. 31, 1975

Loans in overseas offices— Composition:

Banks - — $467,622

Other financial institutions 26, 077

Governments and official institutions 695, 151

Consumer 40,687

Commercial 1,741,376

Real estate 175,924

Other 59,567

Total 3.206.404

[In thousands]

Dec. 31, 1975
Fixed rate Variable rate

Interest sensitivity loans:
In domestic offices:

Due in 1 yr or less $1,786,025 $3,314,968

Due after 1 yr 963, 319 2, 626, 056

Total in domestic offices

2,749,344

5,941,024

In overseas offices:

Due in 1 yr or less

Due after 1 yr

287, 621

105, 878

912,117
1, 900, 788

Total in overseas offices ...

393, 499

2,812,905

Total gross loans 3,142,843 8,753,929

[In thousands]

Dec. 31, 1975

1 yr or less 1 1 to 5 yr Over 5 yr

Maturity Distribution of Loans: 2

In domestic offices $4,601,750 $2,500,795 $852,163

In overseas offices 1,180,949 1,252,936 731,832

Total loans 5,782,699 3,753,731 1,583,995

2 Includes demands loans.

3 Excludes comsumer and residential mortgage loans totaling $776,347.

[In millions]

Dec. 31, 1975

Used Unused Total

Used/unused commitments: »

Domestic $8,148 $5,532 $13,680

International* 3,526 1,637 5,163

Total 11,674 7,169 18,843

1 Includes loans, lease financing, and customers' acceptance liability; excludes consumer and residential morgtage loans.
3 Includes commitments that are the credit responsibility of the International Banking Departments.

Citicorp Annual Report for 1974

financial summary

Citicorp's consolidated operating earnings after tax for 1974 rose to a record
level of $313,027,000 up 23% from the $254,820,000 earned in 1973. Of major
significance in the 1974 results was the establishment by management of an

143

additional provision for possible losses on loans of $35,000,000 in excess of the
standard provision as calculated by application of a five-year moving average
method. This important subject is reviewed in greater detail in a subsequent
section of this Financial Review.

DOMESTIC EARNINGS

Citicorp's domestic earnings, approximately 38% of total earnings increased
18% over 1973. Domestic results were favorably influenced by improved net
interest revenue, partially offset by increases in the provision for loan losses,
premises expenses, and operating expenses associated with domestic expansion.

Average loans in domestic offices, including $1,150,000,000 of loans to interna-
tional companies booked domestically, were $16,546,000,000 up 23% from 1973.

DOMESTIC NET INTEREST REVENUE (TAXABLE EQUIVALENT BASIS)
[Dollar amounts in millions]

Change

1974 1973 (percent)

$150.4 $129.6 +16

165.8 132.7 +25

166.4 133.9 +24

174.0 135.7 +28

856.6 531.9 +23

1st quarter.
2d quarter.
3d quarter.
4th quarter.

Year.

The favorable net interest revenue of domestic operations was achieved pri-
marily in Citibank since Citicorp's other domestic activities were adversely
affected by high interest rates on funds used for their less interest-sensitive
asset portfolios. It should be noted that a change has been made from previous
reporting of net interest revenue by geographic area. In the past net interest
revenue from international loans and deposits booked in New York was in-
cluded as part of domestic offices. Our revised reporting allocates this portion
of net interest revenue to international earnings consistent with the treatment
of Geographical Sources of Operating Earnings. The improved domestic net in-
terest revenue in 1974 was favorably influenced by higher average demand de-
posits, net of float, of $4,673,000,000, an increase of 8% over the $4,339,000,000
in 1975.

INTERNATIONAL EARNINGS

Citicorp's international earnings, approximately 62% of total earnings, in-
creased 26% over 1973. This growth reflects improved net interest revenue and
increased foreign exchange trading income both broadly based throughout the
world, partially offset by higher loan loss provision and less favorable earnings
performances in certain consumer lending activities.

Average loans in overseas offices were $14,006,000,000, up 37% from 1975. This
growth continued to be widely spread geographically and relates to both the
corporate and consumer sectors. Earnings in all overseas areas, except the
Asian-Pacific area, increased over 1973 with the largest increase being in the
European area where foreign exchange trading income was strong.

INTERNATIONAL NET INTEREST REVENUE (TAXABLE EQUIVALENT BASIS)
[Dollar amounts in millions]

Change

1974 1973 (percent)

1st quarter $110.8 $83.6 +33

2d quarter 145.1 95.1 +53

3d quarter. 161.9 111.0 +46

4th quarter 209.1 118.1 +77

Year 626.9 407.8 +54

144

As was true domestically, overseas corporate lending activities generated in-
creased net interest revenue, while the net interest revenue of consumer lending
activities was unfavorably influenced by higher interest rates involved in funding

the less interest-sensitive asset portfolios.

PRICING

During 1974, significant pricing actions were initiated. These pricing actions
included the changing of the Citibank domestic base rate formula by increasing
the rate over the three-week moving average of 90-day commercial paper from
live-eighths of 1% to 1% and an increase in rate differentials of our Euro-
currency lending. Fees for commitments to make loans in the future were in-
creased. Additionally, bankers' acceptance fees were raised worldwide. These
pricing changes took place in the last half of 1974.

Other factors affecting Citicorp's earnings were :

Foreign Exchange. — As a result of accelerated world trade, capital flows,
and investment banking activity, foreign exchange trading income increased
sharply in 1974. Foreign exchange trading income was $89,411,000 in 1974, an
increase of $35,424,000 over 1973.

Disposition of Subsidia?Hes and Affiliates. — Operating earnings after tax in
1974 included an after-tax net loss of $4,214,000 from the disposition of subsid-
iaries, affiliates and other equity investments, including venture capital invest-
ments and charges for management's estimate of permanent impairment in
value. A net loss of $1,227,000 from such disposition was reflected in 1973.

Trading Account. — Trading account profits and commissions in 1974 resulted
in a pre-tax gain of $977,000 compared with a pre-tax gain of $3,281,000 in 1973.

Reserve for "CAP" Loans. — Citicorp continued to reserve for interest on cer-
tain loans that are subject to refund if the average rate paid by customers over
a i>eriod of time exceeds the agreed upon maximum rate. During 1974, the amount
reserved was $22,424,000. The total reserve, net of refunds, at year-end 1974
was $25,180,000. All such amounts provided are netted against interest revenue.

LOAN LOSS EXPERIENCE, CITICORP AND SUBSIDIARIES

[In thousands]

1974 1973 1972 1971 1970 1969

Gross loan losses:
Commercial:

Domestic $37,972 $40,770 $21,219 $28,290 $37,971 $4,270

Overseas 41,474 23,395 12,607 9,802 4,058 1,879

Subtotal 79,446 64,165 33,826 38,092 42,029 6,149

Consumer:

Domestic 17,814 14,369 12,148 11,827 11,718 10,014

Overseas 19,659 6,762 3,344 3,408 1,199 618

Subtotal 37,473 21,131 15,492 15,235 12,917 10,632

Total gross loan losses . 116,919 85, 296 49, 318 53, 327 54, 946 16, 781

Loan recoveries:
Commercial:

Domestic... 4,224 1,784 4,758 2,164 1,916 (875)

Overseas 6,373 2,168 2,070 1,082 831 3,629

Subtotal 10,597 3,952 6,828 3,246 2,747 2,754

Consumer:

Domestic 3,697 3,224 3,245 2,886 3,151 2,492

Overseas 6,114 1,538 874 504 164 92

Subtotal 9,811 4,762 4,119 3,390 3,315 2,584

Total loan recoveries . 20, 408 8,714 10, 947 6, 636 6,062 5, 338

145

LOAN LOSS EXPERIENCE, CITICORP AND SUBSIDIARIES— Continued
[In thousands]

1974 1973 1972 1971 1970 1969

Net loan losses:
Commercial:

Domestic 33,746 38,986 16,461 26,126 36,055 5,145

Overseas 35,103 21,227 10,538 8,720 3,227 (1,750)

Subtotal 68,849 60,213 26,999 34,846 39,282 3,395

Consumer:

Domestic — 14,117 11,145 8,903 8,941 8,567 7,522

Overseas 13,545 5,224 2,469 2,904 1,035 526

Subtotal 27,662 16,369 11,372 11,845 9,602 8,048

Total net loan losses - 96,511 76,582 38,371 46,691 48,884 11,443

provision for possible losses on loans 139,686 61,500 40,600 33,000 23,900 13,500

valuation portion of reserve for possible losses on

loans—. - 262,473 219,383 233,085 230,733 243,631 268,215

CITICORP'S 1974 LOAN LOSS EXPERIENCE

In proportion to Citicorp's 20% year-to-year increase in average loans out-
standing, net loan write-offs in 1974 were up 26% to $96,511,000 from the level
of $76,582,000 written off in 1973. Net loan losses as a percentage of average loans
outstanding remained at about the 1973 level.

Commercial lending

In 1974, 90% of Citicorp's world-wide loans and 71% of its credit losses were
to commercial borrowers. Average loans to the commercial sector increased by
28% from 1973 to 1974 while related net loan losses rose 14%. The percentage of
average loans to commercial borrowers written-off in 1974 fell to .25% from
.28% in the previous year.

Net commercial loan losses in domestic offices declined in 1974 to $33,746,000
from the $38,986,000 experienced a year earlier ; as a percentage of average loans
outstanding, the decline was from .33% to .23%. In overseas offices, net commer-
cial loan write-offs increased to $35103,000 from the $21,227,000 experienced
in 1973 ; as a percentage of average loans, the increase was to .27% from .22%
in the previous year.

Commercial loan write-offs were experienced in widely diverse loan classifica-
tions. No individual loss amounted to more than $7,000,000 and there were 29
individual write-offs for an amount equal to or exceeding $500,000. Commercial
loan write-offs worldwide in the real estate sector were higher in 1974, increas-
ing to a level of $17,500,000 from the $9,600,000 written-off in 1973. Although
such real estate related write-offs declined domestically in 1974 to $5,800,000
from the $9,300,000 experienced in the previous year, they increased overseas
to a level of $11,700,000 from the $300,000 experienced in 1973. This increase was
almost entirely in the United Kingdom.

Consumer lending

Net write-offs in Citicorp's consumer lending activities increased bv 69% in
1974 to a level of $27,662,000 from $16,369,000 in the previous year. This' parallels
the significant growth of Citicorp's consumer lending activities worldwide, with
average consumer loans up by 44% in 1974 over 1973. As a percentage of average
loans outstanding, domestic consumer related net write-offs in 1974 were .74%
as compared to .71% in the previous year. Overseas, consumer related net loan
loss experience in 1974 is not fully comparable to previous years because of the
inclusion of the Kundenkreditbank (KKB), whose share capital is owned 71%,
for the first time in the consolidated statements of Citicorp. The Kundenkredit-

146

hank is a consumer financial institution in West Germany with over $700,000,000
in loans outstanding ; inclusion of the KKB's net write-offs accounted for more
than half of the total increase in Citicorp's consumer related net loss experience.

Net Loan Losses as a Percentage of Average Loans
Commercial/Consumer

1.00%

.75%

.50%

.25%

59%

.10%

.03%

1969

.60%

.35%

.32%

1970

Consumer

.73%

.59%

Total

.24%

1971

.16%
Commercial

1972

.76%

.28%

1973

.89%

.32% .32%

.25%

1.00%

.75%

.50%

.25%

1974

147

Net Loan Losses as a Percentage of Average Loans
Domestic/Overseas

CITICORP S PROVISION FOR LOAN LOSSES

Of major significance in Citicorp's 1974 operating results was the $139,686,000
provision for loan losses charged to the year's earnings. This amount was $35,000,-
000 in excess of the standard provision calculated by application of the five-year
moving average formula and $43,175,000 in excess of actual net loan write-offs
experienced.

148

Application of the five-year moving average method

In 1969, Citicorp adopted the "Five-Year Moving Average" method of calculat-
ing a standard provision for loan losses to be charged to earnings. Under this
method, the standard provision is computed by applying to average total loans
for the current year the ratio of net loan losses to average total loans for the
most recent five year period, including the current year. Application of this method
results in actual net loan write-off experience affecting current year's earnings
only to the extent that it impacts the five-year ratio used to determine the stand-
ard provision.

Thus, the "five-year moving average" method applies past loss experience to
the present loan portfolio. This method should produce an adequate loan loss
provision if future domestic and international economic conditions are relatively
similar to the recent past and if there is no significant growth in the portfolio
which would produce a lag effect when applying the formula.

Considering the current worldwide economic conditions and the increase in the
size of the loan portfolio, it was deemed prudent to increase the standard amount
being added to the Provision for Possible Losses on Loans for the year by
$35,000,000, of which $25,000,000 was charged to earnings in the fourth quarter.
The $43,175,000 excess bad debt provision charged to earnings over the $96,511,000
ill net write-offs for the year resulted in an increase in the valuation portion of
the bad debt reserve to $262,473,000.

The loan portfolios of certain nonbanking subsidiaries have characteristics
quite different from those of banks, including losses which are relatively predict-
able both as to the amount and timing. The recent significant growth in the loan
portfolios of nonbanking subsidiaries has created the need for certain other
changes in Citicorp's method of determining the correct level of loan loss provision
in these porfolios.

Prior to 1974, the five-year moving average was calculated by utilizing Citicorp's
consolidated loans and loan loss experience. Effective in 1974, the five-year moving
average will continue to be utilized by all subsidiary banks, including Citibank,
while all other Citicorp and Citibank subsidiaries will calculate their respective
provisions for loan losses based on the method deemed most appropriate for their
portfolio and loss experience. This change to a more preferable method results in
no material effect on 1974 consolidated net income.

The reserve for loan losses

Since actual loss experience for any given period may be higher or lower
than the provision charged to earnings, the excess or shortfall serves to increase
or decrease the Valuation Portion of reserve for possible losses on loans. The
Valuation Portion is that segment of the total reserve that has been created
by direct charges against operating income. The contingency and deferred-tax
portions have not been established by direct charges to earnings but rather by
transfers from undivided profits and the reserve for taxes.

The appropriate level of the valuation reserve at any time is a function of
the unique risk characteristics of the loan portfolio. The nature of certain
lending activities may involve higher risk than others, and accordingly such
risks should be matched by higher reserves. This fact, in part, is reflected in
a higher charge to earnings by Citicorp in 1974 for certain nonbanking subsidi-
ary lending activities. Some forms of lending activities such as consumer in-
stallment loans lead to an actuarial type of loss experience where the losses are
highly predictable in amount and timing and the appropriate level of valuation
reserves can be determined with reasonable accuracy. In addition, the appro-
priate level of valuation reserve must be related to the stringency of write-off
policy. The determination of valuation reserve adequacy must be made by man-
agement based on reviews of the portfolio undertaken internally and by ex-
aminations by regulatory bodies.

It is the opinion of the management of Citicorp that the $262,473,000 bal-
ance in the valuation portion of the reserve for possible loan losses at Decem-
ber 31, 1974, is adequate.

149

Citicorp 1975 Annual Report
financial summary

Citicorp's consolidated operating earnings after tax for 1975 rose to a record
level of $348.2 million, up 11 percent from the $313.0 million earned in 1974. This
was the fourteenth consecutive year that Citicorp reported an increase in
earnings.

The 1975 increase was achieved after absorbing a significantly higher provi-
sion for possible losses on loans charged to current earnings of $327.1 million,

1 Net Loan Losses, after tax effect, as a percentage of Operating Earnings after tax
excluding Provision for Possible Losses on Loans.

150

which compares with a 1974 provision of $139.7 million. Both the provision and
loan losses are reviewed in greater detail in a subsequent section of this Financial
Summary.

The increased earnings for 1975 reflect substantial improvement in worldwide
net interest revenue which, on a taxable equivalent basis, was $1,706 million, an
increase of $422 million or 33 percent over the $1,284 million earned in 1974. The
increase resulted from a combination of higher average volume abroad and
increased interest differential spreads, both in the U.S. and overseas.

Increased interest differential spreads in 1975 resulted to a major extent from
pricing actions initiated in 1974 and 1975. In 1975, earnings from domestic and
overseas lending reflected the full year impact of pricing actions initiated during
the last half of 1974. These pricing actions included the changing of the Citibank
domestic base rate formula by increasing the rate over the three-week moving
average of 90-day commercial paper from five-eighths of 1 percent to a full
1 percent and an increase in rate spreads on Eurocurrency lending. In the second
quarter of 1975, a further domestic pricing change was implemented, increasing
the spread over commercial paper to 1.25 percent.

The increased net interest revenue in 1975 is after reflecting the adverse impact
of certain loans ("cash basis" loans) where payment of interest in accordance
with contractual agreements is deemed questionable. Interest on such loans is
currently recognized only to the extent actually received in cash. The difference
between the interest that would have been accrued on such "cash basis" loans
at the initially contracted rate and the cash actually received was the after-tax
equivalent of 36 cents per share for the full year 1975. In addition, the equivalent
of 4 cents per share of interest which had been accrued during 1974 on several
such loans prior to their designation as "cash basis" loans was reversed in 1975
and charged to earnings.

Earnings in 1975 included an after-tax charge of $26 million (deducted from
Other Revenue), representing Citicorp's share of the operating losses of Grind-
lays Bank Limited ("Grindlays"), Citicorp's 49 percent-owned United Kingdom
affiliate. Grindlays' results were adversely impacted by write-offs of loans to
property companies made by its wholly-owned subsidiary, Brandts Limited.

During 1975. two companies were consolidated for the first time, the impact
of which, where applicable, will be referred to in the subsequent discussion. The
companies, Trinkaus & Burkhardt (T&B), a West German private banking
institution, and Industrial Acceptance Corporation (IAC), an Australian finance
company, were consolidated on a line-by-line basis in the first and second quarters
of 1975, respectively.

International earnings

Citicorp's international earnings, based upon internal allocations., increased
27 percent over 1974 and were about 70 percent of total earnings. This growth
reflects improved net interest revenue that was partially offset by the impact of
loan losses and Grindlays.

Average loans in overseas offices were $18.7 billion, up 34 percent from 1974.
Included in average 1975 loans was $1.1 billion for IAC and T&B. This growth
continued to be widely spread geographically and relates to both the corporate
and consumer sectors. The largest earnings increase was from the South Asia.
Middle East and Africa area. Europe, which was adversely impacted by Grind-
lays. was flat.

INTERNATIONAL NET INTEREST REVENUE (TAXABLE EQUIVALENT BASIS)
(Dollar amounts in millions]

Chance

1975 1974 (percent)

1st quarter $206.3 $106.7 +93

2d quarter 251.4 134.3 +87

3d quarter " " 237.5 1*5.7 +63

4th quarter 232.6 194.2 +20

Year 927.8 580.9 60

Overseas not interest revenue increased 60 percent in 1975 over 1974. The
■nhMtantfal increase reflected a combination of hisrher volume and interest
differential rate snreads almost 00 basis points (hundredths of 1 percent)
wider thnn 1974. The first half of the year was particularly strong with com-
bined average loan and investment volume growing bv almost $4 billion from
the fourth quarter of 1974 to the second quarter of 1975. As interest rates fell

151

during that period of time, interest rates fell more rapidly on funds borrowed
than rates on earnings assets, causing a positive impact on the net rate spread,
which increased by approximately 25 basis points. Volume decreased in the third
quarter, causing net interest revenue to fall, and remain essentially flat in the
fourth quarter with no significant change in rate spreads. The full year 1975
net interest revenue includes $52.6 million attributable to IAC and T&B.

Domestic earnings

Citicorp's domestic earnings in 1975 were some 30 percent of total earnings.
Domestic results were favorably influenced by improved net interest revenue,
offset by increases in the provision for loan losses and expenses associated with
domestic expansion. Domestic results were also impacted by $8 million of in-
creases in New York State and City taxes.

DOMESTIC NET INTEREST REVENUE (TAXABLE EQUIVALENT BASIS)
jDollar amounts in millions]

Change

1975 1974 (percent)

1st quarter $188. 1 $154.5 +22

2d quarter 175.8 176.6

3d quarter 210.2 182.7 +15

4th quarter 204.2 188.8 +8

Year 778.3 702.6 +11

Domestic net interest revenue increased by 11 percent for the full year 1975
compared with 1974. This increase was primarily a result of a 30 basis point
higher interest differential spread as the volume of funds employed rose less
than 4 percent compared with 1974. The improved margin resulted to a large
extent from the pricing changes described above.

Average loans in domestic offices, including $1.1 billion of loans to international
companies booked domestically, were $16.9 billion, up only 2 percent compared
with 1974. while the prior year's increase was 23 percent.

Citicorp continued to reserve (charge against interest revenue) for interest
on certain loans ("Cap" loans) that is subject to refund if the average rate
paid by customers over a period of time exceeds the agreed upon maximum
average rate. During 1975 the amount reserved was $6.1 million compared with
$22.4 million during 1974. The reserve at December 31, 1975, after 1975 rebates
of $.5 million, was $30.8 million compared with a reserve of $25.2 million at
December 31, 1974. The loans outstanding with such "Caps" were $517 million
at December 31, 1975, compared with $544 million at year-end 1974.

[Dollar amounts in thousands]

1975

1974

Change
(percent)

INTERST REVENUE AND EXPENSE

Interest revenue

Adjustment to taxable equivalent basis

$4, 461, 136
94, 836

$4, 553, 022
82,843

-2
+14

Interest revenue (taxable equivalent basis).

Interest expense

4, 555, 972
2, 849, 824

4, 635, 865
3, 352, 322

- 2
-15

Net interest revenue (taxable equivalent basis)

1, 706, 148

1, 283, 543

+33

NET INTEREST REVENUE (TAXABLE EQUIVALENT BASIS)

Domestic

778, 341

702, 563

+11

International:

Asia-Pacific

Canada and Caribbean

Europe

South America

South Asia, Middle East and Africa.

168, 231
176, 417
365, 965
133, 620
83, 574

85, 692
118, 184
231, 190
87, 726
58, 188

+96
+49
+58
+52
+44

927, 807

580, 980

+60

Total net interest revenue (taxable equivalent basis)

1, 706, 148

1, 283, 543

+33

152

(.rograpfckil Somtcm of Operating Earnings'

tJU 100*

12 J J 100%

v..uth Ml, M«Mk U.i A Ainu

SS6

SSI

Coon Zos* experience

Reflecting the most severe economic downturn since the 1930's in the U.S. and
generally throughout the world, 1975's net loan losses amounted to $299.4 mil-
lion, an increase of $202.9 million from $96.5 million in 1974. Real estate related
loan losses were $135 million, approximately $60 million overseas and $75
million domestic, including $24 million of real estate investment trusts. This
compares with total real estate related losses in 1974 of $17 million. Of Citi-
bank's $97 million loan to W. T. Grant, $50 million was written off in 1975.
Other commercial loan losses were widely diversified by type of borrower and
by area of the world outside the U.S.

In part, reflecting a 36 percent Increase in average consumer loans outstanding,
net loan losses in connection with consumer leding in 1975 were $39.9 million
versus approximately $28 million in the prior year. As indicated on the accom-
panying chart, net loan losses as a percentage of average consumer loans in
1075, while high, are within a normally expected range. The table below shows
the breakdown of loan losses over the last six years.

Primarily reflecting the sharply increased level of loan losses incurred in 1975,
a provision for possible losses on loans of $327.1 million was charged to current
earnings, an increase of $187.4 million from the $139.7 million charged against
earnings in 1974. This provision was $27.7 million in excess of the net loan
losses actually incurred in the year. During 1975 and 1974, the amounts charged
to earnings for the two years taken together exceeded actual net loan losses by a
lotal of more than $70 million.

153

Consumer Net Loan Losses as a Percentage

of Average Consumer Loans (Domestic/Overseas)

(percent)
1.25 —

1970 1971 1972 1973 1974 1975

154

Commercial Net Loan Losses as a Percentage

of Average Commercial Loans (Domestic/Overseas)

( percent)

1970 1971 1972 1973 1974 1975

155

LOAN LOSS EXPERIENCE
[In thousands]

1975 1974 1973 1972 1971 1970

Provision for possible losses on loans $327, 098 $139, 686 $61, 500 $40, 600 $33, 000 $23, 900

Net loan losses 299,426 96,511 76,582 38,371 46,691 48,884

Excess of provision over net losses 27, 672 43, 175 (15, 082) 2, 229 (13, 691) (24, 984)

Reserve for possible losses on loans 300,755 262,473 219,383 233,085 230,733 243,631

Cumulative increase (decrease) in reserve.... 57,124 18,842 (24,248) (10,546) (12,898)

DETAIL OF LOAN LOSSES

Gross loan losses:
Commercial:

Domestic 182,902 37,972 40,770 21,219 28,290 37,971

Overseas 89,602 41,474 23,395 12,607 9,802 4,058

Suototal 272,504 79,446 64,165 33,826 38,092 42,029

Consumer:

Domestic 25,564 17,814 14,369 12,148 11,827 11,718

Overseas 32,624 19,659 6,762 3,344 3,408 1,199

Subtotal 58,188 37,473 21,131 15,492 15,235 12,917

Total, gross loan losses 330,692 116,919 85,296 49,318 53,327 54,946

Loan recoveries:
Commercial :

Domestic: 5,915 4,226 1,784 4,758 2,164 1,916

Overseas. 7,028 6,371 2,168 2,069 1,082 821

Subtotal 12,943 10,597 3,952 6,827 3,246 2,747

Consumer:

Domestic... 3,605 3,697 3,224 3,245 2,886 3,151

Overseas 14,718 6,114 1,538 875 504 164

Subtotal 18,323 9,811 4,762 4,120 3,390 3,315

Total, loan recoveries 31,266 20,408 8,714 10,947 6,636 6,062

Net loan losses:
Commercial:

Domestic 176,987 33,746 38,986 16,461 26,126 36,055

Overseas 82,574 35,103 21,227 10,538 8,720 3,227

Subtotal 259,561 68,849 60,213 26,999 34,846 39,282

Consumer:

Domestic. 21,959 14,117 11,145 8,903 8,941 8,567

Overseas 17,906 13,545 5,224 2,469 2,904 1,035

Subtotal 39,865 27,662 16,369 11,372 11,845 9,602

Total, net loan losses 299,426 96,511 76,582 38,371 46,691

25-605 O - 78 - 11

156

Growth in Stockholders' Equity
Compared with Loan Losses

(in millions of dollars)

1.199

1970 1971 1972 1973 1974 1975

Reserve for possible losses on loans

After absorbing the $209.4 million in net loan losses, Citicorp's Reserve for
Possible Losses on Loans was $300.8 million on December 31, 1975 compared
with $202.5 million on December 31, 1974, an increase of $38.3 million, including
approximately $11 million resulting from the consolidation of certain subsidiaries.
It is the opinion of Citicorp management that the reserve is adequate to absorh
all future loan losses from the existing portfolio.

Citicorp's Reserve for Possible Losses on Loans as a percentage of loans out-
standing was ..S3 i>ercent at year-end 1975 compared with .74 percent at December
31. 1!>74. While this percentage is one factor that should be considered in assessing
the adequacy of the loan loss reserve, the significance of this relationship has
been generally overemphasized. A more important factor to the depositor and
investor is the ability of a bank holding company to absorb its net loan losses
out of current earnings and still provide an adequate return to the stockholder.
Therefore, two more important measures are the comparison of net loan losses
to the earnings stream and net loan losses to stockholders' equity. In 1975, a
year in which Citicorp incurred the largest amount of net loan losses in its his-
tory, earnings before tax and provision for loan losses exceeded net loan losses
by a factor of more than three to one. Furthermore, in 1975 net loan losses after
tax effect were 5.2 percent of Citicorp's total year-end stockholders' equity and
the reserve for loan losses.

157

Loan Losses Compared
with Stockholders' Equity

(in millions of dollars)

2,666

Net Loan Losses, after Tax Effect

1970 1971 1972 1973 1974 1975

Loan Losses as a Percentage of Equity, including Reserve

1.6% 1.4% 1.0% 1.8% 2.0% 5.2%

Other factors affecting Citicorp's earnings were :

Foreign Exchange Income. — Foreign exchange income, including foreign ex-
change trading income, translation gains and losses and related hedging activ-
ties, was $26.2 million for the full year 1975 compared with $79.7 million in 1974.
Formerly, translation gains and losses and related hedging activities had been
classified in Other Revenue which, for prior years, has now been related to
reflect the change in reporting. About half the year-to-year decrease resulted
from translation losses incurred in translating the accounts of foreign offices at
appropriate exchange rates where related hedging was generally not possible.

In Citicorp's experience, the countries which have given rise to the most sig-
nificant translation losses also tend to have wider interest differential spreads
which have, over time, compensated for such losses. During 1975, the majority of
countries which had significant translation losses operated profitably after the
impact of such translation losses.

Other Revenue. — Other Revenue for 1975 was $114.8 million, compared with
$62 million for 1974, up $52.8 million. Higher leasing revenues contributed ap-
proximately $50 million to the increase. Other Revenue also includes a pre-tax
gain of $7.5 million in 1975 from the disposition of subsidiaries, affiliates and
other equity investments, including venture capital investments and charges for
management's estimate of permanent impairment in value. This compares with a
pre-tax loss of $6.2 million in 1974.

158

Trading Account. — Trading Account Securities Profits and Commissions re-
sulted in a pre-tax gain of $15 million compared with a pre-tax gain of $1 mil-
lion in 1974. A substantial portion of the 1975 gain resulted from the inclusion
of T&B.

Salaries. — In 1975, Salaries were $512.4 million, an increase of $87.4 million
over the $424.9 million in 1974. After adjusting for the $22 million attributable
to the inclusion of IAC and T&B, the increase was $65.4 million or 15.4 percent
over 1974. Of this increase, $29.5 million was related to international operations
and $35.9 million was domestic, approximately $19 million of which related to
domestic expansion activities.

Other Expense. — Other expense includes, principally, telephone, insurance,
legal, travel, advertising and research and development. Other Expense in 1975
was $355.9 million, an increase of $64.8 million from the $291 million in 1974.
Adjusting for the $13.4 million related to the inclusion of IAC and T&B, the
increase was $51.4 million or 17.7 percent over 1974. Of this increase, $13.2 million
was associated with international operations. Of the $38.2 million domestic in-
crease in Other Expense, approximately $27 million was related to domestic
expansion activities including research and development, which increased $4
million in 1975 over 1974. This increase in research and development was pri-
marily associated with the further development of a global communications
network and continuing efforts on Electronic Funds Transfer Systems (EFTS).

Operating Expenses as a Percentage of
Net Interest and Other Operating Revenue

(percent)

159

Expenses as a Percentage of Net Interest and Other Operating Revenue. — As
shown in the above chart, Citicorp's total of all staff payments and all other
operating expenses as a percentage of Net Interest and Other Operating Revenue
has declined from 67 percent in 1970 to 58 percent in 1974 and further declined to
55 percent in 1975. After adding the provision for possible losses on loans to
the expense total, the percentage declined from 70 percent in 1970 to 67 percent in
1974, but was up to 71 percent in 1975 as a result of the substantially increased
provision for possible losses on loans.

Citicorp Center. — Citicorp Center, a 915 foot high, 1,300,000 square foot com-
plex (incorporating 46 floors of office space) in the process of construction, is
located at Lexington Avenue and 53rd Street in New York City. The impact
of Citicorp Center on operating earnings was 2 cents per share in both 1975 and
1974, principally based upon the value of funds invested in the project. It is
estimated that the impact on operating earnings will be a cost of 3 cents per
share in 19TG and 5 cents per share in 1977. Citicorp Center is scheduled to be
completed in mid-1977. Initially Citicorp intends to occupy about half of the
space and lease the remainder to tenants.

Bankers Trust New York Corp.
financial review

Earnings summary

For the year 1974, Bankers Trust New York Corporation's income before
securities transactions totaled $71.3 million, as compared with the $65.9 million
reported in 1973. The Corporation earned $60.2 million in 1972. On a per share
basis the Corporation earned $6.82 in 1974, $6.25 in 1973 and $5.71 in 1972. The
earnings improvement was 9.1 per cent in 1974 and 9.5 per cent in 1973.

Net income for the Corporation totaled $70.7 million in 1974, $60.6 million in
1973 and $68.4 million in 1972. Net income was affected in 1973 by a security
loss program totaling $5.3 million after taxes. This program aided future earn-
ings by allowing reinvestment of funds at higher rates. The $7.2 million extraor-
dinary gain recorded in 1972 resulted from the sale of the Corporation's cor-
porate agency business.

The Corporation paid a dividend of $3.00 per share in 1974. This amounted to
44 per cent of income before securities transactions.

Following is a summary of the Corporation's consolidated income statement
for the years 1974, 1973 and 1972. Related information for 1971, 1970 and 1969
are available on pages 16 and 17.

SUMMARY OF EARNINGS
[In millions]

1974

1973

1972

Interest income.

Less interest expense

$1, 688. 7
1,350.0

$1,054.9
787.0

$587. 2
342.7

Interest differential income.

Foreign exchange and securities trading income

Trust and custodian income

Commissions and other income

33. 87
18.7
45.8
69.7

267.9
4.8
38.0
71.1

244.7
9.5
35.9
58.3

Operating income less interest expense

472.9

381.8

348.4

Provision for loan losses

Salaries and benefits

Other operating expense

68.3
178.9
136.1

31.9
152.7
109.1

20.2
140.7
92.9

Noninterest operating expense

383.3

293.7

253.8

Income before taxes, securities transactions and extraordinary item

89.6
18.3

88.1
22.2

94.6
34.4

Income before securities transactions and extraordinary item.

71.3

65.9

60.2

(.6)

(5.3)

1.0
7.2

70.7

60.6

68.4

160

Many factors affected the Corporation's 1074 performance and these are re-
viewed in comparison to 1973 and 1972 where pertinent.

Lending and investing

The Corporation's interest differential income increased by $70.8 million in
1974. up 2G per cent over 1973. This compared with a 10 i>er cent improvement
in 1973 over 1972. Of the improvements in 1974, 40 per cent has come from In-
creased levels of loans and deposits in the domestic lending operation ; another 40
per cent from the higher prime rate, along with improved rate spreads over the
latter part of 1974 The balance of the improvement resulted from the expansion
of foreign business. The improvement in 1973 resulted from incerased levels of
loans and deposits in domestic and foreign offices.

Loan and deposit balances

During 1974 the Corporation's average balance of loans totaled $11.6 billion,
a $2.7 billion, or 30 per cent, increase over 1973. The table below highlights the
major areas of increase.

AVERAGE LOANS
]ln billions]

1974

1973

1972

Commercial, industrial, and financial institutions

Consumer and residential

Other loans in domestic offices

Loans in foreign offices

$5. 4

1.7

1.5

3.0

$4.0
1.3
1.6
2.0

$2.9
.9
1.4
1.6

Total loans

11.6

8.9

6.8

Total deposits averaged $16 billion, a 26 percent increase over 1973. Demand
deposits, at $5.3 billion, were up 11 percent ; domestic time deposits, at $4.6 bil-
lion, were up 25 percent and foreign time deposits of $6.1 billion were 44 per-
cent higher than 1973.

AVERAGE DEPOSITS

(In billions]

1974

1973

1972

Demand deposits

Time deposits in domestic offices

Time deposits in foreign offices

$5.3

4.6

6. 1

$4.8
3.6
4.2

$4.6

2.7
2.8

Total deposits

16.0

12.6

10.1

Rate spreads

The consolidated average rate spread, which is the rate earned on loans and
securities less the rate paid on interest bearing sources of funds, ranged from
40 to 54 basis points during the first three quarters of 1974. Over the last three
months the spread widened to 102 basis points, a level more in line with rate
spreads experienced in early 1973.

161

AVERAGE CONSOLIDATED RATE SPREAD
[Fully taxable basis]

1974 quarters (percent)

4th 3d 2d 1st

Rates earned __ 11.05 11.45 10.34 10.01

Rates paid 10.03 11.05 9.83 9.47

Rate spread 1.02 .40 .51 .54

1973 quarters (percent)

4th 3d 2d 1st

Rates earned... 9.48 9.77 7.74 7.17

Rates paid. 8.89 9.29 7.06 6.12

Rate spread .59 .48 .68 1.05

Foreign exchange and securities trading income

Foreign exchange and securities trading operations resulted in profits of $18.7
million in 1974, up from the $4.8 million recorded in 1973. Earnings from these
operations totaled $9.9 million in 1972.

Trust and custodian income

Trust and custodian income in 1974 totaled $45.8 million, up $7.8 million from
the $38 million recorded in 1973. The increase in trust income was due to the
improvement in the timeliness of the Corporation's method of billing certain
fiduciary services.

Commissions and other income

The increase in commissions and other income that occurred in 1973 over 1972
resulted primarily from sizable increases in loan and letter of credit commissions
and BankAmericard merchant income.

Operating expense

The Corporation's total expense levels before interest in 1974 totaled $383.3
million, up $89.6 million, or 30 per cent. The increase in 1973 totaled 16 per cent.

The provision for loan loss expense increased by $36.4 million in 1974 and
accounted for 40 per cent of the overall increase in expense. Of this amount, $15
million represented an addition over the minimum provision and reflected the
decision by the management to place the loan loss reserve in a more conservative
position in view of the increase in the loan portfolio. The balance of the increase
reflects current loss experience and higher loan volume over 1973, which caused
an increase in the minimum provision as required by regulatory authorities.

Salary and benefit expenses accounted for another 30 per cent of the total
increase. Reflected here was a 7 per cent across the board salary increase to most
employees, a modest increase in staff and higher payroll taxes paid for em-
ployees in 1974. Great emphasis continues to be placed on control of staff growth.
The Corporation, at year end, employed 13,052 persons, still below the 13,482
level of staff in 1970, while continuing to expand our business operations both
domestically and internationally over the period.

The balance of operating expenses increase was in other categories. These
costs were primarily affected by : first higher occupancy costs relating to a new
staff headquarters in downtown New York and continued branch expansion in
upstate New York and overseas ; and second, from strong inflationary pressures.

The $40 million non interest operating expense increase in 1973 was about
evenly incurred among loan loss provision, salary and benefit costs and other
operating expenses.

162

Income taxes

Applicable income taxes decreased by $3.9 million in 1974, and $12.2 million
in 1973. The tax decreases result principally from earning an increasing amount
of tax exempt interest.

FINANCIAL STATEMENTS

Management's discussion and analysis of earnings for latest 5 years

Set forth below is management's discussion and analysis of the summary
of changes in earnings for the three years ended December 31, 1975. The analysis
comments on the significant changes in the summary and, where pertinent, in-
cludes comments on significant variances applicable to 1972 and 1971. In addition,
a detailed consolidated statement of income for the five years ended December 31.
1975 is presented on page 23. Pages 2 through G also includes a detailed financial
review of 1975.

SUMMARY OF CHANGES IN EARNINGS
[Dollar amounts in millions]

Increase (decrease)

Year 1975 compared Year 1974 compared
to year 1974 to year 1973

Amount percent Amount Percent

Interest income

Less interest expense

($353.3)

(416.0)

(20. 9)
(30. 8)

$633. 8
563.0

60.1
71.5

Interest differential income

62. 7

18.5

70.8

26.4

Trading account securities profits and commissions.

Foreign exchange income

Trust and custodian income

Commissions and other income

7.6

(6)

(5.4)

23. 5

633.3
(3.4)

(11-8)
33.7

(1.8)
15.7
7.8
(1.4)

(60. 0)
872.2
20.5
(2.0)

Operating income less interest expense

87.8

18.6

91.1

23.9

Salaries and benefits

Provision for possible loan losses .

Other operating expense items

19.7

42.7

31.1

11.0
62.5
22.9

26.2
36.4
27.0

17.2
114.1
24.8

Total noninterest operating expense

93.5

24.4

89.6

30.5

Income before income taxes and securities transactions.

Applicable income taxes

:::::::: $V

9.8

1.5
(3.9)

1.7
(17.6)

Income before securities transactions..

Securities gains (losses), net of tax...

(7. 5)

(10.6)

5.4
4.7

8.2
66.7

Net income

(7.5)

(10.6)

10.1

16.7

LOAN SUMMARY

The Corporation's loan portfolio is divided into two major segments — com-
mercial and consumer. Consumer loans include loans to individuals for personal
expenditures (installment, single payment and credit card loans) and resi-
dential mortgages on one to four family homes. The following table indicates
the average loans, net loan loss experience and the percentage of net loan losses
to average loans of these two segments of the loan portfolio: (dollars in
thousands)

163

1975

1974

1973

1972

1971

Average loans:
Commercial:

Domestic offices $6, 467, 000 $6, 632, 000 $5, 216, 000 $4, 053, 000 $3, 756, 000

Foreign offices 3,124,000 3,040,000 2,040,000 1,638,000 1,304,000

Total commercial 9,591,000 9,672,000 7,258,000 5,691,000 5,060,000

Consumer . 1,349,000 1,357,000 1,115,000 853,000 673,000

Total average loans 10,940,000 11,029,000 8,373,000 6,544,000 5,739,000

Net loan loss experience:
Commercial:

Domestic offices 64.451 33,222 20,819 9,052 25,562

Foreign offices 7,734 8,460 3,555 1,311 833

Total commercial 72,185 41,682 24,374 10,363 26,395

Consumer 25,509 18,863 8,517 7,927 5,868

Total net loan losses 97,694 60,545 32,891 18,290 32,263

Percentage of net loan losses to average loans:
Commercial:

Domestic offices 1.00 0.50 0.40 0.22 0.68

Foreign offices... .25 .28 .17 .08 .08

Total commercial .75 .43 .34 .18 .52

Consumer 1.89 1.39 .76 .93 .87

Total percentage .89 .65 .39 .28 .56

Commercial loans

The net loan losses in the Corporation's consolidated commercial loans in-
creased from $24.4 million in 1973 to $41.7 million in 1974 and to $72.2 million
in 1975. The net loan loss ratio increased from .34% to .43% and to .75% in each
of those years. The increase in 1975 is largely attributable to losses in two indus-
tries that were severely affected by the economic downturn. $22.5 million was
charged off on loans to the retail industry (an increase of $15 million over 1974)
while $17.2 million was charged off against loans to the REIT industry.

Consumer loans

Xet loan losses from the Corporation's consumer lending activities totaled
$8.5 million in 1973, $18.9 million in 1974 and $25.6 million in 1975. The net loan
loss ratios for each of these years were .$76%, 1.397c and 1.89%- These increases
arose principally from non-recurring operating problems associated with a sys-
tems conversion in the Corporation's credit card subsidiary during 1974, from
the impact of adverse economic conditions, and to consumer loan growth during
1974. Since the middle of 1974 the Corporation's credit card subsidiary has insti-
tuted improved operating procedures and new systems ; has increased the quality
of credit card loans by increasing collection efforts, raising eligibility require-
ments and by withdrawing or not reissuing cards as permitted by agreements.
These actions have led to a reduction in credit card losses during the last six
months of 1975. Credit card losses totaled $8.9 million during the last six months s
of 1974, $13.7 million during the first six months of 1975 and $5.1 million during
the last six months of 1975.

The Chase Manhattan Corp. Annual Report, 1974
report from management
(By David Rockefeller, chairman of the board and Willard C. Butcher, president)

The year 1974 was an often difficult and discouraging year for the United
States and global economies. Currents of inflation and recession converged,
undermining the effectiveness of conventional fiscal and monetary policies.
Prices soared, industrial production fell, and by year's end. unemployment
was a growing problem domestically and in many areas abroad.

165

It was a year marked by shortages — of fuel, food and other commodities —
coupled with monetary uncertainties brought on in large part by the four-
fold increase in the price of oil. It was a year in which confidence in govern-
ment and business eroded. And, significantly for Chase, it was a year in which
multinational financial services corporations were called upon not only to
expand their more traditional activities, but also to take on important new
responsibilities as well. Consequently, the resourcefulness of the banking
community was severely tested.

Despite slackening economic activity, loan demand was exceedingly heavy
both at home and overseas. In the United States, corporate capital spend-
ing was high, and the cost of financing inventories and accounts receivable
rose dramatically. Moreover, with corporate liquidity declining and faced with
investor resistance in debt and equity markets, corporations turned increas-
ingly to commercial banks. Overseas, due mainly to higher energy prices, loans
grew substantially. At Chase alone, these factors contributed to a rise of loans
on a daily average basis of almost $6 billion, or about 31 percent over the com-
parable 1973 figure.

Since growth in savings and demand deposits fell short of providing the added
funds needed to support the burgeoning loan demand, money center banks had
to rely increasingly on funds purchased in the open market. This, in turn,
exerted upward pressure on interest rates, thus complicating the job of effec-
tively managing the spread realized between interest earned and interest paid.

Increases in capital, both at Chase and throughout the banking system, did
not keep pace with the increases in assets. This further underscored the impor-
tance of controlled growth predicated on quality. In such a context, improving our
return on assets must be an increasingly central concern.

Earnings performance

A steady betterment of asset management was key to the substantial progress
Chase made toward its earnings objective in 1974. Income before securities
transactions totaled $182.0 million, 10.6 percent higher than in 1973, bringing the
corporation's five-year compound earnings growth rate to 8.6 percent, up from
6.2 percent a year ago. Net income was $180.8 million, a 10.9 percent increase
over 1973.

These overall results were not as strong as planned because of net losses in the
bond trading account. They were, however, highly encouraging to us since they
reflect very solid performance in Chase's basic business activities. Moreover, we
believe the sharp increase in fourth-quarter earnings demonstrates Chase's
growing flexibility to manage risk effectively in an uncertain economy.

Earnings from international activities were particularly impressive, increasing
by 31 percent over last year, despite the fact that 1973's international results had
included $5.3 million in after-tax revaluation gains from investments in overseas
branches, subsidiaries and associated companies. While international earnings
as a whole posted a strong advance, the income contributions of specific geo-
graphic areas shifted from year to year, pointing out the importance of a
geographically broad earnings base that allows temporary downturns in one
area of the world to be offset by more favorable results in another.

In 1974, earnings from international activities contributed $89 million, or
49 percent of total income before securities transactions, versus 41 percent in
1973.

Because of realized and unrealized losses in the bond trading account, domestic
earnings for the year were down slightly. Excluding the trading account, how-
ever, other domestic earnings were up strongly— a significant indication of very
real progress in our basic business lines and of improved interest spread manage-
ment.

Net loan losses in 1974 amounted to $93.0 million, compared with $76.3 million
in 1973, reflecting both our larger portfolio and deteriorating economic condi-
tions—particularly in the latter part of the year. Chase management follows a
conservative policy with respect to recognizing loan losses, recording them as soon
as they are identifiable. Also, at year end, we decided to increase the valuation
portion of our reserve for loan losses by $20 million more than was called for by
the five-year averaging formula. As a result, the provision for loan losses
charged to operating expenses in 1974 was $118.5 million, up $56.3 million from
1973.

166

Bond trading account

Unrealized losses in our bond trading account adversely affected domestic
earnings. This account was troublesome most of the year, as interest rates failed
to follow projections. Particularly disturbing was the discovery in early October
that policies had not been followed in valuing our trading account inventory,
the portfolio being valued at approximately $32.8 million in excess of the esti-
mated market value as of September 30th. We immediately made a public dis-
closure and moved quickly to introduce additional controls to ensure against
over-pricing in the future.

Overall net losses, including unrealized losses, in the account for the first nine
months were $42.3 million. Full year figures show a reduction of net losses
to $29.2 million. This improvement of $13.1 million in the fourth quarter
strongly impacted overall domestic performance and resulted mainly from a
reduction in unrealized losses due to better bond market conditions prevailing
in the fourth quarter. The bond trading account inventory was reduced from
about $717 million to approximately $383 million between the end of the third
quarter and year end.

Financing corporate requirements

As noted, loan demand was heavy all year, with pronounced spurts in March,
April and June. Caught in the crossfire between inflation, growing recessionary
trends, inventory problems and energy costs, corporations not only needed
more money, but found that the traditional sources for long-term financing were
impaired. Consequently, banks — particularly large New York City institutions
that could gather substantial funds through money market instruments — virtually
became lenders of last resort.

Recognizing the growth of both demand and economic uncertainties, manage-
ment further emphasized strict measures with respect to quality, diversification
of risks, liquidity and yield within Chase's overall loan portfolio. These measures
were not intended to cut off the flow of credit to deserving customers with pro-
ductive needs. We felt last year — as we feel now — that support must be given
to worthy borrowers, notwithstanding the fact that more profitable, and cer-
tainly more comfortable, channels for resources may exist. We continue to take
the position that the lender must strive to help his worthy customers in trouble-
some as well as good times.

170

FINANCIAL REVIEW

Earnings performance

Income before securities transactions for The Chase Manhattan Corporation
during 1974 totalled $182.0 million, an increase of $17.3 million, or 10.6 percent,
over the $164.7 million earned in 1973. This brought the Corporation's five-year
compound growth rate to 8.6 percent. Net income for the year was $180.8 million,
compared with $163.1 million in 1973.

The earnings performance of Chase's basic business activities, both domestic
and international, was strong throughout 1974. However, improvement in domes-
tic results was offset by net losses in the bond trading account, which amounted
to $29.2 million for the year, compared with a profit of $8.9 million in 1973.
Unrealized losses in the trading account inventory depressed earnings during
the first nine months, but were reduced significantly during the fourth quarter
by trading activity and the trend to lower interest rates.

Earnings from international activities, which encompass the activities of
our overseas offices and the international activities of our domestic offices, rose
in dollar amount and in their percentage contribution to overall income. In 1974,
based on internal allocations and allowances, international income before securi-
ties transactions increased 31 percent over 1973 to $89 million and represented
49 percent of consolidated income before securities transactions. Total operating
income from international activities accounted for 59 percent of compensated
operating income, up from 47 percent in 1973. A five year summary of the con-
tribution of international activities to earnings follows :

Total operating income : Percent

1974 59

1973 47

1972 : 44

1971 41

1970 31

Income before securities transactions :

1974 49

1973 41

1972 34

1971 29

1970 22

While international earnings posted impressive advances overall, the income
contribution of certain geographic regions shifted significantly from the prior
year. Hampered by a narrowing of interest rate spreads, particularly during the
first half of 1974, Europe's contribution to international income before secu-
rities transactions fell from 43 percent to 37 percent, although in absolute terms
earnings from Europe increased, as did the earnings of each of the other geo-
graphic areas. The relative contribution of Chase's international activities in the
Western Hemisphere remained at 31 percent, the same as for 1973, while the
contribution of Asia increased from 19 percent to 24 percent and Africa and the
Middle East increased from 7 percent to 8 percent.

Net interest margin (taxable equivalent basis) 1

MM'

•MM

1 Taxable equivalent loads means interest income which is exempt from income taxes is
increased to an amount comparable to interest income which is subject to income taxes.

171

Net interest margin, denned as the difference between total interest earned
on a taxable equivalent basis, and total interest paid, continued to represent the
T So°l Chase ! earnings This margin totalled $897 million in 1974, an advance
of 28.7 percent over This compared favorably with the 14.3 percent im-

provement recorded for 1973 over 1972.

The growth in net interest margin followed the trend of recent years A major
factor m that growth was the sharp rise in the average level of earning assets
which more than compensated for the narrowing difference between rates earned
and rates paid Since these were fluctuating and disparate interest rate patterns
both domestically and overseas during the course of the vear, the management
of interest spread was given particular emphasis. Policies and programs were
designed to help even out the the effects of these sometimes difficult to predict
interest rate patterns, so that an improved return on earning assets could be
attained.

Loans

Chase's commercial loan policy has always been to achieve the profitable
growth of quality assets through the application of sound credit principles.
Greater emphasis was placed upon this policy during 1974, as we improved
existing practices and implemented new ones to improve the quality of our loan
portfolio. We improved our loan pricing mechanisms to increase the profitabilitv
of the loan portfolio. Furthermore, our specialized management tools have been
refined to evaluate account profitability by centralizing information on the
services we provide to individual commercial customers. With better internal
profitability information, we have been able to apply our loan pricing strategy
with greater effectiveness. Through different combinations of supporting de-
posit balances and various types of fee arrangements, we have become more
flexible and more efficient in our loan pricing decisions.

Domestic Lending. — Commercial and industrial loan demand did not follow
traditional patterns in 1974. Despite a recessionary climate and prevailing
high interest rates, capital spending by corporations was high and working
capital needs rose as inflation boosted inventory costs. At the same time, many
corporations were faced with investor assistance in the debt markets and a sag-
ging price structure in the equity markets. Banks were called upon to supply
the financial needs of a high proportion of these companies. We saw our loan
demand spurt in March and April and again in June. By mid-year we were focus-
ing directly on controlling both the problems of national inflation and the
sudden demands on our own capital base. In July we intensified our vigorous loan
restraint program which emphasized the discouraging of non-productive loans.
We established our own priorities, which were subsequently reinformed by the
statement of the Federal Advisory Council on Bank Lending Policies in Sep-
tember. Formalized procedures were established to enable us to carry out our
program so that our customers could be dealt with equitably during this difficult
period when their needs were great and our capabilities w T ere being tested.
During 1974 the average volume of commercial and industrial loans was 19.6
percent higher than in 1973. Interest received on CAP loans — loans with average
interest rate limitations included in agreements with borrowers — in excess of
interest rate limitations is subject to refund, and has been credited to a reserve
account. The balance in this reserve account was $19.3 million at December 31,
1974.

An important portion of Chase's domestic loan portfolio consists of real estate
loans, including loans to real estate investment trusts and mortgage companies.
One- to four-family residential mortgages rose by 25.9 percent over 1973 to an
average of $967 million. The real estate industry was particularly hard pressed
in 1974 as a result of rising building costs, high interest rates and reduced long-
term financial sources. The industry may not recover for some time, but the
decline in interest rates which began in the last quarter of the year should
attract additional funds to the industry and reduce the carrying cost burden on
builders. Chase, long a leader in real estate lending, continued to meet the
financing needs of its customers, consistent with acceptable credit standards.
However, the amount of real estate loans for which interest is not being accrued
continues to increase.

Consumer loans, including installment credit, Bank Americard and cash re-
serve checking, increased by 15 percent in 1974 to an average of $644 million.
Here, too, rising funding and operating costs prompted rate increases. Consumer
loan rates were increased twice during the year and averaged 10.40 percent,
compared with 10.14 percent during 1973.

25-605 O - 78 - 12

172

INCOME BEFORE SECURITIES TRANSACTIONS BY QUARTER

In millions

Dollars per share

1974

1973

1974

1973

$36. 3

38. 7

44. 6

62. 5

$40.1

28.3
41.1
45.2

$1.13
1.21
1.39
1.05

$1.26
1.20
1.26
1.41

182.

164.7

5. 68

5.16

A breakdown of loan balances by type for domestic offices at December 31, 1974
and December 31, 1973 is shown in the Notes to Consolidated Financial Statements
on page 37. Total interest income from domestic loans was $1,616 million, up by
50 percent over 1973. The average rate earned on domestic loans was 10.44 percent,
compared with 8.27 percent in 1973. Chase's prime rate averaged 10.78 percent in
1974, compared with 8.03 percent in 1973.

Overseas Lending. — Lending at overseas offices continued to advance rapidly
throughout most of 1974, increasing in average volume by 55.9 percent to $9.5
billion and accounting for 37.9 percent of total loans, compared with 31.8 percent
in 1973.

Strong economic growth has historically been the principal force behind rapid
loan expansion abroad, but this was not the case in 1974. Indeed, economic activity
slackened in many areas. However, record inflation, together with increased plant
and equipment spending continued to stimulate loan demand. Our loan restraint
program resulted in a leveling in overseas loan expansion in the fourth quarter of
1974, so that loans in overseas offices increased a relatively modest 5.0 percent
from September 30th to year-end.

Approximately 42 percent of all overseas loans at December 31, 1974 were de-
nominated in currencies other than U.S. dollars and more than half of such loans
have been made to indigenous companies with funds obtained in the local money
marketplace.

Total interest income from loans booked in overseas offices increased by 96
percent to $1,108 million from the $566 million of 1973. These sources contributed
41 percent of total interest income from loans, up from 34 percent in 1973.

Loan Losses. — The provision for loan losses charged to operating expenses in
1974 was $118.5 million, up from the $62.2 million recorded in 1973. This sharp rise
reflected the inclusion in the five-year moving average formula (see Summary of
Significant Accounting Policies — page 31) of increased 1974 average loan volume,
a higher level of net loan charge-offs during the period 1970-1974 than that experi-
enced in prior periods, and a management decision to increase the valuation por-
tion of the loan loss reserve by a $20 million charge to operating expenses in
excess of the provision required by the moving average formula. This manage-
ment decision in part reflects an evaluation of the loan portfolio in the light of
difficult world-wide economic conditions and the resulting increase in lending
risks. In the opinion of management, the valuation portion of the reserve at
December 31, 1974 is adequate to absorb all anticipated loan losses in the port-
folio at that date. However, if the increase in lending risks continues, further
additions to the loan loss reserve in excess of the formula provision can be
anticipated.

The major portion of Chase's net loan charge-offs was concentrated in the
United States. The percentage of net loan charge-offs relative to average domestic
loans increased significantly in the 1970's when compared with prior periods,
while the ratio of net loan charge-offs to loans overseas increased at a more
moderate rate. Chase's loan charge-off policy is conservative yet realistic; losses
are charged off as soon as they are identifiable. In 1974 there was a reduction in
loan charge-offs relative to the domestic commercial and real estate loan base.
This accounted in part for the decline in the net loan charge-off ratio for the year
1974.

Investment portfolio

New investments resulting primarily from maturity rollovers and selling in
order to buy higher yielding securities boosted overall portfolio yields to record
levels. The average yield on U.S. Treasury and Federal agency securities com-

173

bined rose to 7.41 percent, up from 6.91 percent in 1973, while the taxable
equivalent yield of the state and municipal securities portfolio averaged 10.99
percent, compared with 9.30 percent in 1973.

THE CHASE MANHATTAN CORPORATION ANNUAL REPORT, 1975
FINANCIAL HIGHLIGHTS

1975 1974

For the year (in thousands):

Operating income $3,231,690 $3,675,604

Operating expenses 3,004,707 3,420,923

Income before securities gains (losses). 156,635 182,047

Net income. 173,710 180,801

Per share:

Income before securities gains (losses) $4.89 $5.68

Net income 5.42 5.64

Cash dividends paid, annually 2.20 2.20

Cash dividends paid, quarterly... .55 .55

Stockholders' equity 50.57 47.35

At yearend (in millions):

Assets.. $41,414 $42,233

Investment and trading account securities. 3,557 3,042

Loans.... 28,740 27,740

Deposits.. 33,928 34,667

Stockholders equity 1,621 1,518

To Our Stockholders:
It has been an extraordinary year for Chase.

Although 1975 marked the bottom of the world's worst economic downturn in
40 years, we turned in the third best earnings performance in our history with
income before securities transactions of $157 million and net income of $174
million, paid cash dividends of $71 million, or $2.20 a share, and increased stock-
holders' equity by more than $100 million through the retention of earnings.
• Since banking necessarily mirrors the overall economy, the industry's earnings
performance was significantly affected by a record level of loan charge-offs, and
Chase was no exception. Few of our customers failed to be touched in some way
by adverse economic conditions. While most were resilient enough to fulfill their
obligations to creditors on schedule, a larger than normal number of borrowers —
particularly those in the more depressed sectors of the economy, such as real
estate — found this an impossible task. Consequently, it was necessary for Chase
to charge off almost three times the dollar volume of loans charged off the year
before and to agree to accept reduced or deferred interest payments on certain
other credits.

There were other occurrences of particular significance to our institution. Not
the least of these was the fiscal crisis in New York City, which called on man-

174

agement to spend a significant amount of time in helping to find solutions to the
problems of this financially beleaguered community.

In spite of the pressures imposed by these problems, Chase was able to dem-
onstrate an ability to cope with distressed business conditions worldwide, to
post impressive earnings, to continue to upgrade loan quality and to take signi-
ficant action toward developing new domestic and international marketing
capabilities. These steps provide a base of strength on which to build future
growth.

What we see as a looming problem of great importance is a distressing
tendency to criticize the banking system, growing partly out of public anxiety
over economic events. Banking and the banking system are remarkably complex,
both in themselves and in their impact on the workings of the entire economy.
The danger is that uninformed and poorly-informed critics will demand sweeping
changes in banking laws, without regard to side effects that may cripple the
functioning of our economy. Some of their proposals will be adressed later in this
letter.

LOANS

Maintaining its cautious policies with regard to doubtful loans, management
continued to increase its provision for possible loan losses well beyond the
amount called for by its five-year averaging formula. We felt a much larger
amount was required in view of prevailing uncertainties. Net loan charge-offs
for 1975 amounted to $251 million, some $61 million less than the provision
charged to operating expenses. As a result, the balance in the reserve for possi-
ble loan losses at year-end was at an historic high of $282 million. In the
opinion of management, the reserve for possible loan losses at December 31,
1975, is adequate to absorb all anticipated loan losses in the loan portfolio at
that date.

During the first nine months, management made a concerted effort to identify
troubled situations and recorded $209 million in net loan charge-offs. As a
result of these timely, though difficult, decisions, it was not necessary to take
massive charge-offs at year-end. Net charge-offs in the fourth quarter were
$42 million, actually some $10 million less than in the final quarter of 1974.

Chase also follows conservative accounting practice in not accruing interest
on loans where there is reasonable doubt as to the collectibility of interest.
Thus, interest on such loans is credited to income only to the extent that it is
actually received. Interest rates on some loans were also renegotiated to levels
substantially lower than the originally contracted rates. These non-accruing and
reduced rate loans resulted in a reduction of consolidated earnings of approxi-
mately $50 million, after taxes.

A number of steps were taken to improve further overall asset and liability
management. We continued our program to improve both the quality and
liquidity of our assets and installed a more effective credit audit system
throughout the Corporation. Holdings of investment securities were increased,
the net increase being almost entirely in maturities of under five years. At the
same time we reduced our reliance on short-term borrowings in the form of
federal funds and securities sold under repurchase agreements, while lengthen-
ing the average maturity of time deposits. Our larger, more liquid investment
portfolio, combined with a more stable liability structure, diminishes our vul-
nerability to unforeseen market changes.

NEW YORK CITY

New York City's deteriorating financial situation ranked high on the list of
problems dealt with during the year.

Throughout the crisis, Chase faced the delicate challenge of balancing its
responsibilities to its stockholders, to its depositors and to the community in
which it carries on a major portion of its operations — all of them interrelated
to a significant degree. We were concerned about the damaging repercussions
default could have on worldwide financial markets and about the possible disas-
trous effects on the City. On the other hand, we recognized that there were
limits as to the scope of our involvement. The end result indicates that an appro-
priate balance has been maintained. Within reasonable limits. Chase and other
major banks provided vital support to the City during the most critical phases
of the crisis.

175

The City's inability to raise needed funds through traditional borrowing meth-
ods early in the year led to the creation of the Municipal Assistance Corpora-
tion (MAC), a financing vehicle empowered to raise funds on the City's behalf.
Chase, along with the other Clearing House banks in New York, were called
upon to provide support. We participated in the first underwriting of a MAC
issue in July. The following month. Chase took on the management of a second
public offering of MAC securities, which successfully raised an additional $1
billion for the City. By year-end, Chase's investment holdings of City and MAC
obligations totalled $408 million.

In time, it became clear that the resources of the private sector had been
tapped to their prudent limits and that further requirements of the City would
have to be provided by the Federal Government. Ultimately, the Ford Adminis-
tration proposed and Congress approved federal loans to the City of $2.3 billion
each year for the next three years. We anticipate that this support will give the
City the time it needs to regain its financial vigor — provided, of course, that its
leadership, its employees and its citizens act with speed and determination in
implementing sound municipal finance and management practices.

Clearly, fiscal discipline must be accepted. But positive actions are also re-
quired, and at present there is no greater priority than the creation of a healthier
environment for economic development — one which will attract new enterprises
and encourage existing businesses to remain. Tax incentives that can create
such an environment should be explored. While additional revenues will un-
doubtedly need to be raised, fiscal and regulatory policies that work against
job creation can only be counterproductive. For without increased economic
activity within its borders, New York City's efforts to trim budgets and bring
to bear more resolute fiscal management will be doomed to eventual failure.

At the same time, approaches to counteracting the root cause of New York's
fiscal decline should be examined. While fiscal management must be faulted, the
primary factors leading to the City's cash problems were essentially demographic
in nature. During and after World War II, New York and other large cities
experienced an influx of lower-income families, followed in time by the departure
of more affluent groups. This contributed significantly to a decrease in the City's
tax base, even while it increased the requirement for social services, such as
welfare and subsidized housing.

In a country which offers its people geographic mobility, such major demo-
graphic movements transcend the capabilities of both cities and states, leaving
their governments handicapped in their efforts to solve the economic imbalances
that are created. For that reason, the attendant financial problems are, in essence,
national problems, which can be dealt with effectively only on the national level.
Events like New York City's fiscal crisis make more manifest the need for deal-
ing with problems such as public welfare on a coordinated national basis.

THE REAL ESTATE SECTOR

While all sectors of the domestic economy were affected by the recession of
1974-75. among the hardest hit was real estate and, within that sector, real
estate investment trusts (REITs) in particular. REITs, made possible by an act
of Congress, concentrate on projects too large for most individual investors, such
as shopping centers, condominiums and office buildings. It is these very projects
that were most affected by the business downturn.

This was the case with the Chase Manhattan Mortgage And Realty Trust, an
independent, publicly-held REIT in which the bank holds no shares, but serves
as both an advisor and creditor. In August, the trust was faced with a cash flow
problem, primarily because many of its borrowers needed more time before their
projects could become viable. To relieve the resulting cash shortage, the credit
facility extended by a group of 41 banks to the trust was restructured, and in
addition, Chase agreed to purchase $161 million of the trust's loans assets and to
assume commitments of the trust to make further advances with respect to such
loans in an aggregate amount of $34 million. A detailed description of this trans-
action appears in the Notes to Financial Statements on Page 42. Based on the
price paid for these loan assets, management anticipates obtaining a reasonable
yield on its investment.

Conditions prevailing in the domestic real estate sector also adversely impacted
the operating results of our domestic mortgage banking subsidiaries, resulting in
an after-tax loss of $14 million.

176

DOMESTIC AND INTERNATIONAL PROGRESS

Chase continued to meet the complex needs of its worldwide markets and made
advances in expanding its products and services.

Most significantly, we broadened our capabilities in three key service areas —
merchant banking, project finance and cash management. Given such conditions
as worldwide capital shortages, demands for enormously expensive natural re-
source development projects and the requirements of corporate treasurers to con-
serve and manage funds on a truly global basis, Chase's unique strengths in these
areas will increase in importance in the years ahead.

We also made progress in other areas vital to our marketing efforts, particu-
larly in new technology, market selectivity and relationship management.

Chase's international results continued to underscore the importance of main-
taining a broad earnings base. Whereas provisions for loan losses cut sharply
into domestic earnings for the year, earnings from international operations suf-
fered much less of a loan-loss setback and were able to maintain their strong up-
ward trend, reaching $101 million, as compared with $89 million in 1974.

The world market economy has tended to lag that of the United States, so that
much of the rest of the world is now slowly emerging from its worst downturn
since the 1930's. Recovery is already well underway in the United States and is
beginning to take hold in Europe. Chase remains alert to the opportunities such
an upturn can offer in 1976.

DEMANDS FOR BANKING REGULATION

Times of economic stress are almost always followed by attempts to find a
scapegoat for the conditions that prevailed, and the banking industry certainly
has not been exempted as a target. Over the past six months, some have en-
deavored to assign to banks a wide spectrum of sins, from perpetuating inflation
to keeping a sinister cloak of secrecy over their operations. Demands for change
have recently become more vocal and persistent than they have been for many
years. Proposals range from drastic redesign of the regulatory mechanism to
emasculation of the concept of confidentiality, which is at the very core of ethical
and sound banking practice.

What is most wanting, we believe, is a better and broader understanding of
how banks can and do relate to the economy as a whole and serve the public
interest. As one fundamental, it must be noted that risk goes to the very essence
of banking, as it goes to the essence of business in a free economy. By the same
token, a certain number of loan charge-offs becomes the natural concomitant of
assuming risks.

During the prolonged periods of broad-scale economic recession, such as we
have experienced over the past two years, loan charge-offs naturally increase.
Banks don't hide that fact. On the contrary, we publish our loan loss provisions
and make known the amount of loans we actually charge off against our reserves.

The contribution made by prudent risk-taking is often greatly misunderstood.
Without question, Chase and other banks make some loans which, when made,
are deemed prudent in the light of known facts and conditions, but which in
retrospect look far less attractive. But that is in the nature of risk. A commercial
bank that studiously avoids risk — for example, by placing the funds of its
stock-holders and depositors only in short-term U.S. government obligations and
loans to triple-A rated borrowers — serves neither the public need nor its own
advantage.

The past 30 years have been a time of unprecedented worldwide growth.
Economic development simply could not have taken place at the rate it occured
had banks been unwilling to exercise reasonable business judgment and accept
the risks involved. We lent money to high technology industries when they were
in their infancy. A few failed. But the vast majority have been successful, and
many of them now employ tens of thousands of workers. We lent money for the
development of natural resources. A few proved uneconomic. Others are now
supporting the economies of entire regions. Our real estate lending helped to
relievo severe housing shortages. Some of these loans defaulted. Most did not.
Clear evidence that the gains outbalanced the losses is the fact that the world
economy— and the banking industry — has emerged strong and vital.

As for problem loans, these are tracked carefully by our own lending officers,
our specialists in troubled loans, our internal audit staff, independent auditors
and by various banking regulatory authorities. Some demands have been voiced,

177

however, that information on individual loans be made public. To propose such
disclosure is to disregard the value of confidentiality between a bank and its
customers; it could cause irreparable harm to companies, their employees and
shareholders, who do not merit a loss of confidence.

The fact is that there is no direct correlation between a company facing
temporary problems and one headed for ultimate failure. Indeed, most successful
companies have weathered such storms at one time or another and emerged
stronger for the experience. A bank's basic responsibility is to monitor its credits
closely and to take timely and remedial action when it is called for. This might
take the form of restructuring the terms of a loan or extending additional funds
to relieve a cash flow problem, or recommending and facilitating a better inter-
nal cash management system for the borrower.

But at the same time, the customer's management is almost invariably doing
its part to achieve viability. With very few exceptions, the end result is that the
company works its way out of its difficulties, remains an essential source of em-
ployment in its region and continues as a valued customer of the bank.

Negotiations under such circumstances are of necessity most sensitive. A public
airing of such problems would serve no useful purpose and might well impair
progress toward the goals that are sought. Confidentiality operates to meet prob-
lems head on and to work effectively toward their solution.

Ironically, as The Wall Street Journal noted in a recent editorial, many of the
people who not long ago were exhorting bankers to liberalize their lending policies
to accelerate growth are the same ones who are now calling bankers reckless and
demanding tighter regulation of the industry.

As for the Chase's willingness to talk responsibly about its operations, the de-
tailed disclosure in this annual report testifies to our continuing commitment to
meaningful disclosure. Our financial statements contain many items previously
included only in regulatory filings, and our financial review and statistical sec-
tions are more comprehensive.

Among the current legislative proposals are some that would alter the competi-
tive environment of banking by phasing in new powers for savings banks and
other types of thrift institutions. It is our judgment that too little attention is
being given to the problems of adjustment that these new powers would surely
entail.

Clearly, thrift institutions need to be less limited in the fields they may enter
so that, like commercial banks, they can broaden their earnings base and leave
themselves less vulnerable to cyclical trends. Unfortunately, while recommend-
ing broader powers, recent proposals also suggest that the thrift institutions be
allowed to retain, for at least another five years, the rate advantage on savings
accounts they now enjoy over commercial banks. The disparity in rate ceilings
has unfairly handicapped commercial banks and their customers in the past, and
the effect would become more severe as thrift institutions exert greater com-
petitive pressure as an outgrowth of their wider range of banking powers.

Fundamentally, there is an even broader consideration involved. It is that
ceilings on interest rates — even in the absence of rate differentials — present an
unnecessary and harmful constraint. Elimination of ceilings, for example, would
make possible a broader range of competitively priced savings instruments for
those with smaller sums to invest. Moreover, ceilings hamper mortgage lenders
and financial intermediaries since they cause disruptive deposit outflows prompted
by higher rates available elsewhere in the market. We believe it makes sense
to eliminate rate differentials as soon as thrift institutions are given expanded
powers and gradually, over a limited period, to phase out ceilings altogether.

All components of the financial services industry share a common purpose-
to serve the increasingly complex needs of individuals, businesses and govern-
ments. Opportunities for these groups to receive the very best and most efficient
services are maximized by freer competition. Unfettered competition also facili-
tates savings and aids in the capital formation process, another pressing need.

Through advertising, speeches and testimony, Chase has communicated the
message that the capital requirements of American business over the next 10
years will vastly outstrip the funds available for investment. The resulting
capital shortfall, which Chase economists estimate could total $1.5 trillion trans-
lates into lost jobs and a lower standard of living for all Americans. We believe
that new investment incentives are urgently needed and that Congress therefore,
should press for tax and related policies that can foster capital growth.

178

THE FUTURE

111 the letter to our shareholders a year ago, we said :

"Chase is part of a financial system which is coming through some rough
weather and which may not have smooth sailing in the period immediately ahead.
On the other hand, a dangerous and greatly exaggerated sense of anxiety that
prevails in many quarters tends to conceal the basic strengths which character-
ize the world economy and the banking system which serves it . . . We at Chase
by no means foresee an easy future, but it is a future in which we believe real
progress can be made . . ."

That passage proved to be an understatement of the nature and character of
the problems we would face during the year, but it also understated the enhanced
strength and capabilities with which we would enter the new year. However,
the truly significant point behind all that has occurred is that the banking in-
dustry, of which Chase is an important part, managed to achieve significant
earnings while increasing its capacity to service the expanding needs of its
customers throughout the world. To have achieved this in a period of serious
economic recession is a testimonial to the strength of this nation's banking
system.

Over the years, the Chase organization has striven consistently for self-
improvement, and the recent difficulties generated by the poorest economy in more
than 40 years only accelerate our determination. The problems we encountered
set in sharp relief those facets of our activities that needed further strengthen-
ing. We have never hesitated to make improvements. This, importantly, has in-
cluded the installation of additional controls to provide for early detection of
potential problem areas.

Now, our mission is three-fold :

First, we must continue to improve the quality of our loan portfolio, assuring
that new credits placed on our books meet rigorous credit standards.

Second, we must continue to control our asset growth, while at the same time
increasing our return on assets, either through better pricing, better product
mixes or phasing out activities that can be performed more cost-effective by
others.

And third, we must take full advantage of all our logical areas of growth,
even while we are adding to our own internal strengths. Chase has no intention of
standing still. The requirements of our markets have grown, not diminished. If
we are to prosper in the years ahead, we must identify more precisely our appro-
priate markets, anticipate needs within them and develop outstanding responses
to those needs.

Chase Manhattan is a multinational services corporation with a reputation for
delivering high quality services worldwide in corporate banking, institutional
banking, retail banking, real estate, and trust and investment management. We
remain committed to these five markets, and we will focus our energies on pro-
viding them with new and better services.

David Rockefeller,

Chairman of the Board.
Willard C. Butcher,

President.

179

The Chase Manhattan Corporation
Financial Review

Consolidated income before securities transactions in 1975 totalled
$156.6 million, down 14% from the $182.0 million earned in
1974. Net Income amounted to $173.7 million, down 3.9% . The
decline in earnings resulted principally from the need to increase
significantly our provision for possible loan losses and from a sub-
stantial reduction in interest income on non-accruing and reduced
interest rate loans. In addition, increases in New York State and New
York City tax rates, enacted during 1975, had a further negative
effect on earnings. Partially offsetting these negative factors were an
improved net interest margin and greater fee income from loans
and other business activities. In addition, bond trading account pre-
tax losses of $505,000 in 1975 were substantially below the $29.2
million of pre-tax losses reported for 1 974, in spite of the difficult
market conditions that resulted from New York City's financial crisis.

Domestic earnings were down sharply primarily due to the higher
provision for possible loan losses and increases in other operating
expenses other than interest paid. These negative factors more than
offset an increased net interest margin, higher revenues from loan,
trust and fiduciary investment fees, and greater income from credit
card activities and consulting and advisory services.

Earnings from international activities, encompassing the activities
of Chase's overseas offices and the international business conducted
from domestic offices, continued to increase in both dollar amount
and percentage contribution to overall income. After internal alloca-
tions and allowances, international income before securities trans-
actions climbed 13% to approximately $101 million, representing
64% of the consolidated total.

International results benefitted from an increase in net interest

margin brought about by wider interest rate spreads and a higher
volume of average earning assets. Fees on loans and international
business fees, such as those generated from letters of credit, accept-
ances and other financial services also increased, while foreign
exchange trading income declined moderately. The dramatic in-
crease in the percentage of international earnings to total
earnings reflects the fact that only a small portion of our increased
provision for possible loan losses was attributable to overseas
lending, since the loan charge-off experience overseas has continued
to be comparatively favorable.

Activities in certain international geographic regions were espe-
cially noteworthy. Europe's contribution to income before securities
transactions increased to $47 million or 46% of international earn-
ings, up from 40% in 1974, mainly as a result of improved interest
rate spreads and a higher average loan volume. The relative con-
tributions of other regions also shifted somewhat . The absolute
and relative contribution to international earnings from the Western
Hemisphere declined from $25 million to $18 million, or from
28% to 1 8% , respectively, as a result of difficulties experienced in
the real estate industry in Puerto Rico, while Asia's contribution
increased to 32% from 25%. The relative earnings contribution
from Africa and the Middle East fell from 7% to 4% . However, it is
important to recognize that deposits and services associated with
the handling of petro-dollars are spread through a variety of re-
gions, most notably the offices in Europe. Thus, the actual income
contributions derived from certain areas, particularly Africa and the
Middle East, are greater than the above results would indicate.

The contribution of international activities to income before secu-
rities transactions does not include the gain on the sale of the
Bank's minority interest in Standard and Chartered Banking Group
Limited, London, England. This sale, executed in May 1975, was
arranged after no practical alternative could be found for com-
plying with Federal banking regulations and resulted in a gain of
$23.3 million, after applicable taxes. For further discussion, see
Notes to Financial Statements, page 44.

180

Net Interest Margin (Taxable Equivalent Basis) 1

Net interest margin, defined as the difference between total interest
earned, on a taxable equivalent basis, and total interest paid,
totalled $1,123 million, an advance of 24.6% over 1974. This in-
crease was due primarily to improved rate spreads, both domes-
tically and overseas, and to a higher average volume of earning
assets. While this increase was less than the 28.7% improvement re-
corded for 1 974, it was nevertheless significant because it was
achieved despite an adverse business environment and the deferral
and or reduction of interest income on non-accruing and reduced
rate loans.

Non-accruing loans are loans on which interest is taken into
income only to the extent of actual cash collections. This method is
used when doubt exists as to the collectibility of such interest. Re-
duced rate loans are loans wherein the rates at which interest is
currently accrued and receivable have been renegotiated to rates
substantially lower than those called for in the original contracts.
The combined impact of such non-accruing and reduced rate loans
was to reduce consolidated earnings for 1975 by approximately
S50 million, after applicable income taxes, compared with $14 mil-
lion for 1974. It is important to note that the placing of a loan on
non-accruing status is done to assure a conservative reporting of
current interest income and does not imply the ultimate loss of prin-
cipal or interest.

A schedule of net interest margin for domestic and overseas
offices and the consolidated Corporation is shown in the next
column.

Taxable equivalent basis means that interest income which is exempt from
income taxes is increased to an amount that makes it comparable to what the
inierest income would be were it subject to income taxes.

(Taiable Equivalent Basis) (S In Millions! Domwtk Ogtm

1975

1974

Amount

Rate

Amount

Rate

Interest Earned

$1,604

8.36%

$1,955

10 30%

Interest Paid'

835

6.16

1,251

9.26

Net Interest Margin

$ 769

2.20%

$ 704

1.04ft

Orerx

as Offices'

1975

1974

Amount

Rate

Amount

Rate

Interest Earned

$1,432

9.67%

$1,592

11.38%

Interest Paid

1,078

7.79

1,395

10.66

Net Interest Margin

$ 354

1.889c

$ 197

- : ~c

Consolidated Corporation

1975

1974

Amount

Rate

Amount

Rate

Interest Earned

$3,036

8.93%

$3,547

10.76%

Interest Paid

1,913

6.98

2,646

9.95

Net Interest Margin

SI. 123

1.95%

S 901

.81%

Notes:

'Includes cost of time deposits accepted by overseas offices for domestic use.
"Overseas offices exclude net interest margin on international activities
conducted from domestic offices.

Domestic Net Interest Margin Domestically, our net interest
margin increased by $65 million, a gain of 9.2 % over 1 974 as the
average interest rate spread widened to 2.20% compared to 1.04%
in 1974. Behind these increases was an environment of generally
declining interest rates in which the price we were paying for pur-
chased funds declined faster than the rates we earned on assets.

Although the economy began to improve around mid-1975,
problems persisted in certain key industries throughout the year.
Chase felt the impact of the spotty recovery in several ways. First,
there was a decrease in business loan volume from year-end 1974
to year-end 1975, partly attributable to the restructuring of corpo-
rate debt, as the recession bottomed out, from shorter-term bank

181

financing to longer-term financing in the bond markets. Second,
in view of prevailing uncertainties, Chase continued to restrain
certain of its lending activities, thus further limiting volume growth.

The 1975 experience contrasts sharply with 1974. Then, a rapid
buildup in loans was created by heavy inventory accumulation and
high inflation combined with the Bank's prime lending rate rising
less rapidly than the cost of other short-term financing sources
available to corporate treasurers. At the same time, rates paid for
purchased funds rose markedly, which meant that the spread be-
tween interest rates earned and paid narrowed slighdy. In contrast
to 1975, therefore, gains in net interest margin in 1974 resulted
from increased volume, rather than from increased spread.

Overseas Net Interest Margin Of Chase's total net interest
margin, $354 million, or 3 1 .5 %, was contributed by overseas offices,
as compared with $ 1 97 million, or 2 1 .9% , in 1 974. This sharp
rise was due to a widening of interest rate spreads and a modest in-
crease in the volume of earning assets. However, as in the
United States, business activity throughout Western Europe and
Japan declined in 1975, and many lesser developed countries
were affected adversely by falling commodity prices and a decreased
demand for their exports. As a consequence, the need for bank
credit in many countries was weak. Nevertheless, record earnings
were achieved because the cost of purchased funds declined
faster than the average rates earned on earning assets. So here, too,
the experience was different from that of 1 974, when the volume
of loans outstanding expanded substantially, but interest rate spreads
were narrow.

A breakdown of year-end loan balances by type for both domestic
and overseas offices is presented in the Notes to Financial State-
ments on page 44. As for interest income, domestic loans contributed
$ 1 ,282 million, down 2 1 % from 1 974, reflecting average rates
earned of 8.06%, compared with 10.44% in 1974. Chase's prime

rate averaged 7.83% in 1975, compared with 10.78% in 1974.
For loans on the books of overseas offices, the average rates
earned were 9.83 % , down 1 88 basis points from the 1 1 .7 1 %
earned in 1974.

Domestic Lending The requirements of the commercial and indus-
trial sectors remained relatively weak due to the fact that corpo-
rations, particularly in the early part of the year, liquidated existing
stockpiles of inventories and trimmed capital spending plans.
Notwithstanding these trends, our overall volume of average domes-
tic loans outstanding was large enough to result in an increase of
2.8% versus 1974. In this regard, the general availability of money
in the latter part of 1975 provided Chase with the opportunity to
expand its holdings of liquid assets, such as overnight loans to
brokers and dealers and bankers' acceptances.

Certain of our domestic loans are termed CAP loans because they
have interest rate limitations. If the average rate paid by borrowers
over the term of these loans exceeds the stated maximum rate
provided in the ioan agreement, the excess interest is subject to
refund and, as such, is credited to a reserve account. CAP loans out-
standing at year-end totalled $414.5 million, down 3.8% from the
year before. Our reserve balance for refundable CAP loan interest
was $24 million at the end of the year, as compared with $ 1 9
million a year earlier.

Domestic real estate loans increased 1 3.5 % to an average level of
$3.9 billion during the year. Within that total, one-to-four family
residential mortgages rose by 8 .4 % to an average of $ 1 . 1 billion.

Chase's domestic real estate financing subsidiaries— Housing
Investment Corporation of Florida and Dovenmuehle, Inc.-experi-
enced substantial difficulties due to the general turndown in the
real estate market. Their problems are reflected in the $22.8 million
increase in the provision for possible loan losses in the Combined
Statement of Income of the Non-Banking Subsidiaries of the Parent
Company on page 39.

A portion of Chase's domestic loan portfolio consists of loans to

I as a percentage of I

tO U 28 « 56 70 84 98 112

182

real estate investment trusts (REITs). These trusts lend to large
real estate ventures, such as condominiums, office buildings and
shopping centers. During 1974 and 1975, REITs experienced
substantial financial difficulties because many of the real estate
developers they lend to found themselves without sufficient current
cash flows to pay maturing installments of principal and interest on
their obligations. In turn, cash flows of REITs were inadequate to
meet their interest and principal obligations to the banks which
helped finance them.

This was the situation which confronted the Chase Manhattan
Mortgage And Realty Trust, a publicly held real estate investment
trust. In August 1975, the Bank, which is not a shareholder of the
Trust, but acts solely as an advisor on a fee basis, entered into an
agreement to purchase $ 160.7 million of the Trust's loan assets.
While some of the loans purchased are not accruing interest at
present, the Bank anticipates obtaining a reasonable yield on its in-
vestment. For a more detailed description, see Notes to Financial
Statements, page 42.

The average balance of loans outstanding to all REITs in 1975
amounted to $74 1 million, compared with $610 million a year
earlier. The amount of unused contractual commitments for REIT
loans totalled $ 1 1 8.0 million at year -end. Excluding the Trust,
at year-end Chase had renegotiated REIT loans totalling $67.6 mil-
lion, and another $360.4 million of REIT loans were on a non-
accruing basis. Loans outstanding to REITs at year-end 1975
amounted to 2.5 % of total loans.

Consumer loans— including installment credit, BankAmericard,
Cash Reserve checking and single payment loans to individuals-
averaged $898 million in 1975. Rising operating costs led Chase to
undertake a moderate increase in rates, bringing the average rate
earned on these loans to 10.72% .

Overseas Lending Lending at overseas offices during 1975
averaged $11.2 billion and accounted for 4 1 .4 % of total gross loans,
compared with 37.9% in 1974. While the growth in average loan

Geographic Breakdown of
International Earnings

In millions and as a percentage ol international earnings

volume was 18.8% in 1975 versus 1974, this increase was primarily
due to loan volume placed on the books in 1974. In 1975, economic
activity was actually slack in many overseas areas until late in the
year. Although there were indications of renewed business growth
overseas in the fourth quarter, loan demand abroad was damp-
ened by a number of interrelated factors including the sharply re-
duced pace of industrial expansion. This not only was a result of
the recession, but also reflected the fact that the cost of doing busi-
ness in Europe has been rising more rapidly than in the United
States and elsewhere. Labor costs, in particular, spurred by inflation,
have been increasing at a faster pace, and this, coupled with the
dollar devaluation in recent years and the greater political and social
risks abroad, has caused many business projects overseas to be
cancelled, reduced in scope, or stretched out over a greater number
of years than originally planned.

Approximately 30% of all overseas loans at year -end were de-
nominated in currencies other than U.S. dollars. More than half
of such loans were to indigenous companies with funds obtained in
the local money market.

The five countries in which Chase had the greatest amount of risk
exposure to borrowers, based on loans outstanding at year-end
1975, were Japan, the United Kingdom, West Germany, Mexico
and Brazil.

Total interest income from loans recorded in overseas offices de-
creased slightly to $ 1 , 1 05 million from $ 1 , 1 08 million. These
sources contributed 46% of total interest income from loans, up
from 41% in 1974.

Loan Charge-off s

Net loan charge-offs increased substantially in 1975, totalling $25 1
million, compared with $93 million in 1974. The major portion
of charge-offs continued to be concentrated in our domestic
loan portfolio. Domestic commercial net loan charge-offs, includ-
ing real estate and a major retailer, totalled $207.6 million. Domestic
consumer net loan charge-offs amounted to $16.7 million. Overseas

183

net loan charge-offs were $26.7 million in 1975. Total domestic
net loan charge-offs as a percentage of related average loans climbed
from .50% to 1.42% in 1975. Overseas net loan charge-offs as a
percentage of related average loans increased from .18% to .24% .
On a consolidated basis, the 1975 experience was .93% com-
pared to .37% for 1974.

With regard to consolidated gross charge-offs, by category, com-
mercial loan charge-offs from 1970 through 1974 accounted for
7 1 % of the five year total, followed by the consumer and real estate
categories. In 1975, however, these relationships changed sig-
nificantly, with real estate loan charge-offs climbing sharply from
12% to 40% , while commercial charge-offs dropped from 71 %
to 51 % of the total. Consumer charge-offs declined from 17%
to9%.

The provision for possible loan losses charged to operating
expenses was $312.4 million in 1975, up $194.0 million from the
year before and $61 million greater than actual net loan charge-
offs. The reserve for possible loan losses, which in prior years was
reported as the valuation portion of the reserve for loan losses,
amounted to $282 million, or .98% of loans outstanding at year-
end, compared with $22 1 million, or .80% of loans reported at
the end of 1974.

The large increase in the provision for possible loan losses re-
flects three factors: management's decision, in view of weakened
economic conditions, to increase the loan loss reserve by $ 1 1 8
million in excess of the amount called for by the five-year formula;
the inclusion in the five-year moving average formula of increased
average loan volume; and a substantially higher level of net loan
charge-offs in 1975.

In the opinion of management, the reserve for possible loan
losses at December 31, 1975 is sufficient to absorb all antici-
pated loan charge-offs in the portfolio at that date. Furthermore, it
will continue to be Chase's policy to ensure that the reserve remains
adequate to cover all foreseeable loan charge-offs. Therefore, in the
future, as in the past, provisions in addition to the five-year formula

will be made by management to the extent deemed prudent.
Investment Portfolio

Investment portfolio management in 1975 successfully achieved the
dual objectives of higher earnings and improved liquidity. This was
primarily accomplished through active trading, a buildup of short
and intermediate-term U.S. Treasury and Federal Agency secu-
rities, and selected sales of long-term municipal bonds offset in part
by the acquisition of securities of the New York State Municipal
Assistance Corporation. As a result of these actions, the combined
taxable equivalent return of the investment portfolio increased
on average from 9.42% in 1974 to 9.69% in 1975.

The total carrying value of investment security holdings at year-
end 1975 amounted to $3.4 billion, a 26.4% increase over the
$2.7 billion in the account at December 3 1 , 1974. This change re-
flected reductions of $83 million in Federal Agency securities
and $141.5 million in state and municipal securities, offset by a
$946.3 million increase in U.S. Treasury securities. The increase
in U.S. Treasury securities was concentrated in the 0-5 year
category with an increase of $5 14 million in securities maturing
within one year. At year-end, the average life of the U.S. Treasury
and Federal Agency portfolio was 5 years, 9 months, down from
1 1 years, 4 months at year-end 1974. Activity in the state and muni-
cipal securities portfolio centered on significant reductions in

Comparative Maturit

es Summary-

Year End

U.S. Treasury &
Federal Agency

State &
Municipal

Maturity

1975

1974

1975* 1974

Within One Year

31%

4% 24%

Between One and Five Years

47%

41%

9% 3%

After Five Years

22%

51%

87% 73%

Average Life

5 Yrs.
9 Mos.

11 Yrs.
4 Mos.

18 Yrs. 18 Yrs.
5 Mos. 8 Mos.

•The maturity data for 1975 reflects the restructuring of certain New York
City Notes in moratorium and New York State Municipal Assistance
Corporation obligations.

Average Assets Employed,
L .S. versus International

184

long and short-term maturities, while $187 million of New York
State Municipal Assistance Corporation obligations were added.
The average life of the state and municipal securities was 18 years,
5 months at the end of 1975, compared to 1 8 years, 8 months at the
end of 1974.

These significant changes in maturity structure and liquidity,
while executed during a period of generally lower rates, produced
higher overall taxable equivalent returns. The average return
on the U.S. Treasury and Federal Agency portfolio combined was
7. 19%, down from 7.41% in 1974, while the taxable equivalent
return on the state and municipal securities portfolio averaged
12.65%, up from 10.99% in 1974. This major restructuring placed
Chase in a more liquid position to respond to the increased loan
demand anticipated over the next two years.

Investment Portfolio Returns

(Taxable Equivalent Basist

1975

1974

I S Treasury Securities

7.03%

7.17%

Federal Agency Securities

7.50%

7.75%

State and Municipal Securities

12.65%

10.99%

The sharp decline in municipal security prices which resulted
from the New York State and City problems of 1975 was the major
cause of the widening of the difference between the investment
portfolio's carrying value and its estimated market values. For further
discussion, see Notes to Financial Statements: Investment and
Trading Account Securities.

At year-end, the investment portfolio included in its state and
municipal holdings securities issued by New York State and City,
their related agencies and authorities, as well as the Municipal
Assistance Corporation, in the amount of $732 million. Our total
holdings of these municipals, while large, constituted only 2 1 .8% of
our total investment portfolio at year-end. We believe that the
current sharp declines in the municipal bond market, precipitated
by the threat of default by New York City, will be remedied provided
local financial issues are systematically addressed and investor con-

fidence returns.

Overall investment portfolio sales in 1975, excluding the gain on
the sale of Chase's minority interest in the Standard and Chart-
ered Banking Group Limited, resulted in net losses, after taxes, of
$6.2 million, compared with net after tax losses of $1 .2 million in
1974.

Bond Trading Account

Securities that are used by Chase solely in its underwriting or dealer
activities are placed in our bond trading account. Consequently,
profits and commissions from this account include fees from under-
writing, realized gains and losses from the sale of securities, and
unrealized losses due to a decline in the market value of securities
acquired for trading and positioning.

The average balance in the bond trading account in 1975 was
$296 million, down sharply from 1974's $845 million. This
decline was consistent with Chase's announced plans to reduce em-
phasis on longer-term positioning in favor of shorter-term trading
strategies.

Overall, Chase experienced a pre-tax loss of $505,000 in trading
account profits and commissions for 1975, down substantially
from the pre-tax loss of $29.2 million reported in 1974. The sharp
decrease was primarily the product of two different phases of
the Bank's trading activity. The first involved trading results from
special situations whereby unrealized losses in holdings of New York
State, New York City and their related agency obligations occur-
ring in the latter half of 1975 were only moderately offset by realized
profits on the 1974 carryover inventory. The second phase
reflected a favorable $7. 1 million impact on trading profits, primarily
in the first and fourth quarters, realized in Chase's day-to-day
current trading operations, while we maintained our position as the
leading bank underwriter of municipal securities.

Inter-Bank Deposit Placements

Inter-bank deposits are time deposits placed by Chase with other

Breakdown of Average Assets
Employed Internationally

in billions and as a percentage of total international

185

186

)

187

banks, primarily in the eurocurrency market. These deposits
averaged $3.6 billion in 1975, down 19.0% from 1974. The reduced
volume reflected somewhat less active trading in the eurocurrency
market as a result of the economic downturn and changes in the inter-
est rate trend in the second half of 1975. The average interest
rates earned on all inter-bank deposits was 9.07% compared with
10.75% in 1974.

Deposits

Total deposits rose in 1975 to an average of $32.6 billion, an
increase of 2.8% over 1974. At year-end, total deposits were $33.9
billion, down slightly from the $34.7 billion reported at Decem-
ber 31, 1974.

Domestic Deposits With the decline in general business activity,
reduced loan demand and slack retail sales, domestic demand
deposits, net of cash items in the process of collection, decreased by
2.6% to an average of $5.8 billion in 1975. A year-end comparison
of gross demand deposits in relation to net demand balances in our
domestic offices is shown below:

The movement of funds from money market instruments, whose
yields declined in 1975, contributed to this modest 4.6% growth in
the savings and other time account category. Along with demand
deposits, savings deposits have in recent years accounted for a di-
minishing portion of the total funds employed to produce asset
growth. Instead, this growth has been accomplished by money mar-
ket instruments, such as certificates of deposit. Negotiable certi-
ficates of deposit averaged $4.5 billion, up 1 1 . 1 % from $4. 1 billion
in 1974.

Overseas Deposits As in prior years, eurocurrency markets were
the primary source of increases in overseas deposits. However,
in 1975, a more restrained and stable market environment as a re-
sult of the economic recession caused a general reduction in the
volume of eurocurrency trading.

Nevertheless, Chase and other large international banks were able
to maintain a slight rate advantage in attracting deposit funds.
Time deposits in overseas offices averaged $ 1 3.3 billion in 1975,
up4.1% from $12.8 billion in 1974, while average demand deposits
increased $ 1 66 million, or 1 8 . 1 % , to $ 1 . 1 billion.

(In Millions)

December 31, 1975

December 31, 1974

Gross Demand Deposits

$10,023

$10,418

Less: Cash Items in Process

of Collection (Float)

2,806

2,809

Net Demand Deposits

$ 7,217

$ 7,609

Included in gross demand balances are deposits of $65 million at
year-end 1975 and $60 million at year-end 1974 with Chase's grow-
ing network of offices of subsidiary banks in upstate New York
and Suffolk County, Long Island.

Average balances of savings and other time accounts, excluding
negotiable certificates of deposit, increased from $4.5 billion in 1974
to $4.7 billion in 1975. Within this total, non-negotiable certificates
of deposit averaged $1.0 billion in 1975 and $1.3 billion in 1974.

Funds Borrowed

Funds borrowed include federal funds purchased, securities sold
under repurchase agreements, commercial paper, customers' paper
rediscounted by overseas offices and floating rate notes. Our use
of these funds averaged $4.2 billion in 1975, an 8.3% decrease from
the year before.

Domestically, borrowed funds averaged $3.7 billion, down
5.8% from 1 974. Federal funds purchased and securities sold
under repurchase agreements, averaged $2.4 billion, representing
63.7% of the total, compared with 71.8% in 1974. Although
there was a reduction in average volume, the use of these funding
techniques represented a continuation of a trend begun in 1974
when federal funds purchased and securities sold under repurchase
agreements acquired a significant cost advantage over alternative

t millions and as a percentage of total

■■■■■■■■II

45 Foreign Exchange Trading

188

source* Commercial paper averaged $457 million, or S49 million
greater than in 1974 In 1975, the average rate paid for domestic
borrowed money wai 6.22% , compared with 10.34% in 1974.

Floating rate notes totalling $200 million were issued by Chase in
August 1974 to obtain longer term financing. At year-end 1975,
the applicable interest rate on these notes was 6.60% compared with
a 9 70% rate when the notes were originally issued. Since issu-
ance, these notes hav e constituted a favorable source of funding for
the Corporation.

Overseas, the average rate paid on borrowed hinds was 9.22%
on a volume of $51 1 million in 1975, compared with 11.75% on a
volume of $666 million in 1974. Globally, the average rate paid
for all borrowed money was 6.58% in 1975, compared with 10.54%
in 1974.

Capital Notes and Debentures

Capital notes and debentures at year-end 1975 totalled $480 million,
down slightly from 1974's $484 million. Certain of these issues
are convertible into common stock of the Corporation at stated con-
version prices. All issues are subordinated in right of payment
to the claims of depositors and/or certain other creditors of either
the Bank or the Corporation. Historically, these funds have had a
relatively low cost, averaging 5.45% in the three-year period from
1972 through 1974and5.49% for 1975. The relatively low cost of
funds derived from such notes and debentures was not as sig-
nificant for Chase in 1975 as in 1974, a year marked by record high
interest rates. Nevertheless, capital notes and debentures contin-
ued to represent a stable funding source at reasonable cost.

Trust mi Fiduciary Investment Fees

Income from our trust and fiduciary activities increased 10.2% to
$55.8 million. While we experienced a modest decline in fees
earned on individual trust accounts, fees from corporate trust and
agency, pension trust and corporate custody accounts increased
significantly. The fee income of Chase Investors Management
Corporation New York, our wholly-owned investment management

subsidiary, also increased substantially.
Foreign Exchange Trading Income

Our foreign exchange trading income is derived primarily from the
trading we do on behalf of customers. Our objective is to accommo-
date their international financing needs. However, in a competi-
tive market place, inevitably there arise occasions when currencies
purchased from or sold to a customer cannot be readily offset with
other customers or dealers. The majority of trading positions which
Chase maintains originate from these circumstances. Such posi-
tions are modest in respect to our trading activity and of short dura-
tion.

1975 results reflect a substantial year-to-year drop in both profes-
sional trading and in customer activity. Falling commodity prices
and crude oil currency pricing decisions were each major factors in
reducing world demand in 1975 for foreign exchange trading
services. As a consequence, foreign exchange income, including
commissions earned from processing customer transactions, was
down 9% in 1975 from $49.5 million to $45.0 million.

Other Income

Other income increased to $139 million, up 27.2% over 1974,
with significant increases coming in the form of fees and commissions
from letters of credit and acceptances, consulting and advisory
services, and other financial activities and services. Advisory fees
from Chase Manhattan Mortgage And Realty Trust were in-
significant in amount for both 1975 and 1974.

Prior to the 1975 fourth quarter, foreign exchange translation
gains on overseas investment assets were deferred in a reserve ac-
count until released to income based on management's assessment
of the relative stability of exchange rates. In 1975, Chase adopted
the Financial Accounting Standards Board's recent statement on ac-
counting for foreign currency transactions. The balance in the
reserve was released to operating income and all foreign exchange
translation gains or losses are now reported as a direct credit
or a direct charge to operating income. Release of the reserve, which

'9-5

■ Ul>«MEncii<»>S<«''!1 ■«<%

n PnMKonkvPoMDto Loan Loan (M%)

189

had a balance of $3.0 million at the beginning of the year, had
a positive effect on earnings of about $1.1 million after taxes, all of
which was reflected in the first quarter's restated results. This gain,
however, was offset by continued net foreign exchange translation
losses on our capital investments in overseas branches, subsidi-
aries and associated companies, which amounted to $2.5 million,
after taxes, in 1975, after giving effect to the release of the reserve,
and $2.5 million, after taxes, in 1974.

A provision for losses on venture capital stock investments by two
wholly-owned subsidiaries of the Bank— Chase Manhattan Capital
Corporation and Chase International Investment Corporation—
adversely impacted other operating income by $6.6 million before
taxes.

Under sinking fund arrangements, $4.5 million of the 4.60%
Capital Notes were retired in 1975, resulting in a pre-tax gain of
$858,000 reflected in other income. In 1974, Capital Notes with a
par value of $15.7 million were retired for a pre-tax gain of $3.5
million.

Equity income from non-consolidated subsidiaries and associated
companies increased by about 46% . The major portion of this
increase was generated by subsidiaries and associated companies
located in Western Europe, Asia, and South America.

Operating Expenses

The same factors that caused an increase in expenses in prior years-
higher salaries and employee benefits, costs of diversification and
expansion, increased business activities, and inflation— continued
their escalating impact on operating expenses during 1975.
Excluding interest paid and the provision for possible loan losses,
operating expenses climbed to $779 million, an increase of 1 8.7 % .
Salaries and Employee Benefits Increases in staffing levels,
higher costs of employee benefits, due importantly to the enactment
of the Employee Retirement Income Security Act of 1974, and
inflation induced changes in salary programs prompted an 18.7%
increase in salaries and employee benefits.

Number of Employees at Year-End

1975

1974

Domestic Offices

21,986

21,210

Overseas Offices

8,137

7,774

Total

30,123

28,984

Occupancy Expenses Higher real estate taxes, increased rental
costs in domestic and overseas offices, and higher maintenance,
fuel and electric costs, caused net occupancy expenses to rise by
23.4% to $96.0 million.

Other Operating Expenses This item includes advertising, com-
munications, travel, insurance, postal and shipping, supplies
and transaction processing costs. The impact of inflation, combined
with increased business volume, boosted these costs by 17.2% to
$188.6 million.

Taxes Other Than Income Taxes In addition to the adverse impact
on 1 975's earnings due to increased income taxes, the Corporation
had to bear an increase in other taxes of approximately $ 1 1 million,
from $40 million to $5 1 million. Continually rising payroll taxes
comprised by far the largest segment of this increase. Payroll taxes
include domestic and overseas social security taxes as well as
domestic disability and unemployment insurance taxes. These taxes,
other than income taxes, are reflected in the various expense
captions above.

Income Taxes

The increase in income taxes as a percentage of income before secu-
rities transactions was primarily the result of increases in New
York State and New York City tax rates enacted in response to the
fiscal problems of the State and the City. The New York State
tax rate applicable to banks was increased from 8% to 12% . In
addition, the State also imposed an additional surcharge of
30% for 1975, thus bringing the 12% rate to 15.6%. Likewise, the
New York City tax rate rose from 6.756% to 13.823%. The net
impact of these tax rate increases was $6.0 million on 1975 net
income, of which $4.2 million was applicable to income before
securities transactions.

Taxes Other Than Income Taxes

in millions and as a percentage of total

Domestic Payroll (37%)
5 1 Overseas Payroll ( 101. )
25 Domestic Real Estate (24 5"M
(6%)

190

The Chase Manhattan Corporation
Summary of Significant Accounting Policies

Consolidation Policy

The consolidated financial statements include, on a line-by-line
basis, the accounts of the Corporation and its wholly-owned subsidi-
aries, principally the Bank, after the elimination of material
intercompany transactions.

Investments in unconsolidated subsidiaries (majority-owned) and
associated companies (20% -50% ownership interest) are reported
in the financial statements on the equity method of accounting.
The Corporation's equity interest in the earnings of these investments
and gains and losses realized on the disposition thereof are re-
ported in Other Income.

Investments in companies in which ownership is less than 20%
are carried at cost in Investment Securities: Federal Reserve Bank
and Other Stock Investments. Cash dividends received on these
investments are reported as Interest and Dividends on Investment
Securities: Federal Reserve Bank and Other Stock Investments.
Gains and losses realized on disposition of these investments are re-
ported in Securities Gains (Losses).

Translation of Foreign Currency Financial Statements

Assets and liabilities of overseas offices, other than premises and
equipment, are translated at the current rates of exchange at the
respective year-end. Income and expenses, other than depreciation
and amortization of premises and equipment, are translated monthly
at prevailing rates of exchange. Premises and equipment and the
related depreciation and amortization thereon are translated at ex-
change rates prevailing at December 31,1 974, and commencing in
1975 at exchange rates at dates of acquisition. The effect of this
change in accounting method is not material to Net Income.

In 1975, the Corporation changed its method of accounting for
foreign exchange translation gains and losses resulting from its
investments in overseas branches, subsidiaries and associated com-
panies in order to conform with the Financial Accounting Standards
Board's statement on "Accounting for the Translation of Foreign
Currency Transactions and Foreign Currency Financial Statements."
In 1974 and prior years, translation gains were deferred in a reserve
account classified in Other Liabilities; losses were charged against the
reserve account to the extent of gains in the same currency previously
deferred; losses in excess of gains previously deferred were charged
directly against Other Income; and the deferred gains were taken
into income based on management's assessment of the relative
stability of the respecuve foreign currencies. All translation gains
and losses are now credited or charged directly to income, and the
balance in the reserve account at the end of 1974 was credited to
income in 1 975. The effect of this accounting change on Net
Income for 1975 and 1974 is not material.

Investment Securities

Investment securities are carried at cost, adjusted for amortization
of premium and accretion of discount. Premium and discount on
investment securities are amortized (deducted) and accreted
(added), respectively, to interest income on investment securities
on the straight-line method over the period to maturity (call date
with respect to premium, if earlier) of the related securities.

Interest and dividends on investment securities are reported in
Operating Income. Gains and losses realized on sales of investment
securities are reported separately in Securities Gains (Losses).

Introduction

The following summarization of the significant accounting policies
of The Chase Manhattan Corporation ( Parent Company ) and its
wholly-owned subsidiaries, principally The Chase Manhattan Bank,
N.A and its wholly-owned subsidiaries (the Bank), is presented
to assist the reader in understanding the financial statements, notes
thereto and other data contained in this report. Throughout this
summary, the term "the Corporation" refers to The Chase Man-
hattan Corporation and its wholly-owned subsidiaries.

Changes in Consolidated Financial Statement Presentation

In 1975, the Corporation changed the financial statement presenta-
tion of the Reserve for Loan Losses. In 1974 and prior years, the
Reserve for Loan Losses consisted of the following elements: a valu-
ation portion which was available for loan charge-offs, a contin-
gency portion and its related deferred tax portion. The valuation
portion was increased by provisions charged to Operating Expenses
and reduced by loan charge-offs, net of recoveries. The contingency
portion and its related deferred tax portion arose from the transfers
from Undivided Profits and the income tax effect related thereto so
as to increase the Reserve to an amount allowable under Internal
Revenue Service regulations. Under the new presentation, the con-
tingency portion is included in Retained Earnings (Undivided Profits
in the Bank's Statement of Condition), and the deferred tax portion
is included in Accrued Taxes and Other Expenses. In addition, the
valuation portion now is reflected as a deduction from Loans and has
been entitled "Reserve for Possible Loan Losses."

Unearned discount on loans made on a discount basis was
previously included in Other Liabilities. Unearned discount now is
reflected in the financial statements as a deduction from Loans.

Other presentation changes include separate captions in both the
Statements of Condition and Income for direct lease financing and
related income therefrom and the separation of Other Investment
Securities into Other Bonds, Notes and Debentures and Federal
Reserve Bank and Other Stock Investments.

The 1974 financial statements have been reclassified to conform
with the current financial statement presentation.

General Accounting Policy

The Corporation follows generally accepted accounting principles
and, where applicable, the accounting and reporting guidelines
prescribed by banking regulatory authorities.

The Corporation carries its assets and liabilities on the historical
cost basis, and follows the accrual basis of accounting, except for
certain trust and fiduciary investment activities which are reported
on the cash basis. Results of such activities on the cash basis do not
differ materially from those which would be reported using the
accrual basis.

Assets held by commercial banking and investment advisory sub-
sidiaries in an agency or fiduciary capacity are not assets of the
Corporation and, accordingly, are not included in the accompanying
financial statements.

191

Trading Account Securities

Trading account securities, except for U.S. Treasury bills, are
reported at the lower of cost or estimated current market value.
U.S. Treasury bills in the trading account are reported at estimated
current market value. Trading account income is differentiated as
between Interest Income and Profits and Commissions. Trading
profits reflect gains and losses realized on the sales of securities and
valuation adjustments to the carrying value of trading account
securities.
Loans

Loans are reported at their principal amount, net of unearned
discount, if any.

Interest income on loans not made on a discount basis is credited
to income based on loan principal amounts outstanding during
the period. Unearned discount on loans made on a discount basis is
credited to income on a basis which results in approximate level rates
of return over the terms of the loans. Recognition of interest on
the accrual method is discontinued when it is not reasonable to ex-
pect that it will be realized. Loans on which the accrual of interest
income has been discontinued are designated as non-accruing and,
subsequently, interest is recognized only in the period collected.
The Corporation's general policy has been to cease accruing interest
on loans when they are sixty days or more in arrears on payments
of interest or principal, or when other factors indicate collection of
interest is doubtful. Such loans are not returned to an accrual status
until interest is being received on a current basis and the other factors
indicating doubtful collection cease to exist.

Certain loans ("CAP loans") are made under agreements which
contain provisions calling for the interest rate to fluctuate in relation
to the prevailing prime rate, but limit the total interest to be charged
over the term of the loan to a maximum based on a contractually
stated average rate. Accordingly, interest received in excess of the
maximum is refundable to the borrower when the loan matures
or at other specified dates. Interest payments received during the
term of the loan in excess of the amount based on the stated average
rate are credited to a reserve account which is reported in Other
Liabilities.

Real estate properties acquired in satisfaction of loans are treated
as loan related, and any subsequent transactions affecting prin-
cipal are correspondingly treated as loan related. Accordingly, such
properties are reflected in the financial statements with Loans, and
subsequent charge-offs or recoveries of principal are recorded by
charging or crediting the Reserve for Possible Loan Losses.
Reserve for Possible Loan Losses

The Reserve for Possible Loan Losses, which is reported as a
deduction fron\Loans, is available for loan charge-offs. This Reserve
is increased by provisions charged to Operating Expenses and is
reduced by loan charge-offs, net of recoveries.

The Provision for Possible Loan Losses included in Operating
Expenses for the Corporation is determined based on management's
evaluation of the loan portfolio in light of worldwide economic con-
ditions, changes in the nature and volume of the loan portfolio and
other relevant factors. For national bank subsidiaries, the provision
required by using the bank regulatory authorities' formula method
is determined for each individual national bank by applying to
average loans outstanding for the current year a loan loss experience
ratio of average net loan charge-offs to average loans outstanding
for the most recent five years, including the current year. Should the

provision determined by management exceed the amount calculated
under the formula, the provision determined by management is the
amount so provided.
Direct Lease Financing

Direct lease financing transactions are generally recorded under
the financing method of accounting. Unearned income is credited to
income on a basis which results in approximate level rates of
return over the period during which the investment in leased equip-
ment is outstanding.
Premises and Equipment

Depreciable assets are reported at original cost less depreciation
thereon. Depreciation is charged to Operating Expenses over the
estimated useful lives of the assets. Leasehold improvements are
capitalized and amortized to Operating Expenses over the terms of
the respective leases or the estimated useful lives of the improve-
ments, whichever are shorter. Depreciation and amortization are
computed on the straight-line method for domestic assets acquired
after January 1 , 1973, and for depreciable assets located in over-
seas offices. Domestic depreciable assets acquired prior to 1973 are
being depreciated and amortized on accelerated methods.
Foreign Exchange Trading Income

The Corporation follows the general practice of valuing its foreign
exchange trading positions monthly at estimated current market
rates and reporting the profits or losses resulting therefrom in For-
eign Exchange Trading Income.
Pension Plans

The Corporation has trusteed non-contributory pension plans cover-
ing substantially all full-time and part-time employees. Costs of the
plans, based on actuarial computations of current and future benefits
for employees, are charged to Operating Expenses, and are
funded as accrued.
Research and Development Costs

The Corporation is actively engaged in systems development, com-
puter software development, and other in-house research and
development programs designed to enhance existing or to develop
new financial services and products, and to reduce operating
expenses. The costs of these programs are expensed as incurred.
Income Taxes

The Parent Company and appropriate subsidiaries file consolidated
Federal, New York State and New York City tax returns. Sub-
sidiaries that are not included in the consolidated tax returns file
separate domestic and foreign tax returns, as required. Applicable
taxes of the individual companies, whether or not included in the
consolidated tax returns, are generally determined on a separate
return basis. Such taxes determined for the consolidated subsidiaries
are paid to or received from the Parent Company.

Deferred income taxes are provided on transactions which are
reported for financial statement purposes in different years than for
income tax purposes. The principal items causing these timing
differences in the consolidated financial statements are accretion of
discount on investment securities, loan interest subject to refund
(CAP loan interest), loan interest on non-accruing loans, deprecia-
tion expense, trading account securities valuation adjustments,
provision for possible loan losses, and undistributed earnings of
overseas subsidiaries and associated companies.

Investment tax credits on equipment, including lease financing
equipment, are deferred and amortized to income.

192

The Chase Manhattan Corporation
Consolidated Statement of Condition

Cash and Due from Banks $ 7,107,440,427

Investment Securities:

U.S. Treasury Securities 1,391,527,350

Federal Agency Securities 299,813,571

State and Municipal Securities 1,232, 1 3 1 ,303

Other Bonds, Notes and Debentures 373,729,859

Federal Reserve Bank and Other Stock Investments 62,394,219

Total Investment Securities 3,359,596,302

Trading Account Securities 197,348,480

Federal Funds Sold and Securities Purchased Under Resale Agreements 281 ,746,945

Loans (Net of Unearned Discount of $92,027,473 and $77,579,288, Respectively) . . 28,739,630,235

Less : Reserve for Possible Loan Losses 282,457,208

Loans, Net 28,457,173,027

Direct Lease Financing 82,729,728

Customers' Liability on Acceptances 670,226,142

Investments in Unconsolidated Subsidiaries and Associated Companies 157,117,940

Premises and Equipment 254,257,585

Accrued Interest Receivable 462,869,711

Other Assets 383,048,782

Total Assets $41,413,555,069

Liabilities and Stockholders' Equity

Deposits:

Demand $10,023,114,572

Savings and Other Time 9,1 72,624,6 1 3

Overseas Offices 14,732,695,898

Total Deposits 33,928,435,083

Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1 ,4 1 8,73 1 ,503

Other Borrowed Money 1,878,663,818

Acceptances Outstanding 681 ,050,45 3

Accrued Taxes and Other Expenses 539,736,767

Other Liabilities 665,924,375

Floating Rate Notes (Due 1999) 200,000,000

Liabilities Other Than Capital Notes and Debentures 39,3 1 2,54 1 ,999

Capital Notes and Debentures:

Capital Notes (4.60% Due 1990) 130,510,000

Convertible Capital Notes (4 7 /s % Due 1993) 149,299,700

Convertible Subordinated Debentures (6Vi % Due 1996) 199,995,000

Total Capital Notes and Debentures 479,804,700

Total Liabilities 39,792,346,699

Stockholders' Equity:

Common Stock (Par Value $12.50 Per Share)

I97S 1974
Authorized Shares 50,000,000 50,000,000

Outstanding Shares 32,059,158 32,059,006 400,739,475

Surplus 501,306,738

Retained Earnings 719,162,157

Total Stockholders' Equity 1,621,208,370

Total Liabilities and Stockholders' Equity $41,413,555,069

$ 8,686,609,258

445

382,
1,373,
357
99

,262,786
,803,306
659,924
406,193
509,980

2,658,
383
176
27,740
220

642,189
410,066
047,368
467,277
988,155

27,519
51
1,375
133
247
621
379

479,122
650,357
730,523
914,627
441,705
050,792
459,852

$42,233,435,859

$10,417
10,579
13,670

,547,966
264,475
573,508

34,667
1,487
1,477
1,388
581
428
200

385,949
,640,000
088,310
,507,841
,979,359
,489,468
000,000

40,231,090,927

135,022,000
149,308.100
199,995,000
484,325,100
40.715,416,027

400,737,575
501,300,278
615,981,979
1,518,019,832
$42,233,435,859

The accompanying notes are an integral part of the financial statements.

193

The Chase Manhattan Corporation
Notes to Financial Statements

The accounting policies followed by The Chase Manhattan
Corporation (Parent Company) and its wholly-owned subsidiaries,
principally The Chase Manhattan Bank, N.A. and its wholly-
owned subsidiaries (the Bank) , are disclosed in the accompanying
Summary of Significant Accounting Policies on pages 24 and 25.
This summary is an integral pan of the financial statements and
should be read in conjunction with these notes. Throughout
these notes, the term "the Corporation" refers to The Chase Man-
hattan Corporation and its wholly-owned subsidiaries.

Cash and Due from Banks

The composition of Cash and Due from Banks as of December 3 1 ,

1975 and 1974 follows:

1975 1974

i In Thousands)

Interest Bearing Deposits Placed with
Banks. Principally Time Deposits
Placed by Overseas Offices

$3,382,135 $3,499,218

Reserve Account Maintained with the
Federal Reserve Bank, Cash Items in
Process of Collection and Other

3,725,305 5.187,391

Total Cash and Due from Banks

Investment and Trading Account Securities

Shown below is a summary of investment securities (with related
maturity data) and trading account securities at their respective
par values, carrying values and estimated market values as of
December 31, 1975 and 1974. The maturity data as of December

3 1 , 1 975 for State and Municipal Securities reflects the moratorium
on New York City Notes and the restructuring, effective February 1 ,
1976, of principal repayment terms of New York City Notes and
of certain New York State Municipal Assistance Corporation (MAC)
obligations, more fully described below.

1975

1974

Bans

lated

Estimated

(In Millions)

Carrying

Market

Carrying

Market

Par Value

Value

Par Value

Value

Investment Securities:

VS. Treasury Securities:

Maturing Within 1 Year

550

542

541

$ 29

Maturing After 1 Year but Within 5 Years

659

663

179

177

Maturing After 5 Years but Within 10 Years

Maturing After 10 Years

186

187

173

215

214

202

Total

,395

,392

$1,377

447

445

$ 431

Federal Agency Securities:

Maturing Within 1 Year

$ 35

Maturing After 1 Year but Within 5 Years

121

120

154

159

157

Maturing After 5 Years but Within 10 Years

Maturing After 10 Years

178

176

164

182

179

164

Total

3o:

300

287

381

383

S 366

State and Municipal Securities:

Maturing Within 1 Year

327

330

$ 327

Maturing After 1 Year but Within 5 Years

106

Maturing After 5 Years but Within 10 Years

208

209

144

Maturing After 10 Years

878

861

537

960

942

685

Total

$1,247

$1,232

818

$1,388

$1,374

$1,109

Other Bonds, Notes and Debentures:

Maturing Within 1 Year

134

131

134

$ 93

Maturing After 1 Year but Within 5 Years

Maturing After 5 Years but Within 10 Years

Maturing After 10 Years

136

120

139

136

111

Total

377

374

362

357

$ 336

Federal Reserve Bank and Other Stock Investments:

Federal Reserve Bank

$ 33

Other

Total

100

$ 93

Total Iniestment Securities

$3,360

s:.9o-

$2,659

S 2.335

Trading Account Securities

205

197

401

383

$ 383

194

Company

The financial difficulties of New York City led, in November 1975,
to a moratorium on New York City Notes and the restructuring
of the principal repayment and interest terms of these New York City
Notes and the MAC obligations. The effect of these changes on
New York City Notes and MAC obligations in the investment port-
folio were as follows:

New York City
Notes

MAC
Obligations

($ In Millions)

Par \alues it December 31, 1975

$66

$188

Average interest rates applicable at
December 31, 1975

7.96%

8.37%

Interest rates pursuant to restructuring
agreement

S.OOW

6.00%

The maturities of the above Notes, originally scheduled to mature in
1 976, and certain of the above MAC obligations (approximately
$115 million), originally scheduled to mature on various dates
through 1985, were restructured under the terms of an agreement
betw een certain creditors of the City of New York (including the
Bank ) and MAC. Shown below are details of obligations of New
York State, New York City, their related agencies and independent
authorities held in the investment portfolio at December 31, 1975.
The maturities of New York City Notes and MAC obligations reflect
the restructuring of principal repayment terms.

Within
1 Year

Between

1 and 3 Over 3
Yeats Years

Total

Carrying Values (In Millions )

New York City Notes
in Moratorium

$ -

$ - $66

$66

Municipal Assistance
Corporation

18 169

187

Other Securities
Issued or
Guaranteed by
or Otherwise
Obligating the
City of New York

36 113

155

New York State and
Financially Related
Agencies

2 225

253

Revenue Obligations
of Independent
Authorities

At December 31, 1 975, the aggregate carrying value of New York
City Notes in moratorium and MAC obligations, together with the
aggregate carrying value of other securities issued, or guaranteed
by, or otherwise obligating the City of New York which will mature
within three years, held in the investment portfolio, amounted
to $295 million, and the estimated market value (reflecting the re-
structuring) was $200 million. Estimated market value has been
derived using quotations for publicly traded issues taking into con-
sideration the mandatory provisions of the restructuring. This
market value may not necessarily be indicative of value that could
be received upon sale. The interest earned on these securities
for the period they were held during 1975 aggregated approximately
$ 1 2 million, before income taxes. The difference between the
interest that would have been earned in 1976 at the rates applicable
at December 31, 1 975, and the interest that is anticipated as a
result of the debt restructuring is approximately $4,759,000, before

income taxes ($4,129,000, after income taxes or 1 3 cents per
share).

At December 31,1 975 the Bank held in its trading account New
York City securities included in the debt restructuring or maturing
within three years amounting to $29 million at estimated market
value.

On May 14, 1975, the Bank sold its 1 1.9% minority interest in
the Standard and Chartered Banking Group Limited, London,
England. The Bank sold its interest after no practical alternative
could be found for complying with Federal banking regulations.
The issue arose when The Standard Bank Limited was merged with
The Chartered Bank Limited whose banking subsidiary in California
was engaged in domestic banking activities in the United States. The
sale of this investment, carried at a cost of $34,328,809, resulted in a
gain of $23,277,422, after applicable income taxes, and is reported
in Securities Gains (Losses).

Loans

Details of loan balances as of December 3 1 , 1975and 1974foIlow:

1975

1974

(In Thousands)

Domestic Offices:

Real Estate Loans

$ 3,031,391

$ 2,988,995

Loans to Real Estate Investment
Trusts and Mortgage Companies

827,595

904,970

Loans to Financial Institutions

1,371.977

2.184,506

Loans for Purchasing or Carrying
Securities, Principally to Brokers and
Dealers

1,095,253

508,521

Commercial and Industrial Loans

9,019,329

9,322,994

Loans to Individuals

926,949

963.958

Other Loans

336,115

449,831

Real Estate Properties Acquired in
Satisfaction of Loans

113,250

1.811

Total Domestic Offices

16,726.859

17.325.586

Overseas Offices:

Real Estate Loans

1,165,109

966.920

Loans to Foreign Governments and
Official Institutions

1.302.409

959,083

Commercial and Industrial Loans

7,855,279

7.062,769

Other Loans

1.773.136

1,498,926

Real Estate Properties Acquired in
Satisfaction of Loans

8,865

4.762

Total Overseas Offices

12,104.798

10,492.460

Loans, Gross

28,831.657

2-.81S.04n

Less: Unearned Discount

92,027

77,579

Total 1 ouns

$28,739,630

$27,740,467

195

Reserve for Possible Loan Losses

Changes in the Reserve for Possible Loan Losses, which is available
for loan charge-offs, for the years ended December 31,1975 and
1974 are shown below:

The Bank
Consolidated

Other Subsidiaries of
The Parent Company

(In Thousands)

Banking

Non-Banking

Total

Balance at
December 31, 1973

$194,598

$ 313

$ 469

$195,380

Additions :
Provisions
Charged to
Operating
Expenses

114,526

999

2,931

118,456

Reserve of
Subsidiary Bank
Acquired

111

Deduction:
Loan Charge-Offs

104,918

1,193

106,111

Less: Recoveries
on Loans

13,033

119

13,152

Net Loan
Charge-Offs

91,885

1,074

92,959

Balance at
December 31, 1974

217,239

349

3,400

220,988

Addition:
Provisions
Charged to
Operating
Expenses

284,736

2,011

25,690

312,437

Deduction:
Loan Charge-Offs

274,681

1,706

276,387

Less: Recoveries
on Loans

25,231

188

25,419

Net Loan
Charge-Offs

249,450

1,518

250,968

Balance at
December 31, 1975

$252,525

$ 842

$29,090

$282,457

The Provision for Possible Loan Losses of national bank subsidiaries
(included in the provisions charged to operating expenses of the
Bank consolidated and banking subsidiaries of the Parent Company),
calculated using the five year moving average formula, amounted
to $133,373,000 and $84,339,000 in 1975 and 1 974, respectively.
Additional amounts of $1 18,000,000 and $20,000,000 in 1975
and 1974, respectively, over the formula amount were provided in
order to increase the Reserve for Possible Loan Losses to the
amount determined to be adequate by management.

In the opinion of management, the Reserve for Possible Loan
Losses at December 31, 1975 is adequate to absorb all anticipated
loan losses in the loan portfolio at that date.

At December 3 1 , 1 975, the Reserve for Loan Losses for national
bank subsidiaries for Federal income tax purposes amounted to
$329,100,000, which exceeded the Reserve for Possible Loan
Losses for financial reporting purposes by $ 1 1 6,500,000.

Premises and Equipment

A summary of premises and equipment as of December 31, 1975
and 1974 folic - ';:

1975

1974

(In Thousands)

Domestic Offices:

Land

$ 21,068

$ 20,969

Buildings

73,042

74,388

Leasehold Improvements

51,008

49,412

Equipment

40,554

37,765

Overseas Offices:

Land

4,816

4.863

Buildings

27,537

23,618

Leasehold Improvements

22,041

23,166

Equipment

14,192

13,261

Total Premises and Equipment

S254.258

S247.442

Depreciable assets are stated, in general, at their net depreciated
cost, as it has been the policy of the Bank for many years to credit
provisions for depreciation and amortization applicable to premises
and equipment directly to the appropriate asset accounts. Depreci-
ation and amortization of premises and equipment aggregated
$25,427,565 for 1975 and $22,538,722 for 1974. Maintenance
and repairs aggregated $23,067,000 for 1975 and $20,107,000
for 1974.
Funds Borrowed

The following summary presents the amount of funds borrowed,
principally maturing within one year, as of December 31, 1975 and
1974:

1975

1974

(In Thousands)

Federal Funds Purchased

$ 982,261

$ 973,086

Securities Sold Under
Repurchase Agreements

436,470

514,554

Total

1,418,731

1,487,640

Other Borrowed Money:

Money Borrowed by Overseas Offices

439,382

581,847

Commercial Paper Issued by
Parent Company

661,947

383,488

Other Borrowings

777,335

511,753

Total

1,878,664

1,477,088

Total Funds Borrowed

$3,297,395

$2,964,728

196

Operations in Overseas Offices

Assets and liabilities in overseas offices included in the Corporation's consoli-
dated financial statements, after elimination of intercompany balances, at De-
cember 31, 1975 and 1974 were as follows :

[In thousands]

1975 1974

Total Assets $17,135,000 $16,007,000

Total Liabilities 16,384,000 16,074,000

The following is a summary of deposits in overseas offices included in total lia-
bilities above, as of December 31, 1975 and 1974 :

[In thousands]

1975 1974

Demand Deposits $1, 404, 000 $1, 119, 000

Time Deposits 13,329,000 12,552,000

Total Deposits in Overseas Offices 14, 733, 000 13, 671, 000

The nature of demand deposits varies in overseas countries and is not neces-
sarily comparable with the definition used domestically ; for example, demand
deposits in some countries are interest bearing.

Income of overseas offices not included in the consolidated financial statements
because of restrictions on remittance of income is less than $300,000 and $800,000
in 1975 and 1974, respectively.

In 1975, foreign exchange translation losses on investments in overseas
branches, subsidiaries and associated companies amounted to approximately
$2,500,000, after income taxes, which amount includes the release to Other In-
come in 1975 of the balance in the foreign exchange reserve account at Decem-
ber 31, 1974 amounting to $3,000,000, as discussed in the accompanying Summary
of Significant Accounting Policies. For the year 1974, foreign exchange transla-
tion losses amounted to $2,500,000, after income taxes.

*******

Income Taxes

Income taxes applicable to Net Income for the years 1975 and 1974 were as
follows :

[In thousands of dollars)

1975

1974

Tax provision applicable to income before securities gains (losses)

Tax provision applicable to gain on sale of investment in standard and chartered banking
group limited _

70, 348
20, 288

72, 634

Tax provision (benefit) applicable to other securities gains (losses)

(9, 497)

(1,040)

Total __

81,139

71,594

CURRENT AND DEFERRED TAX PROVISIONS (BENEFITS)

[In thousands of dollars]

1975

1974

Current:

Federal

State and municipal

Foreign

5,253
34, 347
78, 676

3, 933
22,818
61,710

Total current.

118, 276

88, 461

Deferred:

Federal

State and municipal

Foreign

(26, 327)
(10, 593)
(217)

(13, 528)
(5,910)
2,571

Total deferred

(37, 137)

(16, 867)

Total

81, 139

71, 594

197

Although not affecting the total tax provision, current income tax payments
may differ from the amounts treated above as current as a result of the final
determination as to the timing of certain deductions and credits. The effects,
if any, of these determinations are reflected in the following year. The 1975 tax
provisions include an amount attributable to interest on non-accruing loans de-
termined to be taxable in 1974.

Based upon currently anticipated operations, it is expected that the deferred
income tax liability balance will be substantially reduced in 1976, and the cash
payment of taxes associated with that year will exceed tax expenso by approxi-
mately $50,000,000, principally due to interest on non-accruing loans and loan
loss deductions for income tax purposes being less than the Provision for
Possible Loan Losses charged to Operating Expenses.

The estimated amount of investment tax credits to be utilized in the 1975
U.S. Federal income tax return is approximately $3,400,000. The amount utilized
in the 1974 income tax return was $2,874,000.

The principal items which caused the timing differences resulting in deferred
income taxes and the tax effect of each follow :

[In thousands of dollars]

1975

1974

Loan loss deduction for income tax purposes (under) over provision for possible loan.-
losses charged to operating expenses of national bank subsidiaries

Undistributed earnings of overseas subsidiaries and associated companies.. —

Depreciation and amortization of premises and equipment, including lease financing —
equipment. _ -

Loan interest subject to refund (CAP loan interest)

Loan interest on nonaccruing loans

Trading account securities valuation adjustments

Other— Net...

Total

,<2 69 >
6, 251

11,581
(3, 193)
(61,513).
5, 552
4, 454

5, 096
(37)

7, 647
(10,573)

(9,977)
(9, 023)

(37, 137)

(16, 867)

The total provision for income taxes applicable to Net Income is less than the
amount computed by applying the U.S. Federal income tax rate of 48% to income
before taxes. The principal reasons for this difference follow :

1975

1974

Percent of Percent of

Amount (in income Amount (in income

thousands) before taxes thousands) before taxes

Provision for income taxes at U.S. Federal income tax
rate.

Increase (decrease):

Tax-exempt interest

State and municipal income taxes, net of Federal

income tax benefits

Securities gains at capital gain rates

Other— Net

Total provision for income taxes

$122, 328

(50, 295)

11,226
(7, 871)
5.715

81. 139

48. 00

(19. 72)

4. 41
(3.09).
2.24

31.84

$121, 150

(56, 033)
8, 346

71, 594

48. 00

(22. 20)
3. 30
""(."73)

28. 37

Earnings Per Share

Earnings per share amounts are based on average shares outstanding. Per
share amounts on a fully diluted basis assume full conversion of all outstand-
ing 4 7 / 8 % Convertible Capital Notes and 6y 2 % Convertible Subordinated Deben-
tures, with elimination of related interest expense, after applicable tax effect.

Pledged Assets

Assets of national bank subsidiaries aggregating $3.2 billion at December 31,
1975 and $3.0 billion at Decemeber 31, 1974 were pledged to secure public and
trust deposits and for other purposes.

198

Commitments and Contingent Liabilities

In the normal course of business, the Corporation and its subsidiaries make
various commitments and incur certain contingent liabilities which are not
reflected in the accompanying financial statements. These commitments and
contingent liabilities include various guarantees, commitments to extend credit,
letters of credit, and foreign exchange futures contracts. Commitments under
letters of credit outstanding aggregated approximately $3.1 billion and $3.7
billion at December 31, 1975 and 1974, respectively. Included in these amounts
are standby letters of credit totaling $1.0 billion at December 31, 1975 and $1.3
billion at December 31, 1974. Management does not anticipate any material
losses as a result of these transactions.

The Chase Manhattan Corporation

Five Year Comparative Summary of Selected Statistics

(In Millions)

1975

1974

1973

1972

1971

kverage Loan Balances

Domestic Offices:

$ 3,014

$ 2,656

$ 2,060

$ 1,540

$ 1,503

Loans to Real Estate Investment Trusts

850

749

Loans to Financial Institutions

1,720

1,934

1,527

1,124

1,048

Loans for Purchasing or Carrying

Securities, Principally to Brokers and

Dealers

492

525

556

920

470

8,661

8,342

6,975

6,394

6,839

898

914

862

688

617

All Other Domestic Loans

221

349

534

511

202

Real Estate Properties Acquired

15,903

15,474

13,015

11,374

10,785

Overseas Offices

11,244

9,461

6,068

3,685

3,055

27,147

24,935

19,083

15,059

13,840

Less: Unearned Discount

Total Average Loans

S27.065

$24,863

$19,028

$15,007

$13/786

Net Interest Margin (Taxable
Equivalent Basis)

Interest Income $ 2,909

Taxable Equivalent Basis Adjustment . . . 127

Adjusted Interest Income 3,036

Interest Paid 1,913

Net Interest Margin (Taxable

Equivalent Basis) $ 1,123

$ 3,424

$ 2,111

$ 1,267

$ 1,254

123

101

3,547

2,212

1,368

1,345

2,646

1,512

755

752

$ 901

$ 700

$ 613

$ 593

Average Deposit Balances
Domestic Offices:

Demand Deposits of Individuals,

Partnerships and Corporations

$ 5,077

$ 5,048

$' 4,895

$ 4,699

$ 4,793

Time and Savings Deposits of

Individuals, Partnerships

and Corporations

7,258

6,649

5,033

4,423

4,012

Deposits of United States Government,

States and Municipalities

473

638

1,004

863

670

Deposits of Commercial Banks

3,651

3,574

2,842

2,524

2,543

All Other Domestic

1,679

2,019

1,730

1,756

2,119

Total Domestic Offices

18,138

17,928

15,504

14,265

14,137

Overseas Offices

14,429

13,740

9,987

7,662

6,840

Total Average Deposits

$32,567

$31,668

$25,491

$21,927

$20,977

200

Liabilities and Stockholders' Equity

Interest Paying Liabilities :
Savings and Other Time Deposits:
Domestic Offices:

Savings Deposits

Savings Certificates, Christmas Club and Nest Egg Accounts

Negotiable Certificates of Deposit

Other Time Deposits

Time Deposits in Overseas Offices

Total Interest Paying Deposits

Federal Funds Purchased and Securities Sold Under Repurchase Agreements ....

Floating Rate Notes and Other Borrowed Money

Capital Notes and Debentures

Total Interest Paying Liabilities

Non-Interest Paying Liabilities:
Demand Deposits:

Domestic Offices 8,855

Overseas Offices 1,082

Acceptances Outstanding 1,140

Other Liabilities 1,072

Total Non-Interest Paying Liabilities 12,149

Total Liabilities 39,498

Total Stockholders' Equity 1,587

Total Liabilities and Stockholders' Equity $41,085

Net Interest Rate Spread

Net Interest Margin (Taxable Equivalent Basis) as a Percent of Interest
Earning Assets

1. Taxable equivalent rate, wbere applicable.

2. Excludes profiu and commissions.

3. Rate computed net of unearned discount only.

The Chase Manhattan Corporation

Five Year Comparative Average Consolidated Statement

of Condition Balances and Interest Rates \221

(balances in millions) Average Average

Balance Rate 1

Interest Earning Assets

Bank Deposits

Investment Securities:

U.S. Treasury Securities

Federal Agency Securities

State and Municipal Securities

Other Securities

Total Investment Securities

Trading Account Securities

Federal Funds Sold and Securities Purchased Under Resale Agreements .
Loans:

Domestic Offices

Overseas Offices

Total Loans, Gross

Less:

Unearned Discount

Reserve for Possible Loan Losses

Loans, Net

Direct Lease Financing

Total Interest Earning Assets

Non-Interest Earning Assets:

Cash and Due From Banks (Excluding Interest Earning Bank Deposits) .

Customers' Liability on Acceptances

Other Assets

Total Non-Interest Earning Assets

Total Assets

$ 3,606

9.07%

758

7.03

394

7.50

1,214

12.65

446

8 06

2,812

9.69

296

11.41'

155

6.22

15,903

8.06

11,244

9.83

27,147

8.79

242

26,823

8.82*

10.97

33,748

8.93% J

4,711

1,109

1,517

7,337

$41,085

$ 1,635

4.97%

284

6.14

4,540

7.04

2,824

5.76

13,347

7.66

22,630

7.09

2,371

5.80

1,865

7.58

483

5.49

27,349

6.98%

201

1974

1973

1972

1971

Average
Balance

Average
Rate 1

Average Average
Balance Rate 1

$ 4,454

10.75%

$ 3,317

8.68%

449

7.17

481

6.70

310

7.75

178

7.48

1,467

10^99

1,637

9^30

417

7.56

249

7.10

2,643

9.42

2,545

8.47

845

9.43 2

679

7.96 2

102

10.67

132

7.03

15 474

10.44

13 015

8.27

9 461

1 1.71

6 068

9.33

24,935

10.93

19,083

8.61

210

203

24,653

10.96 3

7.82

7.67

32,744

10.76% 3

25,538

8.59% 3

5,107

4,585

920

625

1,573

1,186

7,600

6,396

$40,344

$31,934

$ 1,441

4.95%

$ 1,463

4.71%

258

5.84

266

5.36

4,088

10.38

3,368

7.80

2,837

8.74

1,775

6.16

12,824

10.69

9,126

8.29

21,448

9.93

15,998

7.58

2,839

10.38

1,776

8.93

1,782

10.80

1,225

8.68

494

5.47

513

5.45

26,563

9.95%

19,512

7.70%

9,304

8,632

916

861

963

666

1,144

906

12,327

11,065

38,890

30,577

1,454

1,357

$40,344

$31,934

.81%'

.89%

2.73% 3

2.72%

$ 2,631

5.68%

$ 1,941

6.86%

686
15
2,073
225
2 999
420
70

5.28
5.44
8.46
7.66
7.66

atF~

3.47

949
169
1,608

193

2 919
419
120

5.58

5.80

9.48

7.83

7.92

6T55 1-

4.23

11,374
3,685
15,059

6.08
7.38
6.40

10,785
3,055
13,840

6.49
8.17
6.86

52
216
14,791

39
20,950

6.42 s
7.75
6.46% 3

54
218

13,568
37
19,004

6.89 3
7.00

7.00% 3

4,524
458
1,059
6,041
$26,991

4,589
574
1,126
6,289
$25,293

$ 1,589
278
2,661
1,200
6,963
12,691
1,378
361
528
14,958

4.47%

5.21

4.95

3.44

5.48

5.04

4.52

6.13

5.42

5.03%

$ 1,403
237

1,369
6,230
11,259
1,093
253
438
13,043

4.46%
5.22

4.04
6.76
5.87
4.66
5.35
5.16
5.73%

8,537
699
467
1,070
10,773
25,731
1,260
$26,991

1.43% 3
2.90% 3

9,108
610
582
768
11,068
24,111
1,182
$25,293

1.27% 3
3.09% 3

202

The Chase Manhattan Corporation
Summary of Consolidated Income

(In Thousands)

Year Ended December 3 1

1975

1974

1973

1972

1971

Interest Income

Interest on Loans

$2 368 467

$2,717,441

$1,642,439

$ 961,636

$ 948,345

Interest and Dividends on Investment Securities

187 665

166,290

137,273

139,498

152,643

Trading Account Interest

21 979

58,033

41,084

13,654

17,873

Direct Lease Financing Income

4 277

3,013

2,593

2,587

2 213

Total Interest Income

2,909,406

3,423,734

2,111,235

1,266,767

1,254,213

Interest Expense

Deposits

1 607 587

2,131,788

1,219,249

641,568

664,427

Other

305 358

513,947

292,781

1 1 3,464

87,08!

Total Interest Expense

1 912 945

2,645,735

1,512,030

755,032

751 508

Net Interest Margin 1

996,461

777,999

599,205

51 1,735

502 705

Other Operating Income

65 985

57,092

44 549

29 406

31 593

Trading Account Profits and Commissions

(505)

(29,159)

8,882

9,515

(2,705)

55,818

50,644

50,586

52,480

52,816

Foreign Exchange Trading Income

45 022

49,463

36,499

20,223

15,181

Other Income

155,965

123,830

109,778

82,448

81,262

322,285

251,870

250,294

194,072

178,147

Net Interest Margin and Other Operating Income

1,318,746

1,029,869

849,499

705,807

680,852

Other Operating Expenses

Salaries and Employee Benefits

463,758

390,798

321,856

281,372

264,074

Provision for Possible Loan Losses

312,437

118,456

62,178

37,715

36,072

Net Occupancy

95,965

77,780

64,846

57,074

51,444

219,603

188,154

159.911

119,425

108,242

Total Other Operating Expenses

1,091,763

775,188

608,791

495.586

459,832

Income Before Taxes and Securities Gains (Losses)

226,983

254,681

240,708

210,221

221,020

Less: Applicable Income Taxes

70,348

72,634

76,036

61,908

73,333

Income Before Securities Gains (Losses)

156,635

182,047

164,672

148,313

147,687

Securities Gains (Losses), After Applicable Taxes:

Gain on Sale of Investment in Standard and Chartered

Banking Group Limited

23,277

Gain on Sale of Investments in Associated Companies . .

971

Loss on Sale of Commercial Mortgages

(8,150)

Other Securities Gains (Losses)

(6,202)

(1,246)

(1.577)

661

720

Net Income

$ 173,710

$ 180,801

$ 163,095

$ 148,974

$ 141,228

Per Share, Based on Average Shares Outstanding of:

32,059,093

32,057,144

32,005,277

31,919,983

31,881,463

Income Before Securities Gains (Losses)

$ 4.89

$ 5.68

$ 5.15

$ 4.65

$ 4.63

5.42

5.64

5.10

4.67

4.43

Assuming Full Conversion of Convertible Notes and

Debentures:

4.30

5.00

4.55

4.13

4.24

4.75

4.97

4.51

4.15

4.06

2.20

2.00

1. Net interest margin figures are presented on a book financial statem
interest income exempt from income taxes

ent basis and. thus, d

o not reflect the ac

d back for the taxable equivalent adjustment on

203

Management's Discussion and Analysis
of the Summary of Consolidated Income

Net Interest Margin

In 1974, net interest margin increased by 29.8% to $778.0 million
as the sharp rise in the average level of earning assets more than
compensated for the narrowing difference between interest rates
earned and rates paid, continuing the trend begun in 1973.
Domestically, a rapid build-up of loans resulted from the Bank's
prime lending rate rising less rapidly than the cost of other short
term financing sources available to corporate treasurers. At the
same time, rates paid for purchased funds rose markedly, causing
a narrowing in the spread between rates earned and rates paid.
Overseas, interest rate spreads remained narrow on a higher volume
of loans, reflecting the heightened competitive pricing among banks
in the eurocurrency markets.

In 1975, as funding costs declined more rapidly than interest rates
earned, a more favorable rate spread was established, despite the
negative impact of the substantial reduction of about $115 million,
before taxes, of interest income on "non-accruing" and "reduced
rate" loans. Net interest margin increased 28.1 % over 1974 to
$996.5 million. There was little expansion in domestic and overseas
earning assets due to the economic recession.

Other Operating Income

In 1974, bond trading produced a pre-tax loss of $29.2 million, as
compared to pre-tax income of $8.9 million in 1973, as rapidly rising
interest rates adversely impacted the large 1974 inventory holdings
and created substantial unrealized losses. In 1 975, trading account
losses decreased dramatically, down to $505,000, due to improved
trading performance and a marked reduction in unrealized losses
on the 1974 carry-over inventory. Nevertheless, results were nega-
tively affected by losses in the second half of 1975 of $6.8 million,
before taxes, primarily as a result of unrealized losses on the inven-
tory of New York State and New York City securities and re-
lated agency obligations.

Other operating income reflected substantial growth from 1973 to
1974 as increases in fees on loans, foreign exchange trading income
and greater revenues from credit card, letters of credit, and other
international business activities more than offset net foreign exchange
translation losses of $3.6 million before taxes on capital investments
in overseas branches, subsidiaries and associated companies, which
were charged against other income. For 1975, other operating
income continued to grow, due mainly to increased revenues from
fees on loans, international business fees, equity income, credit card
activities, and consulting and advisory services. Partially off-
setting these increases was the provision for losses on venture capital
stock investments of $6.6 million before taxes.

Provision for Possible Loan Losses

In 1 974, the increase in the provision for possible loan losses
reflected the inclusion in the five-year moving average formula of in-
creased average loan volume and a higher level of net loan

charge-offs over those experienced in prior years. Also included in
1974's increase was an additional management provision of $20
million over the formula reflecting the evaluation of the loan port-
folio in the context of then prevailing economic conditions. In
1 975, the further erosion in worldwide economic conditions resulted
in substantially greater loan charge-offs, particularly in the
domestic real estate and commercial sectors. The provision of $3 1 2
million in 1975 includes a management addition of $1 18 million
in excess of the amount required by the formula. Under current eco-
nomic conditions, further management additions to the reserve
for possible loan losses, over the formula amount, can be anticipated.

Other Operating Expenses

The increases in operating expenses (other than interest paid and
provision for possible loan losses) in 1974 and 1975 reflect con-
tinued increases in business activity, costs of expansion and diversifi-
cation, and the impact of inflation.

Applicable Income Taxes

In 1974, the income tax provision was lower than in 1973 because
the increase in tax exempt income was greater than the increase
in total earnings before taxes. In 1975, although income before secu-
rities gains (losses) was significantly lower than in 1974, the
applicable income taxes did not decrease proportionately, primarily
due to the three rate increases with respect to New York State and
New York City taxes which were enacted during the year. These tax
increases, all retroactive to January 1, 1975, resulted in a $4.2
million increase in the 1975 provision for taxes on income before
securities gains (losses).

Income Before Securities Gains (Losses)

Income before securities transactions increased by 10.6% in 1974
over 1973. While the Corporation's earnings performance in 1975
reflected an improved net interest margin both in domestic and
overseas offices, an increase in loan and other business fee income,
and a substantial decline in losses in the bond trading account, in-
come was, nevertheless, adversely affected by the non-accruing and
reduced rate loans, the increased provision for possible loan
losses, and the higher New York State and City taxes.

Net Income

Net income in 1974 increased by 10.9% over 1973. In 1975, net
income declined only 3.9% from 1974, although income before
securities gains (losses) decreased by 14.0% in the same period. In-
cluded in net income is the gain of $23.3 million, after applicable
taxes, on the sale, in May 1975, of the Bank's 1 1.9% minority inter-
est in the London based Standard and Chartered Banking Group
Limited. The 1975 New York State and New York City tax rate
increases adversely impacted net income by $6.0 million, of which
$4.2 million was applicable to income before securities gains (losses ) .

25-605 O - 78 - 14

204

International Advisory
Committee

Overseas Locations

Europe

Pehr G. G> lie
Managing Director and
Chief Executive Officer
AB Volvo

Pierre A Uourd-Vogt
Chairman and Managing
Director

Nestle Alimentana S A

Denmark. England.
France, Germany.
Greece, Italy

Eletnodade SA..

Ian D.

Sir Reay Geddcs, Chairman
Dunlop Holdings Ltd.

L oiled States

C Douglas Dillon

Henry Ford II
Chairman of the Board
Ford Motor Company

Dr. Carl A Gerslacker

The Do» Chemical

Ro:>er. Marjoun

Otto Wolff von Amerongen

President

Quo Wolff AG

P E Haggerty
Chairman

Incorporated

WUliam A. Hewitt

Chairman

Deere A Company

Erwin E Kelm

Y.JCPao,<
and Chief Executive
World-Wide (Shipping)
Limited

JR. D.Tata,
Tau

Dr Giovanni Agnelli
Chairman

FIAT. S.p.A.

CargiU. Incorporated

C William Verity . Jr.
Chairman and
Chief Executive Officer
Armco Steel Corparau oi

F i -Officio Members
(The Chase Manhattan
■—a, MA.)

David Rockefeller
Willard C Butcher
George A. Roeder. Jr.
William S. Ogden
Francis X. Stankard

Italy, Spain. Switzerland.

U-S.S.R.

Austria:

Chase Manhattan Bank

(Austria), AG

Belgium:

Banque de Co mm er ce . S.A-

Staodard & Chase
Bank, C-L, Ltd.
Standard & Chase
Trust Co., CL Ltd.

France:

Banque de Reescompte
et de Placement

(B.A.R-E.E)

Chase Manhattan. S.A

Germany:
Familienbank. AG.

Guernsey:

Chase Manhattan Bank

(Guernsey), Ltd.
Orion Bank
(Guernsey), Ltd

Luxembourg:

Chase Manhattan Bank

Luxembourg, S.A

The Netherlands:
Nederiandse
Credietbank. N.V

Republic of Ireland:
Chase and Bank of Ireland
I International). Ltd

Switzerland:

Chase Manhattan Bank

United Kingdom:
Chase Manhattan Limited
Libra Bank 1 imiled
On an Bank 1 imitrd

Netherlands
Multinational Prion
Leasing Holdings N.V.

SA..
S-A

Switzerland:

Capital International. S-A

United Kingdom:
Equipment Leasing
Company. Ltd.
Orion l
Holdings Ltd.
Orion Multinational
Services Ltd.

Lie Alberto BaOleres
Chairman of the Board
and Executive President
CREMI Group

France:
Essor Gestxm
Financiere rflnvestisse-
ment et de Construction

:SJV.

205

Domestic
Subsidiaries

Asia and Australasia

Western Hemisphere

Africa and Middle East

Guam, Hong Kong,
Indonesia, Japan, Korea,
Malaysia, Singapore,
Taiwan, Thailand
Representative Offices
India, Korea, Singapore

Hong Kong:
Chase Asia Limited
Malaysia:

Amanah Chase Merchant
Bank Berhad
The Philippines:
Commercial Bank and
Trust Company
of the Philippines
Singapore :

United Chase Merchant
Bankers Ltd.

Australia :

Alliance Acceptance
Co., Ltd.

Alliance Holdings, Ltd.
All States Commercial
Bills Ltd.

Chase-N.B.A. Group
Depository Ltd.
Chase-N.B.A. Group Ltd
Managed Deposits Ltd.
Hong Kong:
Diamond Lease
(Hong Kong) Ltd.
Orion Pacific Ltd.
Japan:

Diamond Lease
Company Limited
Kita Nihon Shinyo Hanbai
Kabushiki Kaisha
Mitsubishi Chase
Consulting Company, Inc.
New Zealand :
Chase-NBA.
New Zealand Group Ltd.
The Philippines:
Filinvest Credit
Corporation

The Philippine American
Investment Corporation
Singapore :

International Discount
Company Ltd.
Thailand:
Chase Manhattan
Investment Company
(Thailand) Ltd.

Bahamas

Barbados

Cayman Islands

Dominican Republic

Grenada

Guadeloupe

Guyana

Martinique

Monserrat

Panama and Canal Zone
Puerto Rico
St. Lucia
St. Maarten
Trinidad & Tobago
U.S. and British
Virgin Islands

Representative Offices

Argentina, Brazil, Colom-
bia, Mexico, Venezuela

Subsidiary and

The Bahamas:

The Chase Manhattan

Trust Corporation Limited

Brazil:

Banco de Investimentos
Lar Brasileiro, S.A.
Banco Lar Brasileiro, S.A.

Cayman Islands:
Chase Manhattan Trust
Cayman, Ltd.

Colombia:

Banco del Comercio

Honduras:

Banco Atlantida, S.A.
Jamaica:

Chase Merchant Bankers
Jamaica, Ltd.

Panama:

Banco del Comercio
(Panama) S.A.

Brazil:

Financeira Lar
Brasileiro, S.A.

Canada:

C.M.B. Holdings, Ltd.
C.M.B. Properties, Ltd.

Costa Rica:
Chase Manhattan
Costa Rica, S.A.

Honduras:

Inversiones Atlantida, S.A.

Panama:

International Americas
Finance, Inc.

Puerto Rico:
Housing Investment
Corporation

Venezuela:
Arrendacima, CA.
Consorcio Inversionista
Mercantil y Agricola, CA.

Representative Offices

Egypt, Iran, South Africa

Egypt:

Chase National Bank
(Egypt) S.A.E.
Iran:

International Bank of Iran
Nigeria:

Chase Merchant Bank
Nigeria, Ltd.
United Arab Emirates:
The Commercial Bank
of Dubai, Ltd.

Venezuela:
Banco Mercantil y
Agricola, CA.

Chase Manhattan Bank of

Central New York, N.A.

Syracuse, N.Y.
Chase Manhattan Bank of

Eastern New York, N.A.

Albany. N.Y.
Chase Manhattan Bank of

Greater Rochester, N.A.

Rochester, N.Y.
Chase Manhattan Bank of

Long Island, N.A.

Melville, L.I.
Chase Manhattan Bank of

the Mid-Hudson, N.A.

Saugerties, N.Y.
Chase Manhattan Bank of

Western New York, N.A.

Buffalo, N.Y.
Chase Manhattan Bank of

Northern New York, N.A.

Canton, N.Y.
Chase Manhattan Bank of

the Southern Tier, N.A.

Binghamton, N.Y.

Chase Commercial

Corporation
Chase Econometric

Associates, Inc.
Chase Investors Manage-
ment Corporation

New York
Chase Manhattan Capital

Corporation
Chase Manhattan

Consulting, Inc.
Chase Manhattan Leasing

Corporation
Chase Manhattan Realty

Leasing Corporation
Chase Manhattan Service

Corporation
Chase National Corporate

Services, Inc.
Chase World Information

Corporation
CMRCC, Inc.
Chase Manhattan Realty

Capital Corporation
Dovenmuehle, Inc.
Housing Investment

Corporation of Florida
Interactive Data

Corporation

Edge Act Corporations

Chase Bank International-
Chicago

Chase Bank International-
Houston

Chase Bank International-
Los Angeles

Chase Bank International-
Miami

Chase International
Investment Corporation

Chase Manhattan Overseas
Banking Corporation

APPENDIX D

Department of the Treasury,
Washington, D.C., February 27, 1978.

Hon. Ralph H. Metcalfe,

Chairman, Subcommittee on Panama Canal, Committee on Merchant Marine and
Fisheries, House of Representatives, Washington, D.C.

Dear Mr. Chairman : On December 30, 1977 and January 20, 1978, I responded
to various questions submitted by the Subcommittee as follow-up to my earlier
testimony on the Panama Canal treaties. Other questions posed by the Sub-
committee at that time were not within the scope of responsibility or the knowl-
edge of my office; and, therefore, it has required additional time to determine
answers or to identify those agencies which are the appropriate sources of the
information you seek.

With regard to the questions raised by the West Watch article of November
1977, Treasury believes that either the Drug Enforcement Administration of
the Department of Justice or the Department of State would be the authorita-
tive source for most of the type of drug trafficking information in which you
are interested. Treasury can, however, respond to Sections (e) and (f) of
Question Number 1 and to Questions 3 and 4. Our responses are enclosed.

With regard to inquiries such as Question Number 5, it is the policy of the
Department of the Treasury that disclosures of investigative information are
inappropriate except to those executive agencies with a need to know in order to
perform their criminal justice or national security missions. Such disclosures
may compromise sensitive investigative techniques and procedures and may
jeopardize the lives, safety, reputations and rights of defendants, criminal sus-
pects, informants, witnesses, law enforcement agents and innocent third parties.
This policy is applicable to ongoing operations and pending litigation and to
closed cases in which prosecution has been declined, thus making the privileged
character of the information particularly sensitive. I have also been advised
that the grand jury proceedings from which any indictment must arise may be
disclosed, pursuant to Rule 6(e) of the Federal Rules of Criminal Procedure,
only by order of the court. Furthermore, the determination to seek an indict-
ment by a Federal grand jury is made by either the Department of Justice or the
appropriate United States Attorney.

With regard to the questions raised by the New York Times article 1 of Feb-
ruary 5, 1974, the Treasury Department has no information to provide and be-
lieves those questions, too, are appropriately within the jurisdiction of either
the Drug Enforcement Administration or the Department of State.

I have included a response to the Daily Telegraph article question which you
submitted on February 22, 1978.

I regret the unavoidable delay in our response and hope this information is
of use to the Subcommittee.
Sincerely,

Arnold Nachmanoff.

Enclosure.

Treasury Responses to Questions Asked by Congressman Snyder
xii. west watch article

Questions 1-2. The Merchant Marine and Fisheries Committee has published
information in the past on Panama's drug traffic into the U.S. and the. complicity
of top Panamanian officials in that traffic.

1 See Appendix B, Item VIII.

(207)

208

(e) How do Panama banks, or how could they, facilitate illicit drug traffic
in that country?

Answer. We do not know whether or not Panamanian banks have been used
to facilitate illegal drug traffic. The banks of many countries could be used for
that purpose. The foreign banking industry generally has very little knowledge
concerning the background of the large number of payments it handles each
day. Foreign bank accounts could be used as depositories or distribution points
for payments, including remittances from the United States in payment for drugs
delivered there, as well as a means for disbursing shares of drug profits or
bribes.

(/) How could a U.S. bank or lending institution in this country facilitate
such traffic?

Answer. A U.S. bank could be used in much the same way as a foreign bank
since U.S. banks cannot possibly be aware of all the circumstances surrounding
the tens of millions of transactions they handle each day. In addition, a U.S.
bank could be used to exchange or recycle currency derived from drug distri-
bution networks. The provisions of the Bank Secrecy Act. however, require
U.S. banks to maintain records of their transactions and to report large and
unusual currency transactions.

Question 3. Has the U.S. Government at any time cracked down on any U.S.
bank for such a practice? If so, give details.

Answer. It is a matter of public record that the Chemical Bank. NYC, was
indicted in 1977, in connection with its failure to report hundreds of large and
unusual currency transactions. A number of those transactions involving more
than $1,800,000 were alleged to have been related to major narcotic traffickers.
The indictment was subsequently dropped when the bank pled guilty to 445
related misdeamenors and was fined $222,500.

Question 4- Has any U.S. banker been indicted for such a practice? If so, give
details.

Answer. Two of the bank officers who were involved in the Chemical bank
violations were indicted on tax charges stemming from those activities and
pled guilty.

V. DAILY TELEGRAPH ARTICLE

Question 8. Has the Carter Administration been (or was the Nixon/Ford Ad-
ministration) "under pressure from American banking interests to hand the
Canal over to Panama"?

Answer. No.

Department of the Treasury,
Washington, D.C.. March 17, 1978.

Hon. Ralph H. Metcalfe,

Chairman, Subcommittee on Panama Canal. Committee on Merchant Marine
and Fisheries, House of Representatives, Washington, D.C.
Dear Mr. Chairman : The enclosed question and answer was inadvertently
left out of the sets previously submitted for the record following my testimony
before your subcommittee on November 30, 1977.
Sincerely,

Arnold Nachmanoff.

Westwatch Article

Question 9. How does the mushrooming banking system in Panama with its
secret accounts, tax advantages to bankers and clients, etc.
(a) benefit the citizens of the U.S. as a whole?
(6) disadvantage them?

Answer. Offshore banking centers, such as Panama, increase the overall
efficiency of international capital markets, thereby contributing to increased
international trade and investment. The foreign presence of U.S. banks en-
hances the ability of U.S. banks to compete with foreign banks for interna-
tional business and greatly facilitates world-wide acceptance of the U.S. dollar
in international commerce. Offshore banking centers also make possible the
pooling of foreign savings of U.S. dollars for subsequent use by others. The
improvement in trade and investment to which this contributes benefits U.S.
citizens by providing expanded markets for goods and services they produce,
returns from investments aboard, foreign investments in the U.S., and moder-
ately priced imports.

APPENDIX E

Response of the Department of State to Mr. Snyder's Questions on Inter-
national Banking Interests Relating to Panama, and on Various Treaty-
Related Matters

Department of State,
Washington, D.O., January 30, 197S.

Hon. Ralph H. Metcalfe,

Chairman, Subcommittee on Panama Canal,

House of Representatives.

Dear Mr. Chairman : In a memorandum of December 14 to Ambassadors
Bunker and Linowitz, the Subcommittee posed questions relating to the proposed
Panama Canal Treaties.

We have attached our replies to these questions, with the exception of Mr.
Snyder's six questions on the New International Economic Order and his seven
questions related to an article in the Washington Post of December 15, 1977 head-
lined "Central Bank Role is Urged for IMF ; '. Answer to these 13 remaining
questions will be sent to the Committee soon.
Sincerely,

Douglas J. Bennet, Jr.,

Assistant Secretary for

Congressional Affairs.

Enclosures : As stated.

On February 25, 1977, The Washington Star carried this editorial by Charles
Bartlett :

Why Some Panamanians Are in No Rush on Canal

Panama City, Panama. — Rarely in American history has the nation been
obliged to contemplate the award of a great prize to a government as deficient
as the one now presiding over Panama.

"Ah, but you are not handing over the canal to the Torrijos government,"
exclaims a Panamanian negotiator. "You are giving it to the people of Panama."

He may be right in that the canal's transfer will not occur until the year 2000
when Torrijos will be 70. But he may be wrong because dictators with strong
livers hang on. At any rate he will get most of the Zone property immediately.

A new treaty promises to give Omar Torrijos enough historic stature to be-
come a semi-permanent fixture. Since his leadership is characterized by heavy
corruption, economic mismanagement, intolerance of dissent and a disturbing
tilt to the left, the dignity which the Panamanians gain from evicting the Zonians
may be lost in the ordeal of protracted repression.

This is why some who have struggled hard to bring the Zone under Panama's
flag are now alarmed at the speed at which President Carter is propelling the
negotiations.

One fear is that Torrijos is so mired in loans from U.S. banks that he will
make a poor deal for the country. Another is that the treaty will arm the dicta-
tor with funds to build an army and fresh opportunities for corruption.

The State Department is perceived by these Panamanians to be playing a
cynical game. It has propped up Torrijos with sizable AID assistance, unusual
for a nation with one of the highest per capita incomes in Latin America. Em-
bassy spokesmen defend Torrijos's corruption as par for Latin politics and
minimize the implications of his Communist ties. He is the key to the treaty
they seek, so they accord him a respectable aspect.

The credibility of the Communist threat in Panama has been damaged by
Zonians who apply Red labels to all who question their colonial outlook. But it
deserves more serious attention because the moves, which some experts see as

(209)

210

efforts by Torrijos to placate the left, add up to a menacing pattern of conces-
sions. Too many of the regime's key figures including some principal negotiators,
are committed to the hard left.

The only political party now allowed to function in Panama is the Communist
"People's party," a negligible force when Torrijos took power in 1968. Two
queasy figures with Marxist links, Diaz Herrera and Antonio Noriega, are moving
moving with the President's support into dominance over the national guard.
Torrijos's chief adviser, Escobar Betancourt, turns up in such curious roles as
head of the Panama-North Korean Association.

Drink is Torrijos's personal vice ; avarice is the preoccupation of his brothers ;
brutality is the distinguishing feature of his police, and extravagent ineptness
is the failing of his economic planners. The regime has put the small nation
so deeply in the red (an estimated $1.2 billion) that the canal treaty has no sup-
porters more fervent than the American bankers whose hopes for repayment
rest on a revival of faith in the Panamanian economy.

This is not the sort of government to which the United States would normally
be eager to transfer a property that is crucial to its commerce.

Most Panamanians are satisfied now that the pressures of nationalism make
the transfer inevitable at some point. But some thoughtful ones say they are
content to wait because time will work to their advantage if it rids them of
Torrijos and softens the U.S. negotiating position.

The signs here indicate that the negotiators will manage to strike a 'deal. But
when the Senate has a close look at the evolving nature of the Panamanian
regime, ratification is not apt to come easily.

Question 1. If what Bartlett says of Omar Torrijos is true, "his leadership is
characterized by heavy corruption, economic mismanagement ... so mired in
loans from U.S. banks . . . and extravagant ineptness is the failing of his eco-
nomic planners," how can the State Department assure the Congress and the
U.S. taxpayers that the Panama Canal will be operated economically and honestly
by the Torrijos regime?

Answer. Bartlett's assertions would appear to be grossly exaggerated. While
it is arguable that some of Panama's economic problems can be traced to eco-
nomic mismanagement, it should be noted that the exceptionally high rate of
growth in Panama during the 1960's was far above the general average and thus
probably unsustainable over the long term. In the early 1970's economic growth
started to fall off. This trend was accelerated with the sharp oil price increases
in 1973, and the resulting world-wide inflation and recession. In order to main-
tain aggregate demand at an acceptable level, the government has carried out
a large public investment program. This has sustained economic activity and
provided employment, but has resulted in a major increase in the level of debt.
(The total foreign debt is $1.4 billion, of which $355 million was owed to U.S.
banks as of December 31, 1976). However, Panama has never defaulted on re-
payment of any loan to banks, and we feel confident it will continue to meet its
obligations.

Question 2. Is it true, as Bartlett alleges, that Torrijos has been propped up
with "sizable AID assistance"

Answer. The purpose of the Panama-A.I.D. Program is to assist the Pana-
manians to alleviate those constraints which prevent the rural and urban poor
from participating fully in the economy. In education, A.I.D. resources are geared
to develop a practical basic curriculum and technical training system in the
Ministry of Health so that health facilities are more accessible. This effort
includes the construction and organization of rural health centers, the training
of paramedical personnel and the construction and development of sanitation
facilities and potable water systems. In agriculture, AJ.D.'s efforts include de-
velopment of market towns, cooperatives, marketing facilities and infrastructure,
and rural regional integrated development. AID is also financing low income
housing at a number of locations throughout Panama. This is a cooperative
effort in which the Panamanians themselves are playing the major financial
role.

Question S. What have been the specific amounts annually since 1968?

Answer. From 1962-69, AID provided Panama a total of $125.4 million in
development loans and grants. Specific amounts for the 1970-76 period are sum-
marized below :

211

[Amounts in millions of U.S. dollars]

1970

1971

1972

1973

1974

1975

1976

Loans

8.5

7.0

19.1

3.8

8.3

6.7

24.5

Grants

3.3

4.1

3.7

3.3

2.5

1.6

3.2

Total

11.8

11.1

22.8

7.1

10.8

8.3

26.7

Note: Figures are currently maintained for the period and years shown above. Yearly figures for 1968 and 1969 will be
urnished later.

Question 4- Is it true this aid has been unusual for a nation with one of the
highest per capita incomes in Latin America?

Answer. Although the nation's per capita income of $1,290 ranks Panama
fairly high by this traditional yardstick of economic development, the presence
of the Canal Zone and the accompanying United States wage scale, together
with a monetary system based on the United States dollar, have given a de-
ceptive impression of affluence. Very serious problems exist involving rural-
urban imbalance and the urban poor, whose per capita income is estimated at
less than $425. This target group is the principal beneficiary of aid programs in
Panama.

Question 5. List annual AID to all Latin American countries and the per
capita incomes of each since 1968.

Answer. The following tabulation summarizes per capita incomes and AID
levels to Latin American countries for the 1962-69 period and through fiscal year
1976.

Income 1962-59 1970 1971 1972 1973 1974 1975 1976

Bolivia 360 201.1 3.0 3.7 55.6 17.0 38.4 20.1 24.2

Brazil 1,030 1,132.2 88.0 79.4 12.1 40.6 5.0 3.1 .9

Chile 990 564.4 18.0 1.5 1.0 .8 5.3 31.3 21.2

Colombia. 580 584.9 75.8 84.0 92.6 76.9 40.1 14.0 20.6

Costa Rica 960 61.6 19.5 6.4 1.7 1.3 8.9 .7 6.9

Ecuador 590 100.5 23.2 15.3 4.9 4.6 2.5 2.1

El Salvador 460 64.0 10.3 2.5 6.0 2.0 7.8 1.3 1.8

Guatemala 570 53.4 29.1 14.2 12.5 9.5 2.5 9.4 32.7

Guyana 580 55.3 11.3 1.2 15.6 .7 .1 1.0 1.8

Honduras 360 58.3 5.5 5.2 3.6 5.6 24.6 25.4 16.7

Mexico 1,050 66.5

Nicaragua 730 82.5 2.3 12.5 2.5 22.5 12.4 43.1 17.7

Panama 1,290 125.4 11.8 11.1 22.8 7.1 10.8 8.3 26.7

Paraguay 580 41.0 7.1 6.9 2.8 6.0 4.4 6.7 5.5

Peru 760 123.2 11.3 6.9 31.7 3.8 12.2 8.9 13.6

Uruguay 1,300 42.1 16.9 4.9 1.4 1.2 .9 12.8 .6

Note: Per capita income given for 1976. Figures are currently maintained for the period and years shown above. Yearly
figures for 1968 and 1969 cannot be supplied immediately.

Question 6. Bartlett says, "The regime has put the small nation so deeply in
the red (an estimated $1.2 billion) that the Canal Treaty has no supporters
more fervent than the American bankers whose hopes for repayment rest on
the revival of faith in the Panamanian economy", if the present economy of
Panama does not improve, can that country repay coming (a) interest (b) prin-
cipal due on loans of the commercial banks?

Answer. Because Panama has an open economy and is a significant financial
center for Latin America, it has a very large stake in maintaining its favorable
investment climate and international credit-worthiness by meeting all its finan-
cial obligations. The Government has never defaulted on its financial obligations,
and we anticipate that it will take the necessary steps to meet its current and
future obligations.

Christopher Lvdon authored an article in the Atlantic Monthly, July 1977,
entitled "Jimmy ^Carter Revealed: He's a Rockefeller Republican." Lydon wrote
the following:

"I stumbled blindly on the Rockefeller clue in the spring of 1976 and I admit
I didn't know what to do with it when I found it.

212

"The second Rockefeller connection — more obvious, less noted — was the Tri-
lateral Commission. The Trilateral Commission was David Rockefeller's brain-
child, a somewhat more energetic young cousin of the elite Bilderberg Confer-
ences at which Prince Beruhard of the Netherlands had been gathering senior
hankers and political figures from Europe and the United States since the mid-
fifties. Should the Trilateral Commission be viewed as a cabal of multinational
financiers — indeed, as the first step toward a multinational government? Should
it be seen simply as David Rockefeller's foreign policy toy? This debate has
barely begun.

' The commission was couceived in 1972 as a private vehicle for planning the
industrial world's course out of the international monetary crisis (and John
Connally's cowboy responses) of that period, away from the 'Xixon shocks' that
had troubled Japan, into a new stability of banking relationships among the
First World and of trading agreements with the Third World. The distinctive
contribution of the Trilateral Commission was its very three-sidedness. encom-
passing as equals sixty members each from North America, Western Europe,
and Japan. David Rockefeller handpicked the key members and the staff experts
who have produced a dozen pamphlets so far on such subjects as 'A New Regime
for the Oceans,' 'Energy : the Imperative for a Trilateral Approach,' and 'Seek-
ing a New Accommodation in World Commodity Markets."

"Jimmy Carter had been the one Democratic governor chosen among sixty
North American members of the Trilateral Commission in 1973. The official expla-
nations have run that the commission needed a southerner and that in the
southern governor category Carter won a photo-finish race against Governor
Reubin Askew of Florida. A couple of years earlier, in fact, Carter, ever alert
to his future, had been currying Rockefeller attention. In an interview David
Rockefeller recalled with amusement that Jimmy made the first, ever so slightly
brash, overture in 1971, calling almost as soon as he had been sworn in to say
that Georgia sold a lot of bonds in New York, and would David Rockefeller please
schedule a lunch at which Governor Carter might meet some bankers. Like so
many others, David Rockefeller was more than pleasantly surprised and in-
trigued at meeting the peanut-farming politician. As a Trilateral Commissioner
Jimmy Carter was silent but assiduous at the occasional meetings — a careful
notetaker and offstage brainpicker. He proudly mentioned his Trilateral studies
and trips whenever questions of his international experience popped up in the
early presidential campaign. But presumably the much greater value of Tri-
lateral membership was the private reassurance it conveyed that David Rocke-
feller had deemed him a promising student and had gotten his education under
way. The Trilateral Commission's executive director, Zbigniew Brzezinski, be-
came literally Jimmy Carter's tutor, and now, of course, directs the White House
foreign policy staff, as Henry Kissinger did in the first Nixon term. Perhaps
all David Rockefeller hoped for in assembling the American delegation, a Tri-
lateral colleague mused the other day, was to be sure he included the prospective
secretary of state in the era following Nixon's. How could he have guessed that
his Trilateralists would staff all major policy posts in the new government —
including, as if bv a miracle, the vice presidency and the presidency? How in-
deed?"

QUESTIONS

(1) Is it accurate for the Trilateral Commission to be characterized as a
group of "multinational financiers?"

(2) Please identify the 60 North American Commission Members. Cite those
who are connected with international finance.

(3) Identify all members who are now in the Carter Administration, giving
their position.

(4) Name the Japanese and European Commission Members who are from
the banking community.

(5) Has either David or Nelson Rockefeller served the Carter Administration

in any capacity?

(6) What has been the position of the Trilateral Commission in regard to the
new Panama Canal Treaties?

Please supply copies of its position papers on the subject or articles from its
publications commenting on the issue.

(7) Are there any grounds in the Commission's history and in its publications
for one to consider that it may have "multinational government" as its goal?

213

Questions 1 through 4, 6 and 7 should be referred to the Trilateral Commission.
Question 5. Has either David or Nelson Rockefeller served the Carter Ad-
ministration in any capacity ?
Answer. No.

Ill

Labor journalist Alan Howard had a piece in the Nation for October 15, 1977,
entitled "The Real Latin American Policy."
Howard writes:

"Panama is important not only for its obvious symbolic and intrinsic value
but also because the chief negotiator of the new Canal treaties, along with Ells-
worth Bunker, was Sol Linowitz. A former ambassador to the OAS and a senior
partner of Coudert Brothers, Linowitz probably has more to say about the shape
of our Latin American policy than anyone in the administration except the
President himself. For most of the ideas that guide that policy were formulated
last December by the Commission on United States-Latin American Relations, of
which Linowitz was chairman. The commission, a private group sponsored by
the Center for Inter- American Relations, issued last December a report, 'The
United States and Latin America : Next Steps,' commonly referred to as the
Linowitz Report.

"A cross-check of the commission's members and staff, with Carter's Cabinet-
level and key sub-Cabinet appointments, beginning with Treasury Secretary
Blumenthal, indicates that 'Next Steps' is not just another think-tank docu-
ment to be stored away for future reference. Commission members and staff
now operate at critical levels of the Treasury Department and National Security
Council, and to a lesser extent in the State Department. They are intent on
seeing the perspectives of the commission translated into governmental policy.

" 'It's fairly obvious that the Linowitz Report in opposition is now more or less
the accepted wisdom,' notes Abraham Lowenthal, himself a consultant on the
report and the former director of studies for the Council on Foreign Relations."
*******

"Confronted with the demand of the developing world for a new international
economic order, with increased competition from its capitalist allies, and with
the historic threat of Socialist revolutions, the U.S. Government, says, the re-
port, has taken the election of President Carter as a signal to recover crucial
ground lost during the debacles of Vietnam and Watergate, particularly in rela-
tionship to the enormous resources and growing markets of the Third World.
The report continues: 'Among the most powerful and prosperous countries of
the Third World, several key Latin American nations will significantly influence
how the international economic order evolves. . . . The primary aim of U.S. policy
in thp Wpstprn Hpmi spher e should hp to w ork with Latin American countries
in dealing with this broad global agenda.' "

* * * * * * *

"In specific terms, the 'most urgent issue' on the Linowitz agenda was Panama,
for all reasons the administration is now advancing in its impending battle to
have the treaties ratified."

(1) Is the international economic order the Linowitz Commission talks about,
the same new order sought by the Trilateral Commission according to Jeremiah
Novak in the July 1977 Atlantic Monthly ?

(2) Does that order signify :

(a) An increasing measure of economic cooperation with socialist coun-
tries dominated by Communist regimes?

(b) An ultimate economic interdependence with socialist states?

(3) Does the goal of this new international economic order envision a meshing
or merging in some way of the world's capitalist states with the socialist states —
in accordance with the convergence theory held by some global thinkers?

(4) What is the role of the Panama Canal to be in this new economic order?

Howard writes further :

"Both businessmen and government officials are touchy on the subject of
business influence on U.S. policy. It is not unusual for an official of a large bank
with a multibillion-dollar investment in Latin America to say, 'we react non-
politically' to events in Latin America, or for a State Department official to
assure you that the big corporations 'have given up on trying to influence the

214

U.S. Government.' But it is absurd, and an insult to the intelligence of the
American people, to suggest that corporations which do $30 bililon a year in
trade with Latin America and which have $16 billion in direct investments
there, along with banks that have outstanding approximately $25 billion in loans
to the region, do not have a hand in shaping the policy of the U.S. Government
toward Latin America.

"Probably the most dramatic change in the pattern of U.S. investments in the
region is the growing role of private banks. In the days of the Alliance for
Progress, private banks accounted for less than a third of the U.S. loans made to
Latin America ; the bulk of the funds came from government agencies. Today,
private banks account for around 55 percent. The huge debts acquired by Latin
American countries due to balance of payments deficits (oil is a large but not the
only factor along with the sluggishness of the U.S. economy, have prompted U.S.
banks to extend loans to Latin American countries at a staggering rate. In the
past decade, the external debt of the region has quadrupled to more than $40
billion (owed to commercial banks), of which more than half is owed to private
U.S. banks."

*******

"The very survival of the transnational banks may now depend on the abil-
ity — and willingness — of a few dozen LDCs to keep up their debt service pay-
ments. Therefore, to assure the flow of those funds the banks are participating
ever more directly in the political affairs of those nations, by-passing not only
the U.S. Government but also the multilateral lending institutions that until
now have insulated the commercial banks from overt political involvement."
*****

"The deepening involvement of bankers and corporate executives in the po-
litical affairs of countries where they operate has created among these men atti-
tudes of the sort that used to be associated with foreign service officers who had
spent too much time in a particular country or region of the world. While super-
ficially neutral toward the political character of the local government, they are
deeply sympathetic toward the military regimes that have seized power — not
because they are military regimes but because they are prepared to get what for-
eign capital demands out of the hides of the people.

"These executives and their Washington operatives tend to become advocates
for their host countries in dealing with the U.S. Government. So, for example,
instead of reinforcing the Washington line on human rights, they tend to appear
as apologists for their adopted countries. 'I think our government has to realize
that those countries are at war, combating terrorism, and that many of the re-
quests we are making are not realistic,' said one banker. Such observations are
usually followed with some version of the argument that the countries in ques-
tion are not ready for democracy anyway. Within this elite sector of American
society there are honorable and even courageous men, but within the institutions
they serve there is no effective way to measure the impact of human rights and
political democracy on the balance sheet; to the extent they can be measured,
they tend to show up on the debit side of the ledger.

"Therefore, the extravagant hopes raised throughout the continent, and within
this country, by Carter's promise to promote human rights must be tempered by
an understanding of these economic relationships."

*******

"When State Department spokesman Hodding Carter was asked if it were true
that various U.S. Ambassadors in Latin America were privately assuring local
officials not to worry about all the human rights talk in Washington, that it was
really just a device for internal political consumption, he quite frankly replied
that this was a problem and that 'we are trying to deal with it,' "

(5) Many Members of Congress and private individuals and groups have
pointed out the miserable human rights record of the Torrijos regime and ques-
tion the Administration's ignoring of that record while pushing the now treaties.
Has Howard spelled out the reason? Please comment in full on his remarks.

(6) Can the Congress expect any change on the part of the Executive Branch
toward violations of Panamanians' human rights by the Torrijos government?

(7) Despite Torrijos' recent claims to be ameliorating his authoritarian stance,
what provisions in the new treaties guarantee that once they are ratified, he
would reimpose the same, or even greater, oppression?

215

Questions 1 through 4.

Answers. Questions 1 through 4 concern views and recommendations of the
Commission on United States-Latin American Relations. As this is a private
organization, such questions should be directed to the Commission itself.

Question. 5. Many Members of Congress and private individuals have pointed
out the miserable human rights record of the Torrijos regime and question the
Administration's ignoring of that record while pushing the new treaties. Has
Howard spelled out the reason? Please comment in full on his remarks.

Answer. The U.S. Government has by no means ignored the human rights
situation in Panama. While the record is mixed, the Department of State does
not view that record as "miserable". As required by law, we have reviewed
Panama's performance on human rights just as carefully as we have that of
other countries in Latin America. We have also expressed our deep interest in
human rights to the Panamanians through our Embassy. Ambassador Jorden
has said nothing to the Panamanians that might lead them to believe that the
United States interest in human rights is anything but serious and sincere.

It is true that allegations of human rights violations in Panama have been
made by certain individuals and groups. It is worthwhile to note, however,
that Amnesty International, a respected non-governmental organization con-
cerned with human rights, did not include a section on Panama in its reports
for 1975-76 and 1977.

We will soon be submitting an updated report to Congress on human rights
in Panama which will contain a detailed assessment of conditions there as we
see them.

For another assessment of the human rights situation in Panama, you may
wish to read the report of the Inter-American Human Rights Commission,
based on its visit to Panama late in 1977, at Panama's invitation. This report
will probably be completed in the first part of this year.

Question 6. Can the Congress expect any change on the part of the Executive
Branch toward violations of Panamanians' human rights by the Torrijos
Government?

Answer. As noted above, we have expressed our sincere interest in human
rights to the Panamanians. We have been gratified by the positive steps that
the government has taken recently in rescinding Decree Laws 341 and 342
relating to certain restrictions on individual liberties. For the future, we intend
to continue a dialogue with the government of Panama on human rights matters
and will encourage it to maintain the momentum of recent progress. There will
be no change in our position in this regard.

Question 7. Despite Torrijos' recent claims to be ameliorating his authori-
tarian stance, what provisions in the new treaties guarantee that once they are
ratified, he would not reimpose the same, or even greater, oppressions?

Answer. The provisions of the new Treaties do not address the question of
human rights.

While one cannot guarantee the behavior of a foreign government in the fu-
ture, we believe that implementation of these Treaties will be accompanied by
improved economic development as well as closer and more cooperative ties
to the United States. Panama, therefore, should better tend toward democracy
and respect for human rights than it would were the Treaties to fail ratification.

In July 1977, the Atlantic Monthly carried an article entitled "The Trilateral
Connection" by Jeremiah Novak. I quote several paragraphs :

"For the third time in this century a group of American scholars, businessmen,
and government officials is planning to fashion a new world order. Discouraged
by UN inadequacies, disheartened by chaos in the Bretton Woods institutions
(IMF and the World Bank), and worried about the United States' waning
strength, these men are looking to a 'community of developed nations' to coordi-
nate international political and economic affairs.

" 'After every major war in this century, Americans sought a new world order.
Wilson pushed the League of Nations; Roosevelt and Truman constructed the
UN-Bretton Woods system : and now, after Vietnam, Jimmy Carter gives us the
Trilateral plan.' So said C. Fred Bergsten, assistant secretary of the treasury and
one of sixteen top Carter appointees who belong to the Trilateral Commission.
All sixteen represent a deeply internationalist tradition that is part of the eastern
American establishment. 'Liberal internationalism is our creed,' said Bergsten.

216

"And Jimmy Carter is its prophet. Carter is a charter member of the Tri-
lateral Commission and an advocate of its basic internationalist viewpoint."

*******
"Brzezinski's 'Between Two Ages,' published in 1970, in which Brzezinski, now
national security adviser, formed the concept of 'a community of developed na-
tions' that would direct the world to new levels of freedom, human rights, and
economic progress."

*******
"Brzezinski's community would include not only the United States, Western
Europe, and Japan, but eventually all other 'advanced nations,' even communist
ones. The emphasis is on 'developed' and 'advanced.' As Richard Cooper, who
along with Brzezinski is a key architect of Trilateralisin, wrote in a recent
Trilateral paper, 'Only those nations whose decisions can affect the whole group
should be admitted.' "

*******
"Brzezinski convinced Huntington Harris, a Brookings Institution trustee, to
fund a series of Tripartite Studies. Joining Brookings scholars were thinkers
from the Japanese Economic Research Center and the Economics Research
Center and the European Community Institute of University Studies. The re-
sults of these stuoUes influenced David Rockefeller to found the Trilateral Com-
mission. According to his own testimony Rockefeller had begun calling in 1072
for the establishment of a Trilateral Community. He broached the subject at the
Bilderberg Conference of corporate leaders, where it found immediate accept-
ance. Among those in attendance was Michael Blumenthal, now secretary of
the treasury."

*******

"As early as May 1975, Brzezinski, at a Trilateral Commission meeting in
Kyoto, hailed Carter as 'one political leader with the courage to speak forth-
rightly on difficult political issues.' And Peter Bourne, Carter's former deputy
campaign chief, has been quoted as saying, 'David Rockefeller and Zbig have
both agreed that Carter is the ideal politician to build on.' "

*******

"The Trilateralists' emphasis on international economics is not entirely dis-
interested, for the oil crisis forced many developing nations, with doubtful re-
payment abilities, to borrow excessively. All told, private multinational banks,
particularly Rockefeller's Chase Manhattan, have loaned nearly $52 billion to
developing countries. An overhauled IMF would provide another source of credit
for these nations, and would take the big private banks off the hook."

QUESTIONS

(1) What developments have occurred to give rise to Novak's term "chaos in
the Bretton Woods institutions (IMF and the World Bank)"?

(2) In essence, is the core of the Trilateral Plan for a New World Order what
Xovak describes it to be quoting Bergsten, Brezezinski, and Cooper?

(3) Is it correct that David Rockefeller founded the Trilateral Commission?

(4) (a) What is the Bilderberg Conference of corporate leaders where Novak
says David Rockefeller broached the idea and got immediate acceptance?

(&) Who were the corporate leaders present who accepted the idea ?
(e) What was that Conference and its purpose and where was it held?
(d) How often and where has it been held?

(c) Has this or any other Bilderberg Conference sought to influence the world's
financial order and the International banking system in any way?

(5) How would the Trilateral Commission overhaul the IMF?

(6) How would this "lake the big private banks off the hook" in regard to their
nearly $52 billion loans to "developing nations with doubtful repayment abilities,"
such as Panama?

The Department suggests that questions 1-6 relating to the Trilateral Commis-
sion, its founding, objectives, etc., be referred to the Commission itself.

A memorandum from the United States Embassy in Panama to the State
Department dated October 26, 1976, was inserted in the Congressional Record

217

by Senator Helms of North Carolina on Feb. 22, 1977 (S2819ff). Under ••com-
ments,'' 1 the following two paragraphs appears in that memorandum :

"(A) Panama's high wages, subsidies, and consumer imports — together with a
moderate tax burden and little public saving — permit a standard of living which
no longer appears to be supportable by Panama's inefficient domestic production.

"(B) Increased external financial flows per se, regardless of concessionary,
permit Panama to defer grappling with the core problem of low productivity until
a later date when the problem will probably have worsened, unless such financing
bears specifically on some aspect of costs. Indeed, much of the capital inflow of
the past three years has aggravated Panama's economic malaise by exacerbating
its debt service burden without enhancing overall productivity. Moreover, total
inflows greatly exceeded the current account deficit of Panama's balance of pay-
ments, resulting in large negative "errors and omissions" (around $100 million
annually) most of which probably represented outflows of domestically-owned
capital."

(1) According to the memorandum, the foreign loans made to Panama have
increased the debt service burden without increasing productivity and therefore
Panama's ability to repay the loans. Does this still hold true today?

(2) If it does, why would increased loans to Panama — including the economic
package agreed upon in connection with the new treaties — have any different
effect?

See Appendix G.

Senator Henry M. Jackson, in a foreword to a Committee Print, April 5, 1977,
of his Permanent Subcommittee on Investigations of the Senate Committee on
Governmental Affairs, entitled "The Rising Soviet and East European Debt to
the West," stated :

"Large-scale loans to the Soviet Union and the East European countries were
once thought of as a way to gain 'leverage' over these governments ; what may
be happening instead is that the debtors are on the verge of obtaining leverage
over Western governments by the substantial interest in (repayment that the
Western banking system may be acquiring."

Senator Jackson's observation parallels that expressed in the Church Report
quoted in my opening statement regarding the leverage Zaire held and exerted
against Citibank.

Question 1. Can you positively assure the Subcommittee that Panama —

(a) is not doing the same thing to the United States banks,

( b ) has not already done it, or

Answer. U.S. banks have outstanding loans of approximately $355 million to
the Government of Panama. The decision to extend these loans was made by the
banks on the basis of commercial considerations. The Government of Panama
has not obtained any leverage over the Government of the United States as a
result of these commercial bank transactions, nor will it have any in the future.

Question 2. Provide for the record all information available relating to loans
to the Republic of Panama, if any, from the Soviet Bloc of Socialist countries.

Answer. The Department of State is not aware of any loans to the Republic
of Panama from the Soviet Union or other Communist countries.

Questions 3 and 4. Discuss any past negotiations for such loans to Panama that
fell through. Provide detailed information on the very recent, and perhaps con-
tinuing negotiations for increased trade between Panama and the Soviet Bloc
and loans to Panama that may be contemplated in the discussions.

Answer. A Soviet trade delegation visited Panama in July of 1977. The an-
nouncement which followed that visit indicated that a number of projects had
been discussed during the delegation's visit. However, no agreements were con-
cluded as a result of the visit. There is no indication that the talks have been
pursued, nor do any loans to Panama by the U.S.S.R. or other communist coun-
tries appear to be in the offing. . - ■

Question 5. To what extent could the Socialist Bloc's lending institutions
compete with U.S. and other free world banks operating in Panama?

Answer. All foreign banks in Panama operate under that country's banking
laws and. in accordance with the type of license they hold, complete with others
so licensed.

1 See Appendix I, B (Exhibit 4).

218

The Banco Nacional of Cuba recently established a branch in Panama. It is too
early to make a judgment as to whether and to what extent it can compete with
other banks operating there. The present activities of the Banco Nacional do
not extend to traditional banking operations, either internationally or within
Panama, only to certain very limited activities of a representational nature.

VII

The Wall Street Journal, April 14, 1977, featured an article by staff reporter
Charles N. Stabler headlined: "Developing Debts — Poorer Countries Face Test
of Their Ability to Repay Bank Loans — Total Due Continues to Rise : Big Banks
are Confident, But Some Doubts Persist"

Stabler wrote :

"But many poor nations — and their bank creditors — have a more pressing
problem than just the size of the debt. It's that the amount the countries have
to pay back is increasing each year. The question arises whether numerous coun-
tries might fail to meet the payments, threatening the solvency of the banks that
lent them the money. Executives of major banks say they are confident that won't
happen although some wouldn't be surprised if a few governments ran into
trouble.

"Estimates vary, but there is plenty of evidence that loan-repayment obliga-
tions of poorer countries will soar this year and for the following several years.
Counting debts not only to commercial banks, but also to such official lenders as
the World Bank, economists at Morgan Guaranty Trust Co. of New York figure
that developing countries without oil will have to repay $15 billion this year, com-
pared with last year's $12 billion. The economists see $18 billion coming due next
year and $20 billion in 1980.

*******

"What worries the gloomiest analysts is that enough countries could default on
enough debt to threaten the confidence of investors and depositors in one bank or
several. Large withdrawals of funds could, in turn, cause a contraction of the
credit markets. Then, the script goes, the International Monetary Fund and major
nations' central banks would, have to bail out the banking system with large
money transfusions, leading ito runaway inflation and ultimately to economic
collapse.

*******

"In the view of Alfred Miossi, executive vice president for international serv-
ices at Chicago's Continental Bank, 'Almost certainly it will be necessary to re-
schedule or restructure the loans to some countries,' giving them more time to
pay.

This isn't something the banks welcome, but it is a standard element of their
business. In the past 15 years, loans have been rescheduled for Argentina, Chile,
Brazil, Peru and Uruguay. In no case, bankers say, have they lost a nickel.

"Indeed, bankers expect to continue expanding their lending to credit-worthy
developing countries. 'To cut back on development loans would take away the
means of earning the funds to repay existing debt,' Mr. Miossi says.

"Some of the new loans, it seems clear, will be used to pay off old ones. In the
market for Eurodollars, or dollars held at banks outside the U.S., a recent analy-
sis found that one dollar of every four borrowed by developing countries this
year will go for repayment of debt. By 1980 it will be one out of of two, according
to economists at Amex Bank Ltd., a London affiliate of American Express Ot>rp.
And by 1985, of every three Eurodollars borrowed, two will be used to repay
existing debt, the economists say.

"This means increasing borrowing for years to come and a narrowing net flow
of funds to the borrowers."

Question J. Is Panama's indebtedness likely to progress in line with these
general estimates

Answer. Panama's debt situation will depend to a large degree on developments
which cannot now be predicted with accuracy. Panama is of course subject to
the same types of financial stress as those in evidence in other developing coun-
tries ; but. the extent to which these may be offset by circumstances peculiar to
Panama cannot now be foreseen.

Question 2. What has been the ratio of Panama's total foreign debt to its
gross national product annually since 1968?

219

Answer.

[In millions]

Foreign debt GNP Percent of GNP

1970 140.6 1,019.4 13.8

1971... 173.3 1,125.7 15.4

1972 214.9 1,264.1 17.0

1973.. 296.9 1,430.2 20.8

1974.. 358.9 1,779.7 20.2

1975 427.4 1,913.6 22.3

1976. 510.2 2,006.0 25.4

Note: Data for 1968 and 1969 not available at present.

Sources: "Informe del Controlor General de la Republica, 1977;" Panama en Cifras, 1974-77."

Question 3. Project and quantify from the present time beyond year 2000
utilization of Panama — if its present economy remains stagnant — of likely new
loans to pay off increasing debt.

Answer. We are unable to make such a projection. Loans which Panama might
or might not need after the year 2000 which depend on a number of factors
(such as the country's internal development plans) about which obviously no
decisions have been made at this time.

Question //. Make a comparative projection after year 2000 for Panama with
total control of the Panama Canal.

Answer. This will depend on the usage of the Canal in the 21st century and
on the strength of other sectors of the Panamanian economy. We cannot make
such forecasts on this matter.

Question 5. If Panama should prove incapable of operating the Canal without
a loss, is the U.S. bound by the new treaties — or in any other way — to subsidize
the waterway (a) to the break-even point? (b) to some profitable rate?

Answer. In the event that some time after the year 2000 the Canal operation
should become a financial burden to Panama, naturally Panama would consult
with us (and probably with other major users) with a view to alleviating the
situation. While the Neutrality Treaty commits the United States and Panama
to a regime of neutrality which provides that the Canal will be open at all
times, we are not obligated to subsidize the waterway after Panama assumes
responsibility for its operation.

VIII

The New York Times for December S and 9, 1969, carried the following stories
from New York and Washington describing a mysterious three-day mission to
Panama by Joseph F. Carlino, an intimate of Nelson Rockefeller, which neither
the State Department in the Nation's Capital nor the U.S. Embassy in Panama
knew anything about until it had ended :

Carlino Sent on Panama Mission

rockefeller envoy advised general on coming elections

(By Linda Charlton)

Former State Assembly Speaker Joseph F. Carlino was sent by Governor
Rockefeller to Panama last week to advise Brig. Gen. Omar Torrijos, the leader
of the provisional government, and other officials on how to set up a represent-
ative government.

Mr. Carlino, a Republican, served as Speaker of the Legislature's lower house
from 1959 until his defeat in 1964 for his Assembly seat from Long Beach, L.I.
lie has been in private law practice since.

He said he had made his three-day trip to Panama City at the request of
Governor Rockefeller. "On an informal basis, I was advising and making sug-
gestions of a governmental nature," he said.

Mr. Carlino would identify the persons with whom he met in his hotel only as
"top governmental officials," but a high Government source in Panama said that
Mr. Carlino had talked with Nicolas Ardito Barletta, the country's planning
director, and General Torrijos.

25-605 O - 78 - 15

220

General Torrijos, then a colonel, was a leader of the coup d'etat that overthrew
Panamanian President Arnulfo Arias in October, 1968, only 11 days after Mr.
Arias had been sworn in following his election.

The ruling junta, nominally headed by Col. Jose M. Pinilla, has promised free
elections to name members to a constituent assembly to replace the present
system of rule by decree. The elections are to take place between Dec. 15 and 30,
1970.

General Torrijos said that he had reaffirmed this pledge to Governor Rocke-
feller during the Governor's May visit to Panama.

The visit was part of a 20-nation Western Hemisphere fact-finding tour under-
taken by Mr. Rockefeller at the request of President Nixon.

The Governor's interest in Latin America dates back many years — his family
has extensive business interests there and he served as the United States co-
ordinator for Inter-American Affairs from 1940 to 1944, and as Assistant Secre-
tary of State for American Republic Affairs from 1944 to 1945.

A spokesman for the Governor, asked about Mr. Carlino's trip, said he had "no
information and no comment on that."

"Unusual Sort of Request"

A State Department official familiar with Panama said, "We hadn't heard
about it."

Such a mission, he said, is "not the kind of thing we generally do, an unusual
sort of request, but nothing particularly shocking."

He added, "We would like very much to see the Panamanians get back to
a democratic procedure."

A White House spokesman said that although the Governor conferred with Ad-
ministration officials frequently, he did not know if the matter of Mr. Carlino's,
trip to Panama had been discussed at any time.

The initial request for the former Assembly Speaker's advice came from
Panamanian officials with whom he and Governor Rockefeller had met in New
York "a month or so ago," Mr. Carlino said.

Mr. Carlino said that he did not know whether the Governor had conferred
with the State Department. "I don't know who made the request to him, but
he requested me to go," he said. General Torrijos and Mr. Ardito met with the
Governor and Mr. Carlino in New York in the late summer, according to Pana-
manian sources.

The area in which his help was solicited, Mr. Carlino said, was that of how
what he called the "government in transition" could "develop a representative
government in which people can participate."

"Not Politically Sophisticated"

This included, he said, questions of "political structure," adding : "The group
of people in Panama are not politically sophisticated — they've never conducted
an election. The political-party question, how do you conduct elections, that sort
of thing."

Accompanying him on the trip, Mr. Carlino said, was his brother, Lorenzo,
who lived in Venezuela for 25 years as a businessman and was fluent in Spanish
and "intimately conversant" with Latin America.

His own command of Spanish, Mr. Carlino said, is "just fair, but I can under-
stand everything." He said that he had not paid for making the trip and that
his expenses "haven't been paid yet — I assume somebody will pay them."

Mr. Carlino said he was uncertain whether he would return to Panama for
further talks. "It's only a beginning on this one project," he said. "I assume they
require more attention."

He said that he was making a report to the Governor and that lie felt that
the mission was "an important thing."

Mr. Carlino said lie did not know whether it had been cleared with the Admin-
istration, but added, "I assume that what Governor Rockefeller was requesting
was appropriate."

No account of the meetings appeared in the Government-controlled press in
Panama.

The Governor undertook his Latin- American tour last spring at the request of
President Nixon to determine "how the United States can improve its policies
and increase the effectiveness of its cooperation."

In a number of countries, the Governor was greeted by violent protests, and he
was requested not to visit two of the countries of his itinerary. His visit to
Panama was without incident, although he was heavily guarded.

221

The Governor and 25 advisers drafted a 137-page report entitled "Quality of
Life in the Americas" that was submitted to Mr. Nixon on Aug. 30 and made
public Nov. 10. The President in his Oct. 31 Latin-American policy speech, said
that the Governor's recommendations had "substantially shaped" the Adminis-
tration's thinking.

It is known, however, that several of Mr. Rockefeller's ideas were not accepted,
including a recommendation that a new Cabinet-rank post of Secretary for
Western Hemisphere Affairs be created.

Carlino Mission Puzzles Capital
state department declines comment on panama trip
(By Tad Szulc)

Washington, December 8. — The State Department appeared to be perplexed
today over last week's political mission to Panama undertaken by the former
Speaker of the New York State Assembly, Joseph F. Carlino, on Governor Rocke-
feller's recommendation.

Mr. Carlino said in a telephone interview today that the Governor had been in
"constant communication'' with the Nixon Administration in Washington over
plans for his trip to advise the Panamanian military junta, led by Brig. Gen.
Omar Torrijos, on restoring representative government. The State Department
declined formal comment on the matter, but officials privately took issue with
Mr. Carlino's statement.

The officials acknowledged that Governor Rockefeller, who is a senior adviser
to President Nixon on policies toward Latin America, might have informed the
White House of the Carlino trip, which came to light over the weekend. But, they
said, this information, if indeed provided, never reached the State Department.

The United States Embassy in Panama was likewise unaware of Mr. Carlino's
presence in the country and of his meeting with the top leaders, including Gen-
eral Torrijos.

The disclosure of Mr. Carlino's three-day trip, from Nov. 30 to Dec. 3, coincided
however with reports that the Administration was considering resuming the
stalled talks with the Panamanian Government over the renewal of the Panama
Canal Treaty.

Negotiations in Abeyance

The impression created in the State Department was that the Panamanian
junta had accepted Governor Rockefeller's suggestion that Mr. Carlino — a fellow
Republican now in private law practice — act as an adviser on restoring a demo-
cratic system as a means of hastening the resumption of the canal talks.

These negotiations have been in abeyance since 1967 when a draft treaty was
produced but neither Government moved to act on it.

After a military coup de'etat in Panama in October, 1968, ousted the constitu-
tional Government of President Arnulfo Arias, the policy here was to await the
restoration of representative rule there before resuming the talks.

But, diplomats, said, the White House asked the State Department early last
September for a status report on the canal talks in what many officials saw as
the prelude to a resumption of the discussions.

There was speculation here that the regime of General Torrijos had invited
Mr. Carlino to Panama to "gain respectability" in Washington's eyes and pave
the way for new negotiations.

Governor Rockefeller met General Torrijos last May in Panama on one of the
Latin-American tours he undertook to prepare a report on hemisphere policy for
President Nixon.

The Governor saw General Torrijos again at his New York City office on
Sept. 26 — and it was on this occasion, according to Mr. Carlino, that the Governor
introduced the Panamanian leader to him. The specific suggestion for the Panama
mission was made by the Governor during that meeting, Mr. Carlino said today.

General Torrijos then spent the evening with Governor Rockefeller at his
home in Westchester, informants here said.

The Provisional Panamanian President visited New York between Sept. 25
and Oct. 2 in a private capacity before going to Fort Bragg, N.C., to attend the
Ninth Conference of the American Armies at the invitation of Gen. William C.
Westmoreland, the Army Chief of Staff.

222

While in New York, General Torrijos had a formal meeting with Secretary
of State William P. Rogers, who was attending the opening session of the
United Nations General Assembly. But, officials here said, the question of the
Carlino mission did not come up.

Most of General Torrijos' time in New York was taken up in discussions with
banks and financial institutions concerning assistance to Panama. On Sept. 25,
the day before his meeting with Governor Rockefeller and Mr. Carlino, the gen-
eral attended a dinner given for him by Goldman Sachs, a New York banking
and investment concern, which last August placed a $15-million bond issue on
behalf of Panama's national bank.

While Mr. Carlino insisted that Governor Rockefeller informed the Adminis-
tration of his Panama mission, the Governor's office said yesterday it had "no
information and no comment" on it. State Department officials learned of it
from newsmen over the weekend, after Mr. Carlino's return.

Mr. Carlino said he had not been in contact with the United States Embassy
in Panama as he met with top officials led by General Torrijos. Today the State
Department was understood to have dispatched telegrams to Ambassador Rob-
ert M. Sayre apprising him of Mr. Carlino's activities in Panama.

Governor's Envoy to Panama
joseph francis carlino
(By Emanuel Perlmutter)

Three years ago, when New York City was preparing to increase real estate
taxes, Mayor Lindsay complained that realty interests were using "high priced
talent" to defeat the effort.

An aide to the Mayor said that Mr. Lindsay meant Joseph Francis Carlino,
former Republican speaker of the Assembly and a registered lobbyist for the
Citizens Tax Council, which had been set up to fight the tax rise. Further, the
New York Racing Association, which runs thoroughbred racing in the state,
reported last May that it had paid Mr. Carlino $25,000 for his services during
the 1969 legislative session.

Mr. Carlino has not held political office since he was defeated for re-election
in the Republican debacle of 1964, after he had represented Long Island in the
Assembly for 20 years. But as a lobbyist and man of connections, the 52-year-old
lawyer has clearly lost none of his powers financially or politically.

Asked to Give Advice

"He's got a million-dollar disposition," a Republican office-holder says.

Last week, Governor Rockefeller turned again to Mr. Carlino, sending him on
a diplomatic mission to Panama.

Mr. Carlino said that he had been asked by the Governor to advise the pro-
visional government of Panama how to set up a representative regime "in
which the people can participate." Mr. Carlino was accompanied by his brother
Lorenzo, a businessman who lived in Venezuela for 25 yeaTS, speaks Spanish
fluently and is "intimately conversant" with Latin America.

"I have no political ambitions," Joseph Carlino said in an interview yesterday
in Mineola, L.I. "I work hard and I'm doing all right. I'm kept pretty busy and
I like it."

Mr. Carlino has long had a law office in Mineola. He is also a partner in the
firm of Brown, Carlino & Emmanuel of 90 Park Avenue. According to the New
York Department of State, the Park Avenue firm received $10,000 from Trans-
america Corporation for "drafting and passage" of insurance company legislation
in the 1969 legislative session.

In his days in the legislature, Mr. Carlino was usually expected by his close
friend Governor Rockefeller on line up support for Executive-sponsored measures.
His personality helped A bandsome man, affable, gregarious and a fluent shaker.
Mr. Carlino was respected for his political canniness and much sought out for
BOdal gatherings.

There were times when his activities as a lawyer came into collision with his
duties as a legislator, but Mr. Carlino managed t<> extricate himself without them.

As an example, in 1962, he resigned as director of a concern that built fallout
shelters shortly after he had maneuvered through the Assembly a $100-million
appropriation for fallout shelter construction. The Assembly held a hearing on

223

the matter and, with only one dissenting vote, acquitted him of conflict of interest.
He received a standing ovation after the vote.

He Attended Fordham

Although he has spent most of his life on Long Island, Mr. Carlino was born
June 13, 1917, on Manhattan's Lower East Side, son of an Irish mother and an
Italian father. He was graduated from St. John's University and the Fordham
Law School and almost immediately entered on a political career.

He and his wife, the former Joanne F. Hefferman, live by the water in Long
Beach. He has a married daughter, a son who is on leave as mathematics pro-
fessor while studying on a National Science Foundation Scholarship, and another
son who is a college sophomore.

He appears to be in good physical shape and keeps that way by golfing, swim-
ming in the ocean and playing tennis.

QUESTIONS

( 1 ) In view of the total ignorance of the State Department of the Carlino Mis-
sion while it took place, please submit —

(a) all communications to and from the Embassy in its regard,
( & ) all internal memos in its regard, and

(2) Did the Carlino mission have anything to do with resumption of Panama
Canal Treaty talks, as the New York Times reported was an early impression
at the Department?

If so, detail the actual relationship of the mission to the treaty negotiations.

(3) Name all the government officials and any other Panamanians the Depart-
ment later learned Mr. Carlino met with in Panama.

(4) Why would Torrijos invite a nationally unknown figure from New York
out of elected office for five years to "gain respectability" in the eyes of Wash-
ington, D.C.?

(5) Did Mr. Carlino ever make public any plan for restoration of Panamanian
democracy that he may have submitted to the Torrijos regime?

Did Mr. Rockefeller, or anyone else?
If so. please provide it for the record.

(6) Did Carlino make any subsequent trips to Panama —
(a) for Mr. Rockefeller ?

( & ) for his law firm or for a client

(7) Did Carlino or his firm, Brown, Carlino, and Emmanuel, or any other firm
with which Carlino may have been associated with, ever represent —

(a) any Panamanian government or private interests in any way what-
ever?

(&) any bank or other financial institution that had assets in Panama or
business dealings with the Government or citizens of Panama?

(8) Did Carlino's brother, Lorenzo, who also was on the mysterious mission,
have any business connections with any such entity ?

(9) Submit Department communications and publications regarding Torrijos'
1969 trip to the United States.

(10) List all available information on banks and other financial institutions he
visited or consulted with in the States.

(11) Was his consultation in "a private capacity" as the Times reported? If
so, why ?

(12 Were either Nicolas Ardito Barletta or Omar Torrijos in the States at an
earlier date than the September 25-October 2 trip to New York, in connection
with the $15 million bond issue Panama issued in August, 1969?

(13) Had Goldman Sachs ever previously assisted in extending loans to Pan-
ama or in placing bond issues for Panama before August 1969?

(14) Is there any truth to the rumor that there is some family relationship
between the Torrijos clan and Goldman Sachs or some other banking interests in
the United States?

If so, what is the relationship?

(15) Provide all information as to bonds issued by or on behalf of Republic of
Panama since 1960 identifying the institution handling the issue, maturity dates,
interest rates, etc., and any data available as to current holders of large amounts
of such bonds.

(16) Detail how the annuity and the method by which it is paid to Panama
by the United States relates to any obligations on Panamanian bonds.

224

(17) What has been the investment ratings of those bond issues from 1960 to
the present?

(18) On December 15, 1969, Colonel Amado Sanjur, who was Omar Torrijos'
number-two man in the Guardia Nacional, declared Torrijos persona non grata
while he was on vacation in Mexico City with Demetrio Lakas, now President of
Panama, and said a new government would be formed. This effort failed. Torrijos
returned, and Sanjur was jailed. Later he escaped to the Canal Zone and was
given political asylum in the U.S. Since Carlino's visit to Panama preceded this
abortive coup by only a few days, and his ostensible mission was to "develop a
representative government," the question arises :

Did Carlino meet with Colonel Sanjur in Panama?

The New York Times articles concern events that were alleged to have taken
place in 1969. Available records at the Department of State do not indicate
that the contents of these articles are correct.

Concerning questions 2, 3, 4, 5, 6, 7, 8, 10, 11, 12 and 18, we suggest that
you make inquiry directly to Mr. Carlino or his law firm. Questions 13 and 14
might be addressed to the firm of Goldman Sachs. Questions 1 and 9 are properly
the subject of requests under the Freedom of Information Act. Replies to ques-
tions 15, 16 and 17 follow :

Question 15. Provide all information as to bonds issued by or on behalf of the
Republic of Panama since 1960 identifying the institution handling the issue,
maturity dates, interest rates, etc., and any data available as to current holders
of large amounts of such bonds.

Answer. Since 1960, Panama has issued one series of external bonds dated
December 19, 1962. The principal amount of this issue was $9,024,000 and it
bears interest at 4.5 percent annually. The maturity date of these bonds is 2001.
The entire series was sold to the Prudential Insurance Co. which currently holds
the bonds. These bonds are not traded on the open market.

Pursuant to a fiscal agency agreement between the Republic of Panama and
the Chase Manhattan Bank, Panama has given the United States irrevocable
instructions to pay to Chase Manhattan $500,000 of the annuity due to Panama
under the 1955 Treaty in order to provide the payment of interest on and the
retirement of the bonds. There is outstanding $7,413,659 on this issue.

In addition to the 1S62 issue, Panama has issued numerous series of internal
bonds primarily to finance capital improvement projects. A list of these bond
issues (under the heading "deuda interna") is attached. We have no informa-
tion as to the identity of the holders of these bonds.

DETALLE DE LA DEUDA PUBLICA CONTRACTUAL AL 31 DE DICIEMBRE DE 1976
[From the Informe del Contralor General de la Republica, 1977|

Detalle

Tasa de
intergs
(porcen-
taje)

Fecha
de emi-

sion o Fecha
contra- de naci-

taci6n miento

Emision o
contrataci6n
autonzada

Suscripci6n
suma adqui-
rida al 31
de diciembre
de 1976

Estado de la
deuda al 31
de diciembre
de 1976

Deuda Externa:
Mack Trust del Ministerio de

Desarrollo Agropecuario. . 6.5 1974 1978 41,895.00 41,895.00 17,955.00
Cfa Panamena de Maq.,

S.A.— MIDA 1.5 1975 1981 1,946,319.00 1,946,319.00 1,946,319.00

Subtotal Compra de

Equipo 16,570,455.88 16,013,680.55 6,341,928.93

Total Deuda Externa. 641,100,261.61 576,683,176.76 510,244,149.37

Deuda interna:
Bonos Conversi6n Caja

Seguro Social. 4.0 1953 1993 5,000,000.00 5,000,000.00 2,990,500.00

Do 4.0 1958 1998 8,920,000.00 8,920,000.00 6,392,000.00

Do 5.0 1961 1986 8,000,000.00 8,000,000.00 4,435,000.00

Do 4.5 1961 1991 5,878,000.00 5,878,000.00 3,949,000.00

Bonos Cuota Seguro Social. 6.0 1967 1987 10,000,000.00 10,000,000.00 6,900,000.00

Bonos Conversion Caja

Seguro Social 6. 1969 1994 28, 000, 000. 00 28, 000, 000. 00 23, 520, 000. 00

Bonos Cuota Seguro Social.. 6.0 1970 1990 7,000,000.00 7,000,000.00 5,700,000.00
Bonos Conversion Caja

Seguro Social... 6.0 1972 1992 22,212,700.00 22, 212,700.00 19,550,000.00

Subtotal Bonos Caja

Seguro Social 95,010,700.00 95,010,700.00 73,436,500.00

225

DETALLE DE LA DEUDA PUBLICA CONTRACTUAL AL 31 DE DICIEMBRE DE 1976-Continued
[From the Informe del Contralor General de la Republica, 1977]— Continued

Fecha Suscripcion

Tasa de de emi- suma adqui- Estado de la

interes sion o Fecha Emisi6n o rida ai 31 deuda al 31

(porcen- contra- de naci- contrataci6n de diciembre de diciembre

Detalle taje) tacion miento autorizada de 1976 de 1976

Bonos Construcciones Naci-

onales"A" 6.0 1957 1977 1,850,000.00 1,850,000.00 78,450.00

Bonos Construcciones Naci-

onales"C** 6.0 1958 1983 530,000.00 530,000.00 213,450.00

Bonos Construcciones Naci-

onales 6.0 1963 1983 1,000,000.00 930,000.00 « 480, 100. 00

Do 6.0 1966 1986 1,150,000.00 1,135,200.00 1 768, 900. 00

Do 6.0 1967 1987 3,000,000.00. 2,441,500.00 " 1, 168, 100. 00

Bonos Construcciones Naci-

onales "A" 6.0 1968 1988 1,500,000.00 1,500,000.00 1,099,300.00

Bonos Construcciones Naci-

onales 6.0 1969 1989 6,570,000.00 5,542,350.00 » 2, 051, 150. 00

Bonos Construcciones Naci-

onales "B" 6.0 1968 1988 1,500,000.00 1,045,200.00 1 783, 700. 00

Bonos Escuelas PGblicas

"B" 6.0 1959 1979 745,000.00 735,000.00 1 145, 600. 00

Bonos Escuelas Publicas

"C" 6.0 1961 1981 1,000,000.00 984,700.00 1 334, 300. 00

Bonos Escuelas Publicas

"D". 6.0 1965 1985 300,000.00 298,190.00 i 165, 400. 00

Bonos Escuelas Publicas

"E" 6.0 1966 1986 1,800,000.00 1,799,370.00 1 1,183,890.00

Bonos Escuelas POblicas

"F". 6.0 1966 1986 200,000.00 200,000.00 132,400.00

Bonos Escuela Vocacional de

Chapala.-. 6.0 1967 1987 250,000.00 250,000.00 167,600.00

Bonos Escuelas Publicas

"G" 6.0 1967 1987 50,000.00 48,000.00 (')

Bonos Escuela Vocacional de

Chapala "B" 6.0 1967 1987 250,000.00 250,000.00 150,000.00

Bonos Escuelas Publicas . - ,„ „.

"H" 6.0 1967 1987 2,500,000.00 2,010,800.00 1,517,550.00

Bonos Escuela Vocacional de

LaChorrera 6.0 1967 1987 50,000.00 50,000.00 30,500.00

Bonos Universidad de

Panama "A" 6.0 1967 1987 500,000.00 267,700.00 » 177, 500. 00

Bonos Universidad de „„_ • „

Panama "B" 6.0 1968 1988 500,000.00 500,000.00 367,500.00

B Tu7sos F H7m a anos. de .. Re ". 6.0 1965 1990 1,000,000.00 550,200.00 « 246, 200. 00

Bonos Electrificaci6n "A"... 6.0 1961 1981 2,150,000.00 2,150,000.00 532,700.00

Bonos Electrificacion "B".._ 6.0 1963 1983 400,000.00 400,000.00 ^0,600.00

Bonos Electrificaci6n "C"... 6.0 1965 1995 2,300,000.00 2,300,000.00 779,200.00

Bonos Electrificacion "D" . 6.0 1969 1999 1,000,000.00 1,000,000.00 835,000.00

Bonos Electrificacion "E".__ 6.0 1969 1999 119,600.00 119,600.00 107,000.00

^BSulfr'-A" ^ Cr6dit ° 6.0 1961 1981 2,500,000.00 1,004,000.00 > 386, 500. 00

Xular-A-' 3 ^" 6 " 1103 . 6.0 1966 1986 1,701,770.00 1,700,000.00 > 1,092 800.00

Bonos IFHA "A" 6.0 1967 1987 1,000,000.00 999,000.00 671,900.00

Bonos IFHA"B" . 6.0 1967 1987 1,000,000.00 1,000,000.00 686,800.00

Bonos Frigorfico I FE . . 6. 1969 1989 1, 500, 000. 00 1, 500, 000. 00 1, 165, 000. 00

Bono FHA-C'' _ 6.0 1970 1990 1 000,000.00 1,000,000.00 791,300. 00

Bonos IFHA "D"""" ... 6.0 1971 1991 1,000,000.00 1,000,000.00 847,900.00

Bonos Garantla Bancaria::.. 6.0 1971 1996 2,000,000.00 2,000,000.00 2,000,000.00

Bo ( nos ( GaranUa Bancaria ^ ^ ^ 1(000 000 00 li000 ,000.00 1,000,000.00

^(SENAPI) 6 ArteSa " ia 6.0 1972 1982 50,000.00 50,000.00 32,450.00

Bonos ifha -e";:;::::::: lo \m \m 1,000; 000. 00 1,000,000.00 914,800.00

Bonos Centro Femenino de _ „„„ „ ... ... oni nnn nn

Rehabilitacion 6.0 1961 1981 600,000.00 600,000.00 201,000.00

Bonos Multifamiliares:::::: 6.0 1963 1983 2,000',000.00 1,963,600.00 1 926, 100. 00

Bonos Garantia Bancaria W7g 2 ,000,000.00 1,989,000.00 1,989,000.00

Bonos SaIud"PODlica" , B ,T "" 6 1966 1986 700,000.00 362,600.00 1 194, 700. 00

BSSsSSdPfibKr-c"":: eo im \m 3,ooo',ooo.oo 3,000,000.00 2,177,100.00

B °s7ud™ 6.0 1967 1987 1,000,000.00 423,700.00 * 271, 500. 00

B °s7ud E p^ 6 1968 1988 450,000.00 147,800.00 1 64, 300 00

BonoJ ?SalSd PObl ka 6.0 1968 1988 900,' 000. 00 880,600.00 .660,700.00

B °ta° lla A do ''C"' 103 y AICa "" 6 1961 1986 2, 000, 000. 00 2, 000, 000. 00 580, 100. 00

B Tan,. A d"^^ 6.0 1966 1986 1,300,000.00 1,300,000.00 848,050.00

B T^.^^.. 0nm . PIC0S . 6.0 1968 1988 1,500,000.00 1,500,000.00 1,084,600.00

See footnotes at end of table.

226

DETALLE DE LA DEUDA PUBLICA CONTRACTUAL AL 31 DE DICIEMBRE DE 1976— Continued
[From the informe del Contralor General de la Republica, 1977]— Continued

Fecha Suscripci6n

Tasa de de emi- suma adqui- Estado de la

interns si6n o Fecha Emision o nda al 31 deuda al 31

(porcen- contra- de naci- contratacion de diciembre de diciembre

Detalle taje) taci6n miento autorizada de 1976 de 1976

Bonos Juegos Olfmpicos

"B" 6.0 1968

Bonos Juegos Olfmpicos

**C" 6.0 1969

Bonos Juegos Olfmpicos

"D" 6.0 1969

Bonos Juegos Olfmpicos

"E" 6.0 1979

Bonos Juegos Olfmpicos

"F" 6.0 1969

Bonos Agrarios de la Re-
publica 4.0 i958

Bonos Agrarios 1.0 1969

Bonos Agrarios "B" 4.0 1969

Bonos Agrarios "A" 6.0 1972

Bonos Agrarios "B" 6.0 1973

Bonos Puente Rfo Pacora.... 6.0 1967

Bonos Puente de la Provin-

cia de Colon 6.0 1967

Bonos de Inversi6n 6.0 1973

Bonos Obras Publicas

Nacionales 6.0 1956

Bonos Rellenode Colon "A". 6.0 1966

Bonos Puerto de Aguadulce. 6.0 1967

Bonos Valorizaci6n "C" 6.0 1969

Bonos Valorizacion "B" 6.0 1963

Bonos Valorizaci6n "A" 6.0 1960

Bonos Previsi6n Social, Ha-
cienda y Contralorfa Gen-
eral 4.0 1955

Bonos Edificio Contralorfa

General 6.0 1964

Bonos Carretera Inter-

americana "B" 6.0 1961

Bonos Carretera Interior de

la Republica "A" 6.0 1962

Bonos Carretera de Pene-

traci6n"A" 6.0 1962

Bonos Carretera Provincia

deCol6n 6.0 1963

Bonos Carretera Interior de

la Republica "B" 6.0 1965

Bonos Carretera Interior de

la RepGblica "C" 6.0 1966

Bonos Carretera Interameri-

cana"C" 6.0 1967

Bonos Carretera Armuelles-
Progreso-lnteramericana

"C". 6.0 1967

Bonos Caminos Llanos de

Cocle" 6.0 1968

Bonos Carretera Tumba

Muerto 6. 1969

Bonos Compra Materiales

para Caminos 6.0 1972

BonosdeCol6n"A" 6.0 1958

Bonos de Col6n "B" 6.0 1961

Bonos deCol6n 6.0 1963

Bonos Agrarios Desarrollo

Integral del Bayano "A".. 6.0 1974

Bonos Agrarios Desarrollo

Integral del Bayano "B"_. 6.0 1974

Bonos Adquisici6n de Bienes

Empresas Estatales 6.0 1975

Bonos de Inversiones Pub-
licas 1975 "B" 9.0 1975

Bonos de Inversiones Pub-
licas 1975 6.0 1975

Bonos de Mineria 8.0 1975

Bonos Compra de Materiaies

para Caminos 6.0 1974

Donos Garantfa Bancaria

Serie "D" 6.0 1974

Bonos Agrarios Serie "A"... 1975

Seo footnotes at end of table.

1988

1, 000, 000. 00

1,000, 000.00

761, 100. 00

1989

3, 250, 000. 00

2, 448, 000. 00

1989

600, 000. 00

596, 000. 00

i 437, 100. 00

1989

500, 000. 00

499, 800. 00

• 380, 700. 00

1989

600, 000. 00

573, 800. 00

i 413, 900. 00

1978
2009
1994
1992
1993
1987

2, 000, 000. 00
2, 000, 000. 00
I, 200, 000. 00
1, 000, 000. 00
1, 000, 000. 00
500, 000. 00

2, 000, 000. 00
912,250. 00
668, 500. 00

1,000, 000.00
917, 850. 00
475, 000. 00

220, 550. 00
642, 550. 00
600, 500. 00
903, 050. 00
856, 350. 00
I 334, 500. 00

1987
1993

1, 000, 000. 00
J6, 000, 000. 00

223, 000. 00
5, 325, 550. 00

1 149, 100. 00
4, 993, 000. 00

1976
1986
1987
1975
1983
1980

2, 250, 000. 00
100, 000. 00

1, 500, 000. 00
325,000.00
300, 000. 00
300, 000. 00

2, 250, 000. 00
100, 000. 00
180, 000. 00
111,300. 00
296, 500. 00
300, 000. 00

40, 000. 00
• 128, 000. 00

131, 000. 00
99, 000. 00

1995

1, 100. 000. 00

1, 100, 000. 00

731, 500. 00

1984

1, 000, 000. 00

1,000, 000.00

609, 600. 00

1981

1, 500, 000. 00

1, 498, 300. 00

i 548, 500. 00

1982

5, 500, 000. 00

1, 757, 400. 00

1982

750, 000. 00

717, 900. 00

I 290, 500. 00

1983

2, 000, 000. 00

1, 787, 000. 00

> 958, 500. 00

1985

2, 730, 000. 00

2, 706, 800 00

1 1, 644, 100. 00

1986

180, 000. 00

92, 100. 00

i 49, 000. 00

1987

450, 000. 00

437, 900. 00

• 295, 000. 00

1987

2, 000, 000. 00

194, 300. 00

i 35, 800. 00

1988

350, 000. 00

220, 200. 00

> 110, 000. 00

1989

170, 000. 00

169, 000. 00

» 111,100. 00

1982
1978
1981
1983

1 000,000.00
2, 000, 000. 00
500, 000. 00
1,000, 000. 00

975, 200. 00
1,980,000. 00
500, 000. 00
943, 040. 00

763, 300. 00
335,140.00
181,000. 00
i 531, 800. 00

1992

5, 000, 000. 00

1,988, 950. 00

1, 683, 950. 00

1979

600, 000. 00

198, 900. 00

8, 750. 00

1995

3, 200, 000. 00

3, 100, 000. 00

1990

5, 000, 000. 00

4,911,000.00

1995
1995

6, 573, 800. 00
18, 600, 000. 00

6, 342, 150. 00
18, 600, 000. 00

6, 094, 850. 00
18, 205,000. 00

1984

1, 000, 000. 00

992, 350. 00

893, 800. 00

1979
2000

2, 000, 000. 00
2, 000, 000. 00

500, 000. 00
335, 100. 00

500, 000. 00
332, 100. 00

227

DETALLE DE LA DEUDA PUBLICA CONTRACTUAL AL 31 DE DICIEMBRE DE 1976— Continued
(From the Informe del Contralor General de la Republica, 1977]— Continued

hecha

Suscripcion

T A

\ asa oe

de emi-

sums adqui-

Estado de la

interes

sion o

Fecha

Emision o

rida al 31

deuda al 31

(porcen-

contra-

de naci-

contratacion

de diciembre

Detalle

taje)

tacion

miento

autorizada

de 1976

Bonos de Inversiones Pub-

licas— 1976 _..

6.0

1976

1996

4, 387, 000. 00

2, 503, 650. 00

2, 485, 450. 00

Bonos de Inversiones POb-

licas "D"

6.0

1976

1996

875, 000. 00

491, 050. 00

491,050.00

Bonos Corporation Financ-

ier Nacional Serie "A"..

6.0

1976

1996

2, 000, 000. 00

1, 990, 000. 00

Bonos Compra de Materiales

para Caminos

6.0

1975

1985

1, 000, 000. 00

602, 900. 00

582, 900. 00

Subtoal Bonos Particulars 161, 307, 170. 00 138, 564, 450. 00 96, 428, 180. 00

Subtotal Bonos 256,317,870.00 233,575,150.00 169,864,680.00

Pagargs Tropelco, S. A.—

Instalacion "Radio Liber-
tad"

Pagargs Financiamiento

Sobregiro Banco Nacional.
Pagargs Financiamiento

Sobregiro Banco Nacional.

Pagares IRHE

Pagares Banos Hipotecario —

Vivienda

Pagargs Banco Nacional—

Conversion 1974

Pagargs IRHE "A"

Pagares IRHE "B"

Pagargs INTEL "A"

Pagargs INTEL "B"

Pagares Conversion Caja de

Seguro Social 1974

Pagargs Banco Hipotecario

Nacional-XIII rnes..

Pagargs Banco Nacional

1975

Pagargs Caja de Seguro

Social

Pagargs Banco Hipotecario

XIII mesl975

Pagargs IRHE— ABC

Pagargs I RHE— Serie "D"—

1976

Pagargs Banco Nacional

Pagargs Caja de Seguro

Social— 1976 (22.7 M)__„
Pagargs Caja de Seguro

Social— 1976 (4.8 M)

1971

1976

140, 672. 00

6.0

1971

1981

16, 600, 000. 00

6.0

1972

1982

14, 400, 000. 00

6.0

1974

1976

1, 312, 889. 36

6.0

1975

1985

810, 000. 00

7.0

1975

1985

13, 404, 567. 07

8.0

1975

1977

2, 644, 175. 92

2, 644, 175.92

8.0

1975

1977

2,817, 163.82

8.0

1975

1977

840, 810. 56

8.0

1975

1977

1, 340, 061. 79

6.0

1975

1994

28, 970, 000. 00

6.0

1975

1987

3, 592, 172. 21

8.0

1975

1985

13, 400, 000. 00

6.0

1975

1996

17, 400, 000. 00

8.0

1975

1987

3, 942, 307. 06

8.0

1975

1978

2, 337, 414. 44

8.0

1975

1978

576, 759. 12

9.0

1976

1983

21,900,000. 00

21, 900, 000. 00

6.0

1976

1997

22, 743, 964. 07

8.0

1976

1986

4, 853, 475. 00

9, 223, 500. 00
9, 434, 744. 47

668, 250. 00

11,339, 977. 03
1, 121,239. 28
1, 194, 199. 14
356, 420. 62
568, 053. 79

26, 073, 000. 00

3, 075, 000. 00

12, 287, 591.60

17, 053, 025. 00

3, 737, 544. 25
1,619,114. 27

399, 517. 90
21, 900, 000. 00

22, 743, 964. 07
4, 853, 475. 00

Subtotal Pagargs 174,026,432.42 174, 026, 432. 42 147, 648, 616. 42

First National City Bank—
Turismo

Banco de Desarrollo Agro-
pecuarie-Bancos Locales..

1.0
Variable

9175
1974

1990
1984

9, 000, 000. 00
6, 570, 000. 00

9, 000, 000. 00
6, 241, 500. 00

Subtotal Financiamiento
Privado Interino 15,570,000.00

15, 570, 000. 00 15, 241, 500. 00

Total deuda interna 443,097,138.60 423,171,582.42 332,754,796.42

Total deuda publics 1, 084, 197, 400. 21 999, 854, 759, 18 842, 998, 945. 79

1 El remanente entre suma autorizada y la suscrita fue incinerado.

A second series of bonds is designated "Republic of Panama External Secured
Bonds of 1958." The total amount of this issue was $16,800,000 and the bonds
bear interest at a rate of 4.80% per annum. Payment of interest due on these
bonds and the ultimate retirement of the bonds is provided for in a fiscal agree-
ment between the Republic of Panama and First National City Bank of New
York dated October 1, 1958. The agreement is similar in form to the 1950 agree-
ment discussed above. The annual payment required from Panama under the

228

1958 agreement is $1,000,000. In accordance with the agreement, the Republic
of Panama has instructed the United States Government to pay to the fiscal
agent $1,000,000 of the total annuity payment owed by the United States to
Panama under the 1955 Treaty of Mutual Understanding and Cooperation.

A third series of $9,024,000 principle amount was issued to the Prudential
Insurance Company pursuant to a purchase agreement between the Republic of
Panama and the Prudential Company dated December 19, 1962. These bonds bear
interest at an annual rate of 4.5%. Pursuant to a fiscal agency contract dated
December 21, 1962, the Republic of Panama has given the United States irre-
vocable instructions to pay $500,000 of the Treaty payment directly to the Chase
Manhattan Bank as fiscal agent for the Republic of Panama with respect to this
issue. This bond issue differs from the previous two in that in addition to the
fiscal agency contract and the irrevocable instructions to the U.S. Government,
a purchase agreement between Panama and the Prudential Insurance Co. is also
involved.

It should be noted that Panama's obligation to secure these bond issues through
a pledge of annuity revenues does not arise from the 1955 Treaty but rather
from contractual arrangements among Panama, the fiscal agents, and the bond-
holders.

Question 16. Detail how the annuity and the method by which it is paid to
Panama by the United States relates to any obligations on Panamanian bonds.

Answer. At present, portions of the annuity payment due Panama under the
1955 Treaty have been pledged by the Republic of Panama as security for three
separate series of bonds issued by the Republic of Panama. The first series was
issued in 1950 and is designated "Republic of Panama 3 percent External Se-
cured Serial Bonds." These bonds bear interest at the rate of 3 percent annually,
and are part of a $10,500,000 issue dated July 15, 1950. Payment of interest due
on these bonds and the retirement of the bonds is provided for in a fiscal agency
agreement of July 15. 1950, between the Republic of Panama and the Na-
tional City Bank of New York. That agreement provides that Citibank will
establish a sinking fund for the bonds and contains an installment payment
schedule for retirement of the bonds by 1995. The agreement obligates the
Republic of Panama to pay $430,000 annually to Citibank to provide for the
payment of interest on all outstanding bonds and of principal due on maturing
bonds.

In accordance with a provision of this fiscal agency agreement, the Republic
of Panama has irrevocably instructed the U.S. Government to pay directly to
Citibank each year $430,000 from annuity funds owed to Panama.

Question 17. What has been the investment ratings of those bond issues from
1960 to the present?

Answer. Neither the 1962 external issue nor the internal issues listed in the
attachment to question 15 have been assigned an investment rating. The rating
service, Moody's, lias received no requests that there bonds be rated.

Liberty Lobby's publication, "Spotlight," for October 3, 1977 featured a sec-
tion called, "Who and Why of Panama," one subject of which was Nelson
Rockefeller. One of the three articles in that section was the following, written
by George Nicholas :

Rocky's CIA Switched Signals on General Torrijos
(By George Nicholas)

Why is the Carter administration suddenly so anxious to divest itself of
the Panama Canal? What makes Washington so eager to hand over this vital
American strategic possession to — of all people — a dangerous, dishonest, dope-
dealing demagogic dictator named Omar Torrijos, who is one of Fidel Castro's
cronies? How does the corrupt, brutal, communist-honeycombed Torrijos regime
deserve such a multi-billion dollar present from taxpayers?

It's true that talk about a review of the original canal treaty was heard
around the White House during previous administrations too, notably during
the tenure of President Lyndon Johnson. But those discussions sprang from a
fundamentally different situation.

Prior to 1969, when Omar Torrijos seized power in Panama, every govern-
ment of that small nation was made up of profoundly pro-American politicians.
Any one of those regimes would have joined with Washington in a new canal

229

agreement in exchange for some symbolic concessions and increased revenues
(U.S. subsidies), leaving America's essential sovereign rights and strategic in-
terests intact.

With Torrijos, however, the U.S. faced a demagogic and disreputable adver-
sary in Panama. Until 1975 arrived, and with it the Great Canal Giveaway
Scheme, there was no serious intent in Washington to perpetuate this corrupt tin-
horn dictator in power by handing him U.S. strategic assets which a friendly
government of Panama would have never dreamed of obtaining from Washing-
ton — a canal treaty conferring sovereign rights over the crucial waterway to the
Torrijos gang.

To find an explanation for this maddening mystery. The Spotlight recently
interviewed two senior U.S. intelligence officials with long experience in Latin
affairs, and several other knowledgeable sources who asked to remain anony-
mous. Their disclosures revealed that U.S. strategy on Panama had been co-
vertly reversed by a clique of eastern financiers, multinational corporation lobby-
ists, bank lawyers and academic foreign-affairs "experts" who staged, in effect,
a secret coup after the Carter inauguration, resulting in a 180-degree turn-
about described by one troubled and angry CIA official in the following words :

"We just did a complete flip-flop. It was crazy. From 1971 through most of
1975, the U.S. strategic objective in Panama was : get rid of Torrijos. Do it by
fair means or foul, but this reckless demagogue must go. I put the baseline year
at 1971, not because Torrijos was our friend before that date : he was always
considered anti-American, ruthless and dirty — his brother Hugo Torrijos ran
the whorehouses and gambling dens; younger brother Marden was involved in
smuggling. We used to say at the CIA, 'The Torrijos clan is the only orga-
nized crime family which issues postage stamps'. But in 1971 and 1972 U.S.
intelligence acquired hard evidence that Omar Torrijos and his brothers were
taking a big hand in narcotics, giving top French and Italian heroin shippers
a protected haven in Panama for transshipping their dangerous cargo, in ex-
change for a percentage of the huge profits.

"Panama became the staging areas for cocaine and heroin smugglers. Dictator
Torrijos had a brother called Moises — his nickname is 'Monci' — who didn't
have a crime concession of his very own, so Moises Torrijos became the drug
boss in Panama. He made millions of dollars in narcotics payoffs for the Torri-
jos family kitty. Monci Torrijos is now the Panamanian Ambassador to Spain,
but he still daren't set foot in the United States — the drug enforcement people
have a file on him that's a foot thick, and Moises Torrijos might find himself
facing some tough questions.

"Throughout the first half of the seventies," the intelligence official told The
Spotlight, "the CIA and the Pentagon and even the State Department looked
on Torrijos as a criminal and a menace. From the standpoint of narcotics control
alone, the Torrijos family represented a serious problem ; some of the biggest
international dealers found a protected base under Torrijos' wing, and some Pana-
manian diplomats were beginning to take an active hand in the heroin trade,
smuggling in packets of narcotics under their diplomatic immunity. The agency
(the CIA) had orders to oust this sleazy family from power in Panama.

"The Clandestine Services Division gave major help to the Panamanian exile
leaders who organized the anti-Torrijos movement. Colonel Amadeo Sanjur
had our full support. He was funded to organize an anti-Torrijos coup in
Panama — given ample money, a load of weapons and ammo, even permission to
hire some CIA-trained Cuban commandos in Miami to knock off Torrijos. Fed-
erico Boyd, another anti-Torrijos leader, and ex-President Arnulfo Aires (who
is still the legal President of Panama ; Omar Torrijos is just an usurper who
seized power at gunpoint and a treaty signed "Torrijos" has no real legitimacy)
also got some Washington support.

"In 1973 and 1974, Torrijos grew even bolder and louder, and he cozied up
to Castro : we in the agency thought his days were numbered. But then, in late
1975, something strange happened. We got orders to 'lay off' Torrijos — there
were going to be 'negotiations' with him '.

In fact, negotiations with the Torrijos regime were already underway, al-
though U.S. intelligence officials were unaware of it. The confidential talks
were initiated, not from Washington, but from New York and two European
finance capitals, London and Paris.

Among Hie negotiators were representatives of the Rockefeller empire: Alfred
Wentworth, a senior vice president of Chase Manhattan, regarded as an expert
on dealing with Marxist-dominated nations; Lawrence Treadwell, a Latin Ameri-
can specialist from IBEC, the Rockefeller subsidiary that serves as a private

230

political intelligence agency for the brothers; Harvey Wallender, another IBEC
executive, who was a U.S. intelligence official before he joined the Rockefeller
organization and Lee Zimnier, an international lawyer who advises several
major New York banks of foreign credit and investment programs.

Also attending the secret Panama talks was Baron Philippe de Segonzac. a
vice president of S. G. Warburg Ltd. — personal representative for the influential
European merchant banker Sir Siegmund Warburg, and of the financial groups
which tied in with Warburg's far-flung money empire : Paribas of Paris, Lazard
Freres, various Rothschild subsidiaries. But the key figure among the negotia-
tors was Sol Linowitz, a Washington lawyer, and his "special adviser" on
Panama. Dr. Robert Pastor.

Sol Linowitz is a cynical promoter whose behind-the-scenes influence in Wash-
ington — especially in the area of Latin American affairs — is rumored to he
legendary.

As a registered foreign agent, Linowitz has worked for the communists without
batting an eyelid : he was the principal lobbyist for the ultra-communist regime
of Salvador Allende, an anti-American, pro-Castro government which wrecked the
economy of Chile in the early seventies until a joint effort of the Chilean military
and the CIA got rid of it. As a Chilean agent, Linowitz had once before attempted
to reverse U.S. policy in favor of an improvident, debt-ridden. Marxist-dominated
foreign regime. Now he was engaged in attempting the same thing on behalf of
Torrijos. Incredibly, this time around, Linowitz' efforts were destined to be suc-
cessful — at immense peril to U.S. strategic interests and great cost to the Amer-
ican taxpayers.

"The trouble was this," a U.S. intelligence official told The Spotlight, "In
Washington we regarded Torrijos as a threat. But the New York financiers and
the European moneylenders, the Rockefellers and the Warburgs saw Torrijos as
an ally, if not accomplice; he was their boy, and they needed him.

"The unscrupulous, money-hungry Torrijos, moreover, for all his Marxist
demagoguery in public, in private knew how to talk the language the interna-
tional financiers understood. Soon after he grabbed power and ousted the con-
situtional government of his country, Torrijos inaugurated new banking laws and
regulations in Panama which made it a haven, a veritable paradise for money
traders and currency manipulators — a risky, semi-legal sort of business in which
big banks like to take a hand without being seen."

By 1975, moreover, some of the biggest European and American banks were in
desperate trouble — stretched thin, overextended, facing disaster far more nar-
rowly than the public realized.

Trust assets had dropped dangerously. In 1974 the giant Bankers Trust Co.
lost $3 billion in portfolio holdings, and Chase Manhattan was next with a near-
fatal hemorrhage of $1.5 billion in "asset shrinkage." Melting "soft loans"
amounting to hundreds of millions of dollars had to be written off by every
major bank — once again Chase Manhattan, with First Chicago and Citicorp, was
among the biggest losers.

Faced with their most critical equity capital shortage since 1929. the terrified
giant banks saw themselves teetering on the edge of collapse. Panicky, starved for
liquidity, desperate for cash, they turned to the semi-legal, high-hazard game of
quick gains — or big losses ; international currency manipulation.

But currency juggling is a dicey, deadly sort of gamble. A bank finding itself
deep in the wrong sort of currency position faces collapse, threatening the whole
system: when giant Bankhaus I.D. Herstatt. one of West Germany's largest
commercial lenders, lost some $200 million in ill-fated currency plunges, it failed.
It was found that Chase Manhattan — with which Herstatt was closely affiliated —
faced even more catastrophic losses, said to have totaled over $500 million, in the
aftermath of the collapse of its German banking partner.

The alarmed U.S. banking regulators came out of their comatose state with a
start and threatened to put an end to currency ventures by U.S. banks and their
close European affiliates. Bank supervision was tightened, and comptroller of the
Currency Joseph Campbell threatened to "post an examiner in every bank which
is found to have an overload position in currency trading."

Now the international banking cabal really needed a man like Torrijos who
was ready and willing to provide them with a sanctuary, a sort of financial
freeport where currency manipulation, gold trading and other high-rolling money
gambles could be played out without interference. To keep Torrijos in power and
to provide him with desperately needed additional revenues, the finance consor-
tium decided that Panama should be given the U.S.-owned canal.

231

The man chosen to sell this smelly proposition to U.S. voters was none other
than Sol Linowitz.

"I must say it was fascinating to watch him operate," a U.S. intelligence
official recalled. "Even for an influence-peddler as versatile and slippery as
Linowitz, this was an impossible mission : to convince America to hand over its
strategic waterway to a disreputable, illegitimate tinhorn, communist dictator
and pay him an extra $2 billion for the privilege of taking it over — all because
this shabby deal would be 'beneficial in the long run.' What a preposterous fraud !
But to give the devil his due, Linowitz pulled it off. It's gotta be the most brazen
lobbying stunt in the book."

The great canal confidence game proceeded, through 1976 and 1977, in the fol-
lowing phases :

A so-called "expert commission on Latin affairs'' suddenly emerges from
nowhere on the Washington scene. Fueled by Rockefeller funds, it is officially
known as the Commission on United States-Latin American Relations. Its
chairman : none other than the shadowy Sol Linowitz. Its staff director :
none other than Linowitz' right-hand man, Robert Pastor.

In October, 1976, the Linowitz Commission put out its first report. It
recommends that the U.S. should "promptly negotiate a new canal treaty
with Panama."' The recommendation is written by Robert Pastor and signed
by "Chairman"' Linowitz.

In November, 1976 David Rockefeller visits Panama. He is accompanied
by "Chairman" Linowitz. Rockefeller and Torrijos have a friendly and
productive talk"' and on his return to the U.S., Rockefeller recommends that
the Linowitz Commission's report be included among the foreign-policy plan-
ning papers of the newly elected Carter team. It is so ordered.

In December 1976, a second report urging ''justice for Panama" (i.e. a
payoff for Torrijos) is issued by the Linowitz Commission. Its author: Rob-
ert Pastor. The Council on Foreign Relations holds a special colloquium,
chaired by Winston Lord, to discuss and endorse the Linowitz Report's
position on Panama.

In January. Zbigniew Brzezinski is appointed principal aide for national
security affairs to the new Carter administration. Brzezinski, an old Rocke-
feller courtier, in turn, quickly appoints a special assistant of his own to
take charge of the "Panama situation," he is none other than Robert Pastor,
the obscure academic whose only distinction is his position as Linowitz'
sidekick.

In late January 1977. Robert Pastor draws up a National Security Council
memorandum recommending that the Panama Canal be handed over to
Torrijos. It is promptly approved by Pastor's new White House boss,
Brzezinski. and submitted to President Carter. After conferring with some
"experts" including C. Douglas Dillon and Henry Kissinger — all faithful
Rockefeller retainers — President Carter approved the NSC paper, which is.
in effect, a thinly disguised version of the Linowitz Commission's recom-
mendations.

In a couple of months. Linowitz has achieved a lobbyist's dream : he has con-
trived to have the President adopt as his own policy a course of action worked
out on behalf of and in the interest of hidden vested interests.

More is to come : having achieved the influence-peddler's 'impossible
dream" Linowitz — is now about to be beatified. President Carter appoints a
team of two negotiators to implement the canal giveaway in direct talks
with Torrijos. One of them is the senile Ellsworth Bunker. The other one —
the U.S. negotiator who will do the real talking — is none other than Lino-
witz himself !

It was this fundamental conflict between the U.S. intelligence and security
establishment on one hand, with its long rap sheet on Torrijos and its deep dis-
trust of the Panamanian dictator, and on the other hand the Linowitz-Brzezinski-
Rockefeller axis, with its subversive penetration of the White House and the
National Security Council, that led to an incident, just lately come to light :

Electronic eavesdropping on some of the negotiating sessions between Linowitz
and Panamanian representatives, particularly Torrijos' brother-in-law Marcelino
Jaen. and Oscar Escobar Betancourt.

Jaen has been identified in U.S. intelligence memoranda as a Soviet intelligence
BS^et in Panama. "As for Linowitz." a U.S. intelligence official told The Spot-
light. "Hp was a communist asset while working for the Allende government,
and from tbe view point of U.S. national security, he's still considered a com-
munist asset."

232

U.S. Portrayal Before Canal Switch

This Spanish-language leaflet is a fair sample of the voluminous anti- Torrijos
propaganda designed and issued by the CIA in the early 70s. The text offers a
large reward (100,000 balboas, worth its equivalent in U.S. dollars) for the cap-
ture of the "Notorious Delinquent Omar (Anything for Money) Torrijos Her-

rera. "

The Panamanian dictator is further identified as a "murderer . . . rapist . . .
thief . . . embezzler of public funds . . . narcotics smuggler . . . and traitor. "

The leaflet was produced and printed by the CIA for clandestine distribution
in Panama in 1973. Its rhetoric reflects accurately the essential fact that from
1970 through 1975, U.S. intelligence agencies considered Torrijos a disrepu-
table and subversive pro-Communist usurper who had to be ousted from power,
if only for vital U.S. security considerations.

Translation of CIA-printed anti-Tomjos leaflet

REWARD
Dead or Alive
$100,000.00 Hundred Thousand Balboas
Omar Torrijos (alias) "Anything for Money. "
8100,000.00 (Hundred Thousand Balboas) will be paid to the officers, non-
commissioned officers, troops and civilians who participate on "D" Day in the
capture of the notorious delinquent Omar Torrijos Herrera (alias) "Anything for

r- ' _ . . • •

The capture ot Umar l ornjos nerrera is suuciteu ;.. . v jn r that he may pa? lor
the following (crimes):

1. Homicide: (Second Lt. Andres Pistonich, Guardia trooper Andres ^ai-
cia Torres, lawyer Ruben Oscar Miro, Floyd Britton, Rev. Father Hector
Oscar Santio, etc.)

2. Brazen robbery of the funds of the Panamanian people.

3. International drug trafficking.

4. Abuse of (official) authority and extralegal activities.

5. Oppression of the people by force of arms.

6. Seduction (corruption) of numerous girl students:

7. Using state powers to become rich overnight.

8. Plundering the funds of the state (in sex orgies, wild parties, helicopter
junkets, trips abroad, for his relatives, mistresses and cronies, all on gov -
ernment expense accounts.)

9. Treason against the Fatherland, against his fellow-officers, and against
the (Panamanian) people.

10. Shameless boozer and bigamist financing his vices with state money and
with giving away sinecures (to his intimates) on the public payroll.

This (wanted) subject is highly dangerous and is known to be a vicious sadist.
Although he likes to preach that 'He who gives love receives love 1 he is a be-
sotted drunkard who experiences occasional attacks of delirium tremens and
nervous disorders requiring shots of tranquilizers to quiet his nerves and his
dirty conscience. He is also a blusterer and a bluffer who, when he needs to
distract the Panamanian people, publicizes such slogans as "The CIA Has
Hatched A Plot To Kill Me 1 and 'Standard Fruit Is Trying To Kill Me 1 or
'Colonel Amado Sanjur Has Organized A Huge Conspiracy Of International Di-
mensions To Stage A Coup To Oust Me' or 'What I Want For My Children Is
What I want For My Nation' and similar buffooneries.

The $100,000.00 (Hundred thousand Balboas) will be paid by the new govern-
ment. — -
"All For Panama Movement."

Panamanian: while your country suffers, what are you doing to help it?

233

RECOMPENSA

VIVO o MUERTO

$100,000.00 Cien Mil Balboas

QMAR TORRIJOS (ayTodo por la Plata"

$100,000.0QCIEN MIL BALBOAS) LE SERAN PAGADOS A LOS OFICIALES, CLA-
SES, TROPAY CIVILES QUE PARTICIPEN EN LA CAPTURA EL DIA "D", OEL 1
CONOCIDO CLICUENTE "OMAR TORRIJOS HERRERA" (a) TODO POR LA PLA-
TA.

LA CAPTUR DE OMAR TORRIJOS HERRERA, SE SOLICITA PARA QUE LE PAGUE
AL PUEBLO* AN AMENO LO SIGUIENTE:

1. « HOMICIQ.): (Subte. Andrts Fistonich, Guardia Andres Garcia Torres, Lie. Ruben

Oscar Mfo, Flo, - Brirran, it. P. Hector Gallegos, Gonzalez Santizo, Etc.

2. - ROBO DSCARADO DE LOS OINEROS DEL PUEBLO PANAMENO.
3- TRAFICAITE INTERHACIONAL DE DROGAS.

4.. ABUSO D AUTORIDAD Y EXTRALIMITACION DE FUNCIONES.
5.. OPRESIO) AL PUEBLO POR LA FUERZA DE LAS ARMAS.

6. - CORRUPdON DE NUMEROSAS SENORITAS E STUD I ANTES.

7. - EMPLEQ3E LOS MEDIOS DEL ESTADO PARA SU ENRIQUECIMIENTO DE LA

NOCHE 4LA MANAMA.
8- DESPlLftRRO DE LOS DINEROS DEL ESTADO(en orgios, parrandos, paseos en
Helicopters, viajes al extranjero de sus fomiliares, queridas y omistades, por cuen-
ta del goterno, etc)

9.. TRAICIOj A LA PATRIA, A SUS COMPANEROS DE ARMAS Y AL PUEBLO.

10. BORRACjlO EMPEDERNIDO A COSTILLA DEL ESTADO Y BIGAMIA PAGADA
CON BO'ELLAS EN LOS PUESTOS PUBLICOS.
ESTE SUJETCtS DE GRAN PELIGROSIDAD.Y SE CARACTERIZA POR SER UN SADICO
MALVADO, PISE A QUE PREDICA QUE "EL QUE DA CARINO RECIBE CARINO"
ES UN BORRCHO INCCRREG IBLE, QUE CUANDO LE DAN ATAQUES DE DELI-
RIUM TREMEljs y DIABLOS AZULES LE DA POR LLORAR Y SUFRE DE LOS
NERVIOS Y TlfeNE QUE SER INYECTADO PARA PODER TRANQUILIZAR SU CON.
CIENCIA SUCL. TAMBIEN ES UN GRAN FANFARRON PROFESIONAL Y DE CARAC-
CTER INTERNKIONAL PORQUE CUANDO QUIERE DISTRAER LA ATENCION DEL
PUEBLO PKt AMENO MANIFIESTA LAS SIGUIENTES FRASES: "LA C.I.A. TIENE
UN COMPLOTPARA MATARME" "LA STANOAR FRUIT CO."ME QUIERE MATAR",
"EL CORONEl AMADO SANJUR TIENE UNA GRAN CONSPIRACION DE CARACTER
INTERNAaONAL PARA DARME UN GOLPE DE ESTADO". "AL QUE NO LE GUSTE"
LA FORMA Dt GOBIERNO ACTUAL, TIENE UN AVION DE LA FUERZA AERE'
LISTO PARA IR AL VALLE DE LOS CAIDOS", "LO QUE QUIERO PARA MIS HI; *
LO QUIERO PARA Ml PATRIA" Y OTRO POCO DE PAYASADAS MAS.

LOS 1000,000.00 (Cien Mil Balboas) DE LA RECOMPENSA, SERAN PAGADOS POR
EL NUEVO GOBIERNO.

"MOVIMIENTD „ TODO POR PANAMA"

PANAMENO: MIENTRAS TU PATRIA AGONIZA TU QUE NACES POR ELLA?

Nolo: Sdcgle fotocopias j ptfolas en las poredes y pastes al igual que distribute*.

234

Question 1. This article, quoting a CIA official as saying : "The Torrijos clan is
the only organized crime family which issues postage stamps", gives consider-
able support to the view of the Torrijos regime expressed in the Washington
Star by Charles Bartlett on February 25, 1977. Do you care to comment on the
article as it relates to the alleged drug activities of the Torrijos family?

Answer. Questions concerning alleged drug activities of members of the family
of General Torrijos should be addressed to the Department of Justice.

Question 2. Do you care to comment on the statement that the CIA had orders
to oust Torrijos from power some time before 1975?

Answer. We do not comment on allegations concerning intelligence matters.

(3) Did the "negotiations" regarding Panama described by George Nicholas
as taking place in New York, London and Paris, and involving Sol Linowitz and
men associated with the Rockefellers and European bankers, actually take place?

(4) If so, please give additional details about those meetings, where and when
these were held and who was present.

(5) Was the fate of the Panama Canal a subject of discussion by these inter-
national financiers?

(6) Was off-shore banking in Panama a major concern of those in attendance?

(7) Were other similar meetings for similar purposes held? If so, where and
when, and who attended?

Questions 8 to 7 and 11. Did the "negotiations" regarding Panama described
by George Nicholas as taking place in New York, London and Paris, and involv-
ing Sol Linowitz and men associated with the Rockefellers and European bank-
ers, actually take place?

Answers. We have no information concerning meetings members of the Torri-
jos Government are alleged to have had with others in New York, London and
Paris. If such meetings occurred, they had no connection with or bearing upon
our Panama Canal Treaty negotiations. We cannot, therefore, reply to questions
3 through 7, which relate to private persons and entities.

We can say that Ambassador Linowitz has not participated in any negotiations
regarding Panama other than in his official capacity. His activities with the
Commission on United States-Latin American relations were those of a private
citizen.

Concerning Mr. Linowitz' role in "selling" the new Treaties (question 11),
we would like to observe that negotiations were begun in 1964, four years before
Torrijos came to power and 13 years before Mr. Linowitz was appointed co-
negotiator. In fact, the last four Administrations have sought to reach an agree-
ment with Panama.

Question 8. The article indicates the bankers needed Torrijos, that he spoke
their language, that he had inaugurated a new banking law making Panama
"a veritable paradise for money traders and currency manipulators — a risky,
semi-legal sort of business in which big banks like to take a hand without being
seen."

(a) What benefits, and or losses has the 1970 banking law brought to
Panama itself?

(&) Is there any evidence that before the coup through which Torrijos
came to power, Panama intended to establish such a favorable banking law
and banking climate?

(c) If the Torrijos regime fell from power and was replaced by a con-
stitutionally elected administration, is there any likelihood of the banking
law being substantially revised or even abrogated?
Answer. For centuries the economy of Panama has been oriented toward serv-
icing transit trade and international commerce. Capitalizing upon its location,
good communications and transportation facilities and the absence of exchange
controls (the Balboa is equivalent to the United States dollar), Panama lib-
eralized its banking law in 1970. Panama is especially attractive to depositors
from South America, because it is the principal banking center using the Spanish
language, but it has also developed Into a major international financial center.
About three quarters of the loans generated by banks in Panama in 197G went
to foreign borrowers. Of the $1.6 billion of loans to private and public borrowers
in Panama, only about 19% or $304 million were made by banks in Panama
which opened after 1969. It is possible that this percentage will increase as
new banks enter the domestic Panamanian market, either by opening new
offices or by obtaining a general license to add on-shore activities to their off-
shore operations.

235

Question 9. (a) Comment on the "high-hazard game of quick gains — or big
losses: international currency manipulation", the author alleges is engaged in
by some banks.

(&) Describe some of the bank failures resulting from currency speculation.

Answer. We do not have the information available to respond to Question 9
on international currency manipulation and bank failures. The question should
be directed to the private entities themselves.

Question 10. This author flatly declares that this "international banking cabal"
he described as meeting in New York, London and Paris "decided that Panama
should be given the U.S. owned canal," to keep Torrijos in power. Is this true?

Is there any information whatever from the aforementioned international meet-
ings that might lead an observer to such a conclusion?

Answer. We have no information that would support such an assertion. The
United States and Panama, as noted earlier, began negotiations in 1964, before
Torrijos came to power. The U.S. Government view has been, since before nego-
tiations began, that our national interest is best assured by having the Canal
open and accessible at all times. The present treaty relationship, which is
resented by Panamanians of all political persuasions, jeopardizes that objec-
tive. Therefore, in order to advance this national interest, we have negotiated
with the government that is in power in Panama now.

Question 11. Do you care to comment on the remainder of the article which
mainly deals with the role of Mr. Linowitz in "selling" the new treaties?

( See answer to question 3. )

The Declaration and Programme of Action on the Establishment of a New In-
ternational Economic Order, and the Charter of Economic Rights and Duties
of States were products of the U.N. General Assembly in 1974.

QUESTIONS

(1) How do they focus on the international debts of the developing countries
and the problems of repayment?

(2) Is the international economic order discussed in the report of the Lino-
witz Commission the same as the New International Economic Order envisioned
by the United Nations? If not, how do the two relate?

(3) Is the new world order which is the concern of the Trilatral Commission
the same as the U.N. goal? If not, how do the two relate?

(4) (a) How did the United States vote on these resolutions in the United
Nations?

(b) Why?

(5) How did Panama vote?

(6) What would be the role of the Panama Canal in this New International
Economic Order of the United Nations?

Subcommittee note: See cover letter of Assistant Secretary Douglas J. Ben-
net, Jr. Also see Appendix F.

The following article appeared in the November 13, 1977, Philadelphia
Inquirer :

Four Rich Nations Cancel Debts of Poorer Ones
(By Don Shannon)

United Nations. — Four of the world's wealthier nations have started canceling
the debts owed them by some of the world's poorest nations, touching off cries
of dismay in the United States and Europe.

Canada, Sweden, the Netherlands and Finland feel that there is not much
point in insisting that the "least developed" nations comply with international
banking standards and pay their debts.

But the United States and the larger industrial nations of Europe do not
agree. They argue that writing off foreign debts could produce financial chaos
and cripple the world economy.

The idea of a moratorium on foreign debts was put forth three years ago by
the Third World as part of its proposed "new world economic order." Most
industrialized nations did not embrace the idea.

236

It came up again in Paris at the Conference on International Economic Coop-
eration, the so-called North-South dialogue that wound up last spring. Again
the industrialized world looked the other way.

Meanwhile, Third World debts continued to mount. The current total is about
$225 billion. Of that, the least-developed countries owe about $26 billion.

Then, at this year's session of the U.N. General Assembly, Canada and Sweden
decided that they would not wait for joint action. They moved on their own.

Canada's minister for foreign aid, Alan MacEachen, announced that his gov-
ernment was canceling $300 million loans to 13 nations. The loans were made on
what are known as concessionary terms, long term at low interest, but the re-
cipients had been unable to meet them anyway.

Taking inflation into account, a Canadian official said, the debts probably
amounted to no more than $50 million.

Not long afterward, Sweden announced that it was canceling $200 million
in debts. These two were the result of loans made on concessionary terms. Ola
Ullsten, Sweden's minister for international development, announced his gov-
ernment's decision and appealed to other industrialized nations to take similar
action.

He said that the rich nations — the United States, Japan and others in Western
Europe — had outstanding loans of $20 billion to the poorest nations and that
interest payments alone were approaching $1 billion a year.

"If all the (leading) countries joined in an action to cancel the 'debts of the
poorest countries, it would mean an increase in aid of nearly 20 percent to those
countries," Ullsten said.

There is little sentiment in Washington for taking such action. Congress
appears to be more concerned with the question of what would happen if
debtor nations should choose to default.

Commissioner Claud Cheysson of the European Economic Community warned
that debt cancellation could mean that a country "will remain on welfare for
the rest of its days. It will have no credit status anymore."

A diplomat who advocated debt cancellation said that this was exactly the
point, that the poorest nations had no credit standing anyway.

Private banks, he said, would consider none of them as a loan prospect. He
said that other governments should look on them as charity cases and provide
aid for them in the form of grants, not loans.

The neediest cases are mostly African, together with a scattering of Asian
nations and one in the Western Hemisphere, Haiti.

Tanzania in East Africa was a beneficiary of all four governments that have
acted to wipe out debts and, in the case of Finland, was the only debtor cleared.

Like Australia, Finland decided several years ago to make all its foreign
aid in the form of gifts, and a small loan to Tanzania was written off at that
time.

In addition to Tanzania, the Netherlands included Bangladesh in the cancel-
lation of $18 million worth of loans for $1977.

In previous years, beginning in 107;". when the Dutch also decided to make
all further aid to the least-developed states in the form of grants, loans almost
equal to the 1977 Swedish cancellations were written off without fanfare.

Question. 1. Submit for the record any published accounts representing the
"cries of dismay" mentioned in the first paragraph.

Answer. In discussing the recent "write-offs" of debt by Sweden, Canada. Fin-
land, and the Netherlands, one must recall that the debt related entirely to
development credits (i.e., debt extended for aid purposes) rather than commercial
type debt. In effect, these donor countries have used debt relief as a means of
responding to the needs of particular poor countries which have a special need
for additional aid. We do not view the actions of Sweden, Canada, and the
Netherlands as setting any precedent for the United States. We are not, how-
ever, aware of "cries of dismay" resulting from the actions of these four countries.

Question 2. Will cancellation of the debts of poorer nations create a domino
effect where other debtor countries could beg off repayment on the grounds
those debts should be forgiven outright?

Answer. We do not have any evidence that such a domino effect will take
place.

An explanation of what some countries are seeking might be useful:
Within the context of the North/South dialogue, developing countries have
for the past two years been pressing for generalized debt relief for the poor

237

countries. Their primary focus has been on the relief of debt attributable to
development credits (i.e., debt extended for aid purposes). In effect, they advo-
cate the use of debt relief to supplement what they believe are inadequate flows
of development assistance. The USG and other major creditors have opposed
demands for generalized relief believing it to be an inefficient form of resource
transfer. We have, however, stressed our willingness to continue cooperating in
multilateral efforts to help individual countries encountering extraordinary debt
servicing problems.

Question 3. Could not Panama do this if its economy does not improve?

Answer. Despite the slowdown in Panama's economy, the country has been
meeting its debt obligations on time and its credit rating remains good. We have
no indications that Panama would consider refusing to repay its loans in the
event the economy does not improve.

Question 4- Is the moratorium on foreign debts, mentioned in the fourth
paragraph as put forth by the Third AVorld's proposed "new world economic
order", part of the thinking of (a) the Linowitz Commission (b) the Trilateral
Commission?

Answer, (a) The Linowitz Commission Report takes note of the debt servic-
ing problem in Latin America. It speaks of debt rescheduling, but does not call
for an overall moratorium on foreign debt per se. Rather, it suggests that . . .
"we should reconsider the question of grant aid for certain countries as a
preferable means of assisting them to handle debt burdens which they cannot
support." The Linowitz Commission may be able to provide further information
about this question.

(ft) We do not have sufficient information about the Trilateral Commis-
sion's views on this matter to reply.

XII

The Panama Star & Herald, April 21, 1977, printed the text of the Panama-
Libya Cooperation Pact. Article II reads :

"Both parties have decided to promote and strengthen a mutual cooperation
for the establishment of a new international order, based on equality, justice
and peace."

Question 1. Is this new international order the same as the goal of the United
Nations discussed elsewhere?

Answer. We do not have any information as to whether this "new interna-
tional order" mentioned in Article II of the Panama-Libya Cooperation Pact
is the same as the goal of the United Nations.

XIII

Newsweek, for April 25, 1977, reported on the results of Omar Torrijos' visit
to Libya's Chief, General Muamar Kaddafi :

"Rhetoric aside, the two countries did reach some substantial agreements on
military and economic cooperation. They arranged a periodic exchange of mili-
tary delegations, and several Panamanian officers traveled into the desert to
watch some Libyan maneuvers. But the main results of the meeting were largely
financial and political. Libya agreed to invest in a Panamanian copper mine and
a number of irrigation projects and to establish an Arab bank in Panama with
capital of $100 million. The bank could give Panama desperately needed assist-
ance in meeting some heavy debt payments that fall due shortly. It may also
give Kaddafi a convenient place to launder the currency he uses to fund radical
terrorist groups in the Third World. The Libyan leader also said he would
build a $2 million mosque and Islamic center in Panama."

Question 1. Submit all information available on this Arab bank especially as
to the degree of its financing.

Answer. To our knowledge, the Libyans have not yet made any move toward
establishing a bank in Panama.

Question 2. Have any Libyan loans to Panama been forthcoming in the interim?

Answer. There have been no Libyan loans to Panama.

Question 3. Comment on the likelihood of Kaddafi laundering support for ter-
rorists through Panama.

Answer. The Newsweek article mentions the possibility of Kaddafi laundering
currency through an Arab bank in Panama. Since no such bank has been estab-
lished and given the fact that Libyan ties with Panama are extremely limited,
the likelihood of Libyan laundering through Panama appears remote.

238

XIV

In the Washington Post for June 3, 1977, Marlise Simons wrote an article
entitled "Canal Treaty Seen Leaving Political Vacuum In Panama." In that
item, she stated the following :

"As a U.S.-trained economist here pointed out, the canal and its operations
have been restricted to being a nonprofit organization by act of Congress.

"Once a new treaty removes this barrier, Panama will have access not only
to tolls but also to profits of the Canal Zone's companies. Moreover, the country
will be able to develop new industries such as shipbuilding and repair and dry-
docks, which are nonexistent now.

"Many of the non-essential operations of the canal, now controlled by the U.S.
government, such as the terminals division, stevedores, warehousing and tug
and launch services, will pass into Panamanian hands. These areas are re-
garded as potentially immensely profitable.

• The Panamanian government also expects to receive significant tax income
from the many current activities in the zone such as packing, trucking, shipping
and other services in the hands of private firms which have escaped taxation
until now.

"But, one economic expert here commented, "There are many people making
eyes at the Zone as a sort of easy gold mine, but all this will require much time
and expertise."

" 'The important thing however,' he added, 'is that a new treaty will change
the momentum and, however slowly, that will be the only way out of the eco-
nomic deadlock we are in.'

"Some of the pressure Panamanian businessmen are putting on the Torrijos
government, observers here believe, is aimed at assuring themselves a large slice
of the cake once the Canal Zone or its enterprises are ready for carving up.

"A recent meeting of businessmen, for example, demanded that Torrijos define
himself ideologically at last. This was taken here as tantamount to a request to
have him place most of the newly available business in private hands.

"Torrijos has not spoken out publicly on his intentions, but in a recent inter-
view he implied that the economic spoils of the zone will not simply be up for
grabs.

"Asked about his post-treaty plans for the economy and the running of the
canal-related industries, Torrijos replied : 'I am in favor of a mixed economy with
the state controlling basic industry. I favor a larger role for the state than we
have now.' "

Question 1. Do any U.S. banks own subsidiary firms in Panama that might
profit from such Canal operations were they to pass into private hands?

Answer. The State Department does not have information as to what U.S.
1 tanks may own in Panama. This information is held by the Department of Com-
merce, but its proprietary nature precludes its availability except under very
special circumstances.

Question 2. Comment on speculation that some international bankers feel that
the Canal itself may be put up as collateral for Panama's forthcoming borrowing,
and that the waterway would fall into these bankers' hands when Panama de-
faults on these loans.

Answer. Despite the slowdown in its economy in recent years. Panama has
continued to strive for and has indeed demonstrated a sense of fiscal responsi-
bilitv. While its debts have climbed as a result of the slowdown, Panama has
managed to service these debts with little difficulty. Its credit rating in the inter-
national business community is good.

Clearly, Panama is concerned about its economy and it is counting on the
ratification of the Treaties for both the confidence and revenues it will thereby
obtain. We have no reason to believe, however, that Panama is so concerned as to
abandon its past fiscal practices and embark upon a round of borrowing of un-
toward proportions.

Mortgaging the Canal is simply not feasible. Apart from all other considera-
tions (political, financial, etc.) the Treaties would preclude this possibility. Pan-
ama will not take control of the Canal until the year 2000, for one thing. Beyond
this, Panama has agreed through the Neutrality Treaty to maintain the neutrality
and efficient operation of the Canal. Panama would not be able to fulfill this
obligation were it to lose control of the Canal through mortgaging or another
similar procedure. Obviously, this would cause the United States, which also
will maintain the Canal's neutrality, to judge whether such action would consti-
tute a threat to the Canal's neutrality, and to act appropriately, in accordance
with its rights under the Neutrality Treaty.

239

Hobart Rowen authored an article in the December 15, 1977, Washington Post
titled,

Central Bank Role Is Urged for IMF
(By Hobart Rowen)

The International Monetary Fund should "increasingly evolve" into an inter-
national central bank, enabling it to act as a lender of "last resort" in crisis
situations, the Trilateral Commission recommended yesterday.

In a report on "renovating" current international relationships, the commission
said that the post World War II "international order ... is no longer adequate
to cope with new global problems."

It said that "wide participation" by many countries would impede the de-
cision-making process, and that the key role should therefore be left to "smaller
groups of countries (who) collaborate together."

The Trilateral Commission was formed in 1973 by Chase Manhattan Bank
chairman David Rockefeller and Zbigniew Brzszinski* now head of the U.S. Na-
tional Security council.

The 200 commission members are drawn from the business, labor, and academic
elite of North America, Europe, and Japan. The commission has been attacked
from the left as a vehicle for domination of the world economy by the large
multinational companies. Right-wingers have attacked it as a radical front.

The report on renovating the international system was written by Under-
Secretary of State for Monetary Affairs Richard N. Cooper, formerly a Yale
University professor ; Karl Kaiser, professor of political science at Cologne Uni-
versity, and Masataka Kosaka, professor of law at Kyoto University.

On non-monetary issues, the report urged :

Trilateral support of the U.N. environmental program. It acknowledged
that most of the world's pollution is in the industrialized countries, which
requires them to initiate corrective action.

Access of all countries, developing as well as developed, to nuclear tech-
nology, provided they accept international safeguards and controls.

A balance of the goal of human rights "with other important goals of
world order." The report said, "Some trilateral conceptions of detente with
the Soviet Union and other Communist states tend to conflict with a policy
of promoting human rights."

The study acknowledged that the current order has been "severely criticized"
by Third World countries, who demand a "more equitable sharing of benefits
from the world economy." The report argued for substantially increasing the
flow of resources "addressed to alleviating world poverty.'*

Specifically, it endorsed expansion of loans to stabilize export earnings of de-
veloping countries through the International Monetary Fund, or by expansion
cf the Lome' Agreement with the European community.

It added that commodity buffer stocks for the purpose of price stabilization
should be considered, especially for majors food grains and non-ferrous metals.

The main thrust of the 68-page document is that an interdependent world
must be better managed, because there are inherent conflicts between interna-
tional cooperation and national interests.

The authors suggests that instead of "playing it by ear," the trilateral coun-
tries should evolve a strategy for management of the international order that
will provide "sense of direction" for the next couple of decades.

As essential goals, they list "keeping the peace, managing the world economy,
contributing to economic development and the satisfaction of basic human
needs, and promoting human rights."

The report contends that the trilaternal nations "must assume leadership of
the system," which require informal but close collaboration in economic policy
making, especially among the U.S. West Germany, and Japan.

It recommends guidelines to keep the various issues separate ("piecemeal
f unctionalism" ) , accompanied by an effort tc decentralize decision making.

The proposal for making the IMF into a central bank was set out in detail
to illustrate how the proposed guidelines could be applied to international
monetary problems.

The core of a future international monetary system, Cooper-Kaiser-Kosaka
say, must be "agreed and operated" by the 5 to 10 biggest countries. The other

240

countries could then adopt "a wide variety of arrangements . . . around that
central core."

The IMF would provide only a forum for "discussion of ongoing develop-
ments," while proposals for formal changes should "originate" with the big
powers.

The need for transforming the IMF into a central bank was said to derive
from good management of the flexible exchange rate system, and in order to
make Special Drawing Rights (SDRs) the source of most additional monetary
reserves. "If SDRs become the principal reserve asset." the report says, "the
IMF will play a central role as creator of international reserves."

QUESTIONS

(1) Does the State Department and the Administration of Trilateralist Presi-
dent Jimmy Carter endorse the conclusion in this report written by Tri-
lateralist Under Secretary of State for Monetary Affairs, Richard N. Cooper,

(a) that the present "international order ... is no longer adequate to
cope with new global problems" ?

(&) that the International Monetary Fund should be converted into an
international central bank?

(2) Is the Trilateral Commission not presenting itself in this report as a
vehicle for control of the world economy by calling for better management of an
interdependent world by the Trilateralist nations?

(3) How would, or could, the International Monetary Fund be made into a
central bank for the world banking system ?

(4) Detail the impact on the U.S. taxpayers of such a development.

(5) Briefly describe the nature of SDRs and their potential on the U.S.
citizens' tax dollars.

(6) Since the inception of each, what have been the total annual contributions
from U.S. citizens' tax dollars by the government (including next fiscal year's
budget request) to :

(a) the International Monetary Fund ;
( 6 ) the World Bank ;

(d) the Asian Development Bank, and

(e) every other governmental and quasi-governmental international bank?

(7) (a) Discuss the reasoning behind the recommendation in the 1974 Report
of Sol Linowitz's Commission on United States-Latin American Relations for
the elimination of the effective U.S. veto over many loans by the Inter- American
Development Bank.

(6) Has the Carter Administration followed this recommendation?
Subcommittee note : See cover letter of Assistant Secretary Douglas J. Bennet,
Jr. Also See Appendix F.

XVI

Spotlight, for June 20, 1977, featured the following two articles:
Financial Triumvirate Lured Russians to Panama
(By Mark Allan and Tracey Ehre)

The Russian economic incursion into the Republic of Panama is the illegitimate
offspring of a former high-ranking government official and elder state-man, an
International financial promoter, and a politically well-connected mini-conglom-
erate with interests throughout the world.

The Spotlight lias learned that the prime movers in forging the liaison between
the Soviet Union's Moscow Narodny Bank and Tana ma's official Banco de Na-
tional are former Treasury Secretary Robert B. Anderson, reputed international
promoter and financier Edward Wong, and the highly-diversified Prudential
Group head(Ml by Nathan Shippoe.

Sources close to these parties have confirmed that all three — in an effort to
consolidate and improve their Panamanian financial interests — played key roles
in obtaining Soviet capital to bail out and save the Pacific-Atlantic Bank and
the Panama Hotel from potential rnin.

Anderson, by far the best known member of this triumvirate, boasts more than
30 years of service in government and private industry. In addition to serving as

241

President Eisenhower's Treasury secretary, he was also Secretary of the Navy
during the early 1950s, served as civilian head of the Defense Department's DEW
LiNju project and provided principal direction for the development of the Atomic
Energy Commission. Even more significant, however, is Anderson's long history
of involvement in the on-again/off -again Panamanian negotiations of the past 13
years. 1 1

As far back as 1966 Anderson, together with Dr. Milton Eisenhower, was co-
director of a Johnson Administration White House Task Force which was charged
with negotiating a new Panamanian treaty, and in 1973 he was President Nixon's
chief negotiator in Panama. That Anderson favors the current effort to relin-
quish U.S. control of the Canal and the Canal Zone and that he has long been
interested in this highly important country is well documented.

Indeed, news reports from June 1966 reveal that Anderson and Eisenhower
conducted a $10 million study of current treaty arrangements and possible revi-
sions, and their recommendations then were essentially identical with the Carter
Administration's current policy.

Among other things the Anderson report of 1966 called for an abrogation of
the current 1903 treaty, the granting of sovereignty over the Canal Zone to the
Republic of Panama, and the granting of access to the Canal to such nations as
Communist China and Cuba whose relations with the U.S. at the time were at
an all-time low.

Given this background Anderson's present associations with the Soviet Union,
Wong and the Prudential Group are not surprising.

According to informed sources Edward Wong, who ostensibly serves as chair-
man of the troubled Pacific- Atlantic Bank as well as of the Panama Hotel, is an
international promoter and financier whose interests allegedly include dealings
with both the Soviet Union and the Communist Chinese.

Reputedly based in Hong Kong, he is almost constantly traveling the globe in
the furtherance of his enterprises and recently visited such financial capitals as
Zurich, London, Paris and New York.

The third member of this triumvirate is Nathan M. Shippee, president and
chairman of the Prudential Group, who is described in company literature as a
specialist in international venture capital banking. The Prudential Group itself
is essentially a mini-conglomerate with involvements in financing, architecture,
feasibility studies, etc., and its links to Anderson and the Panamanian situation
are readily documented.

Anderson, for example, is chairman of the board of the Prudential Group's
subsidiary Prudential Technology International for which he is also a financial
and technical management consultant. Its projects include the development of
the DEWLINE radar and communications systems in the Arctic, a Defense De-
partment project for which Anderson was at one time the civilian head. Another
Prudential Group subsidiary, the prestigious architectural firm of Edward Dur-
rell Stone International Ltd., is closely linked to the Panama Hotel, which was
originally designed in 1945 by Stone himself.

That these three men (Anderson, Wong and Shippee) were the masterminds
behind the Moscow Narodny's entrance into the Panamanian financial commu-
nity was divulged to The Spotlight by highly-placed "Panamanian officials as well
as by well-informed sources within the Prudential Group.

According to these sources Anderson and Wong were ostensibly the chief archi-
tects in cementing financial alliance between Bank Narodny and Banco Na-
cionale of Panama which have invested a combined total of $14 million in the
Panama Hotel and the Pacific-Atlantic Bank, which officially at least are both
headed by Wong.

Despite his highly visible position, however, sources close to the situation
state that Wong will not negotiate or discuss in depth any financial transactions
with regard to these holdings. He states instead, "Contact Mr. Anderson. He is my
partner (in these ventures)." Wong also asks that all correspondence addressed
to him in the U.S. should be sent in care of Anderson at a Fifth Avenue address
in New York where Anderson manitains a consulting firm.

The theory that Anderson and not Wong is in fact the leader of this strange
coalition can be even further substantiated. For example, the former Treasury
secretary, according to well informed sources, frequently boasts of his excellent
relationships with the entire Soviet banking community, and particularly with
the Gosbank, which is the official state bank of the Soviet Union and that coun-
try's equivalent of our own Federal Reserve.

242

He has also been quoted as saying that he deals with the Bank Xarodny 'as
a matter of courtesy," since this is considered to be a lower echelon or "people's"
bank which must in any event have the approval of Gosbank before transacting
any overseas business.

In another highly illuminating statement made by Anderson to a source close
to the Spotlight he stated, regarding the Panamanian/Russian alliance : "I don't
care who I do business with as long as I make money.

That Anderson, Wong and Shippee's Prudential Group are currently "making
money" In return for providing the Soviets with their first economic foothold in
the Republic of Panama seems to be more than amply demonstrated by the fact
that both the hotel and the bank in which the Soviets have invested are described
by sources within The Prudential Group as being "financially troubled."

Indeed, while Wong is peddling these and other holdings in the world's financial
capitals, his "partner" Anderson and The Prudential Group itself tell inquiring
investors that they are acting as "referees in bankruptcy" for these Panamanian
holdings. Informed sources have also told The Spotlight that Shippee is now
telling these same interested investors that any further negotiations on the
properties are being delayed pending the signing of a new Panamanian Treaty.

Thus it appears that the quickly approaching agreement on the U.S. give-away
of the Panama Canal and the Canal Zone will insure not only a financial profit
for Anderson and his friends, but an already established economic foothold for
the Soviet Union in a politically unstable nation whose official bank is already
in partnership with the Russians.

Once again, the intense desire of greedy men for the greatest possible profit —
even if reaped at the expense of our national security — is proving to be a domi-
nant force in our most important foreign policy decisions.

Soviet Foothold in Panama Raises Serious Questions
(By Mark Allan)

It can now be revealed that Moscow's Bank Xarodny, the central bank of the
Soviet Union, is a direct partner of the Panamanian Government through the
Republic's Banco de Xacional of Panama, and that it has helped finance at least
one venture that The Spotlight has been able to uncover.

The Banco de Nacional of Panama and Bank Xarodny have a combined invest-
ment of 814 million in what has long been known as Panama's best hotel, the Pan-
ama Hotel. This loan was granted so that the hotel could be renovated and ex-
panded, and the funds were also to be used to help expand and revitalize the
Pacific-Atlantic Bank which has been in bankruptcy at least twice.

Thus, with one loan the Soviets managed to establish a foothold in both the
Panamanian tourist trade and in the banking industry, which shows signs of de-
veloping in the secretive mode of the Swiss financial system.

In addition, the Russians were granted an excellent opportunity to import "fi-
nancial advisors," construction consultants, etc., to help protect their investments.

Thus, in one bold stroke the Soviet Union changed its tactic of military intru-
sion to economic infiltration, while at the same time quietly achieving aims that
a more provocative military offensive would never have accomplished. These goals
moreover were achieved without State Department protest and, except for The
Spotlight's story of February 14, without the unpleasant blare of media attention.

Somewhere along the line, moreover, it was mutually decided by all parties in-
volved that it would be even more beneficial to the Russians to enlist the support
of private investors with whom they could be cooperative, while at the same time
gaining even more friends and increased strength in the trouble-ridden Republic
of Panama. (See The Spotlight, Feb. 14, 1977).

When The Spotlight initially brought this little-known situation to the atten-
tion of the State Department early this year, officials stated that they did not
consider the Soviet investment in this nation to be a matter of great importance.
However, now that it has been ascertained that the investment was sought out
and made with direct complicity of the Panamanian government and its official
bank and that this government has allowed the Soviet bank and its "advisors" to
direct the financial negotiations for attracting U.S. multinational interests, it

243

would seem that this scenario can no longer be lightly disposed of as it was ini-
tially by the administration spokesmen.

On another front, moreover, the avowed plans of the Torrijos government —
plans that have been confirmed by the Panamanian Embassy — to build an oil pipe-
line across the Isthmus that could service supertankers from both the Atlantic
and Pacific without necessitating their actually negotiating the canal raises the
question of whether the Soviets would also be a partner in this together with the
avowedly concerned oil companies, including of course the biggest of all — David
Rockefeller's Exxon Corp.

Although this pipeline is currently the most strategic project envisioned by the
Torrijos regime, plans have also been announced by the Panamanian government
for the development of the San Bias Islands as a major tourist resort. Again the
question must arise as to whether U.S. financial interests will join with the
communists in orchestrating the development of this potentially lucrative project.

Indeed, the whole financial structure of the Panamanian government, once it
finds itself in sole possession of the Canal Zone, appears to be heading directly
into the hands of an American-Soviet corporate and banking group, which has
shown its ability to manipulate the White House and the State Department to
accommodate its every whim.

That this Soviet involvement — no matter what the potential for economic
gain — poses a security threat for the U.S. is unquestionable, especially when one
takes into consideration the fact that Castro's Cuba has already announced its
support for the so-called liberation of the Canal Zone and has offered to aid the
Panamanian government in reaching a new level of economic achievement.

Question 1. (a) Submit all available information on the alleged link between
the Soviet Union's Moscow Narodny Bank and the Pacific- Atlantic Bank.

(6) What, if any, are the interests in Pacific-Atlantic Bank of any U.S.
citizens ?

Answer. The Pacific- Atlantic Bank and the Hotel Panama owned by Edward
Wong had borrowed money from the Singapore branch of the Moscow Narodny
Bank. Nearly all the collateral which Moscow Narody Bank received for the debt
was held by Pacific-Atlantic Bank in Panama on Moscow Narodny Bank's
behalf.

With the bankruptcy of Mr. Wong's Panama interests Moscow Narodny Bank
"called" in the loans and stopped all financial support to Mr. Wong or any of
his companies.

The matter is currently under litigation in Hong Kong.

No U.S. citizens, to the best of our knowledge, have interests in the Pacific-
Atlantic Bank.

Question 2. {a) What, if any, working relationships have been planned be-
tween the Narodny Bank and Panama's Banco de Nacional?

(6) Which of these have actually been implemented, if any?

(c) Supply all available information on these as well as on the reported joint
investment in the Pacific- Atlantic Bank and Panama Hotel.

Answer. The Narodny Bank has no involvement with Banco Nacional.

The investment in the Pacific-Atlantic Bank and Panama Hotel is explained in
answer to question 1.

Question 3. Did Soviet Union citizens go to Panama as alleged, as financial
advisers, etc., either to protect investments or for any other reason?

Answer. A representative of the U.S.S.R. Foreign Trade Bank did visit Panama
at the time of the liquidation of Eddie Wong's bank. We do not know what the
outcome of his visit was.

Question 4. What has been the thrust of the Prudential Group's major and
subsidiary business interests in Panama?

Answer. This question should be addressed to Prudential.

Question 5. Has Prudential Group, or any of its subsidiaries, or any of the
three persons cited in the article, Robert B. Anderson, Edward Wong, or Nathan
Shippee, shown or expressed interest in developing a sea-level canal in (a)
Panama? (&) elsewhere? (c) to what extent?

Answer. We do not know of any interest or involvement by these individuals
or the Prudential Group.

Question 6. List any U.S., Soviet, or Communist Chinese banks, if any, or their
branches, with which each of the three men may have been connected as an offi-
cial, or business partner, or as an associate in any degree.

244

Answer. We do not have any information on this matter.

Question 7. Did either of the three men play any role in the U.S.-Panama ne-
gotiations on :

(a) the new treaties since January 1, 1974?
(6) any other matter whatsoever?

Answer. From 1964 to 1970, Robert Anderson was Chairman of the Inter-
oceanic Canal Study Commission which was created by President Johnson to
study all feasible routes for a sea-level canal. He was also Chief Negotiator for
the Panama Canal Treaty Negotiations from 1964 until 1973. He has not been
involved since then.

To the best of our knowledge, none of these persons were involved in negotia-
tions or discussions between Panama and the U.S.S.R. or Mainland China.

Question 8. Is there any "American-Soviet corporate and banking group" in
the offing or on the horizon which is planning, or is expected to take part in, any
financial, industrial, tourist or any other development in Panama, especially in
what will be the former Canal Zone, if the treaties are ratified?

Answer. Not to our knowledge.

Question 9. (a) Has Mr. Anderson ever contacted any of the Canal Zone Gov-
ernment or Panama Canal Company officials on behalf of either Mr. Shippee or
Mr. Wong or any Prudential Group interest?

(b) Detail.

Answer. Not to our knowledge.

XVII

"La Estrella de Panama" reported on Monday, August 29, 1977, on a meeting
over the weekend held by the Panama Banking Association directors and repre-
sentatives with three treaty negotiators, Architect Edwin Fabrega, Dr. Nicolas
Arditto Barletta, Minister of Planning and Economic Policy, and Chancellor
Gonzalez Revilla. The newspaper reported :

"Barletta recalled that during the 20's and 30's, the U.S. Treasury was receiv-
ing some 20 million from the Company, but as a result of certain charges made
and other problems, these monies went to a Treasury fund and have not been
used since ; from these will be drawn part of the payments to Panama under
the new treaty."

Question 1. Where would Barletta get this notion?

(a) I know of no fund in the Treasury such as that Barletta referred to. Does
such a fund exist?

(b) Did the U.S. negotiators think there was such a fund?

(o) Has not Mr. Linowitz spoken of a capital fund held by Treasury for the
Panama Canal of over $600,000,000?
Answer (a) No.

(b) No.

(c) No. Ambassador Linowitz has spoken of the sum of $642 million as actual
and imputed interest payments since 1904 by the Canal operation to the General
Fund of the Treasury. Actual payments have amounted to about $390 million.

Question 2. Did our negotiators, at least prior to the August meeting at which
Barletta made this statement, promise payments to Panama from this supposed
Treasury fund?

Answer. No.

The newspaper further reported : "One of the most interesting explanations
was made by Barletta when replying to a question on the capability of supply-
ing U.S. paper currency for circulation in the country. Minister Barletta pointed
out that the Banking Commission and the Banking Association will have to assist
in supplying U.S. paper currency for circulation, as this is presently the re-
sponsibility of the U.S. Treasury by virtue or reason of the Canal."

Question 3. Please explain in detail how Minister Barletta could be led to be-
lieve that the Panama Banking Commission and the Panama Banking Associa-
tion would have any role in supplying U.S. currency for circulation in this
country?

Answer. The Republic of Panama has used the United States dollar as the
circulating medium of exchange since 1904.

245

Question 4- Is there any intended role for that Commission and Association in
regard to U.S. currency?
Answer. No. None was ever contemplated.

The newspaper further reported: "Fabrega informed that also foreseen is
the use of the pipeline operated by the Navy with terminals at the Atlantic and
Pacific ports. At present, feasibility studies (on this) are under way, inasmuch
as Panama could use 90 percent of the pipeline's capability of moving 300,000
barrels, and the Canal Zone utilizes only 10 percent. Panama consumes 30,000
barrels per day. This would help alleviate the fuel transportation cost and
usage of the Boyd-<Roosevelt Trans-Isthmian Highway."

Question 5. Panama, of course, will ultimately get this pipeline which now
has been taken apart in connection with Canal Improvements.

(a) Is there any present plan to enlarge this pipeline to increase its capacity?

(6) Is this contemplated in the future?

(i) What would be the estimated cost?

(n) Who would pay for it if done before 2000?

See Appendix G.

XVIII

The Panama Star and Herald for December 5, 1977, carried the following news
story:

RP Envoy Sees Treaties as "Insurance Policy"

Mount Pleasant, Mich. (AP). — The Government of Gen. Omar Torrijos
faces the danger of being overthrown if the U.S. Senate rejects the new Panama
Canal Treaties, said the Panamanian Ambassador before (sic) the United Na-
tions over the weekend.

The treaties are "an insurance policy for Torrijos' government," said Jorge
Illueca.

The Ambassador was interviewed Friday at the Central Michigan University
where he was attending a seminar.

Illueca said that several U.S. conservative groups have launched "a well
organized campaign" against the treaties, which must obtain support by two-
thirds of the U.S. Senate for the documents to be ratified.

There is a tense political situation going in Panama," Illueca said. "If Torrijos'
government does not obtain ratification of the new treaties there will be all
types of political problems in my country and in Latin America.

"The new treaties represent a form of insurance policy for his government.
U.S. public opinion against the treaties is a matter of deep concern in Panama,"
the Ambassador added.

He said the negative reaction of a sector of the American people against the
treaties has taken Panamanians by surprise.

Illueca pointed out that in Panama leftists groups are pressing the govern-
ment considering that it has ceded too much to the United States since it started
negotiations on the new pacts in 1964.

Further, said the Ambassador, the Panamanian business community wants the
government to guarantee security for their investments.

On the question of Americans who consider that Panama does not have a
legitimate right to exercise complete sovereignty over the canal because the
United States constructed and maintained the interoceanic waterway, Illueca

Sa '<I thought that this had been resolved. Former Secretary of State Henry
Kissinger and many other presidential administrations have established
Panama's right to sovereignty over the canal."

Question 1. How do these remarks of Ambassador Illueca indicating only the
new treaties can save Torrijos square with the many, many statements and
assurances of State Department and other Administration spokesmen in response
to questions of Members of Congress and the public for several years, that the
Torrijos regime is stable and has great national support, and that it has brought
stability to the country of Panama? • _

Answer. The present government of Panama has been in power since 1968.
General Torrijos has been in control of this government since 1972. In a plebiscite
on October 14, 1977. the Panamanian people voted 2 to 1 in favor of the proposed
Panama Canal Treaties, which had been negotiated with the United States by
the Torrijos government.

246

Ambassador Illueca was merely stating the obvious when he said that the
Government of Panama, which is fully committed to these Treaties, could ex-
perience severe political problems domestically if the Treaties were not to come
into force.

Our concern, however, is with the continued effective and efficient operation
of the Canal. The new treaties are a much better mechanism than the 1903
arrangement to achieve this objective irrespective of what government is in
power in Panama. For this reason the Administration strongly believes the
treaties should be ratified by the United States at an early date. The future of
General Torrijos and his government are matters for him and the Panamanian
people to work out.

Question 2. Where is the real threat to the regime coming from ; who comprises
It at present ; what is its power base and potential support among the people?

Answer. The Department will not speculate on the internal political matters
referred to in the question.

Question 3. How would it actually succeed in deposing Torrijos?

Answer. There are any number of ways in which opposition leaders could
assume power in Panama. One would be through the election process ; another
would be through the resignation of General Torrijos.

Question 4- Does not the Ambassador's statement give great substance to
charges —

(a) that the great push for the treaties in certain U.S. circles is actually
to keep Torrijos in power, and

(b) that the reason is simply that there is a quid pro quo between
Torrijos and those U.S. interests pushing the turnover of the Canal Zone and
waterway ?

Answer. As stated in our reply to question one, the Administration's interest
in obtaining early implementation of these treaties is to protect our interest in
the Canal, and is completely unrelated to the present or future composition of
the Panamanian Government. The treaties have been written to serve the inter-
ests of the two countries. The quid pro quo to which the question refers does not
exist.

XIX

Additional Questions of Me. Snyder on Treaty- Related Matters

Question 1. What minimum annual revenue from Canal tolls did you have in
mind when you agreed to the financial sums pledged to Panama?
Would this have required an increase in tolls, and if so, what rate of increase?

Answer. Current projections, based on current toll rates, are : Millions

1978 $182. 3

1979 194.0

1980 197.5

1981 199.2

1985 209.9

1990 223.6

2000 264.3

During this period, operating costs (less payments to Panama) are estimated
to range between $160 and $185 million annually, exclusive of costs incident to
phasing out the Canal Zone Government.

Payments to Panama will run betw r een $50 and $60 million dollars.

A toll increase of about 30 percent is contemplated to cover these payments
to Panama and operating costs. The toll increase could be less, depending on the
amount of North Slope oil.

Question 2. Would you spell out in detail how you came up with the figure of
$10 million for services Panama will provide in view T of the fact that the Gov-
ernor indicated in his answers it will only cost Panama $4 1 /-» million to provide
those services?

Answer. Costs to the Canal Zone Government for public services, e.g., police
and fire protection, street maintenance, traffic control, and garbage collection, to
be provided by Panama under the new Treaty aire now about $18 million. Panama
agreed to $10 million on the assumption that its costs, largely because of lower
wage scales, would ho loss. The figure may prove to be either somewhat high
or low. It will be reviewed and adjusted every three years after the Treaty
enters into force on the basis of actual cost.

247

Question 3. Is it not a fact that the Commission will be providing substantially
the same services over the 2% year transition period that we will be paying the
Republic of Panama for providing — in other words a duplication of effort? Why
should we pay the $10 million a year or any part of it for that period of time?

Answer. Panama will be responsible for providing these services from the date
of entry into force of the Treaty. While it is true that the United States will
continue to perform certain of these services, such as police protection, along
with Panama during the 30-month transition period, the $10 million includes the
"start-up" costs Panama will incur in initiating new services in these areas.

The Panama Canal Company estimates current costs at $18 million. The figure
of $10 million was decided upon because Panama should be able to do the same
job at lower cost since it has a lower wage scale than that used in the Canal
Zone; and the services to be compensated for under the Treaty are limited to
Canal operating and housing areas and thus cover less than half of the area
of the present Canal Zone.

Question 4. I read Article XIII, paragraph 2, to mean that the United States
continues to own the Panama Canal until December 31, 1999. Is this correct?

Answer. The United States has never owned the Panama Canal. Under the
1903 Treaty, the United States was granted "all the rights, power and author-
ity .. . which it would possess and exercise if it were the sovereign of the terri-
tory". We were given use rights, but Panama retained residual ownership. Under
the new treaties, the United States retains the right to use all land and water
areas necessary for the operation of the Canal until the end of the century.
Therefore, we will have exclusive rights to use the Panama Canal, as we have
in the past, until 1999.

Question 5. Will the Republic of Panama pay for one-half of the joint survey
discussed in Annex A to the Agreement in the implementation of Article III?

Answer. There is no specific agreement 6n this matter. It is expected that it
would be resolved at a suitable time after ratification of the Treaties.

Question 6. (a) Does Article V of the Neutrality Treaty after the year 2000
prohibit training of foreign troops in Panama ? ( ) Temporary military exercises
by the United States in Panama? (c) Temporary military exercises by Cuba,
or other non-U. S. or non-Panama military units?

Answer. Article V of the Neutrality Treaty would not prohibit Panama from
inviting foreign troops, including those of the United States, to Panama for
temporary exercises or training. The Treaty does provide that only Panama shall
maintain military forces, defense sites and military installations within its
territory. Any exercise or training by foreign troops that we judge constitutes a
threat to the Canal would be a violation of the Treaty, and as such it would
allow the United States to take appropriate countermeasures.

7. Article XII of the Panama Canal Treaty states "both parties commit them-
selves jointly to the feasibility of a sea-level canal in the Republic of Panama".

Question (a). Is this commitment absolute?

Answer. Yes, the treaties would commit us to a joint study with Panama of
the feasibility of a sea-level canal in Panama.
Question (b). When would the study begin?

Answer. The study would begin at an agreed time after the entry into force
of the Panama Canal Treaty.

Question (0). How extensive would it be? i) will it cover the same ground
of the 1970 study commission? ii) Or start all over again? iii) Or merely
update that study?

Answer. The parameters for the study have not been determined. Presumably
the study would draw upon the one concluded in 1970 as well as more recent
information.

Question (d). How much will it cost for each of these alternatives?

Answer. We have no current cost estimates for the study. The 1970 report
contained detailed cost estimates.

Question (e). Will the study be funded equally by the United States and
Panama or in some other manner ?

Answer. The funding arrangements with Panama would be agreed upon after
ratification of the Treaties.

Question (/). Will an environmental impact statement accompany this study?
How much will this cost?

Answer. Yes. We do not know how much an environmental impact statement
in connection with the sea-level canal may cost.

248

Question 8. What was the cost of the draft environmental impact statement
issued shortly before the Treaties were signed last September? What is the
estimated cost of the final impact statement in preparation? Where were these
amounts requested and approved in the appropriation process?

Answer. The cost of the draft statement was $2,317. The cost of the final impact
statement is $5,359. These funds come from the budget for the State Depart-
ment, principally those allocated to the Bureau of International Environmental
and Scientific Affairs.

ADDITIONAL QUESTIONS

(9) Paragraph 1 of Article XIII of the new treaty provides that on termination
of the treaty the Panama Canal shall be turned over to Panama "free of liens
and debts, except as the two Parties may otherwise agree." The 1976 annual
report of the Panama Canal Company showed year end liabilities, exclusive of
the U.S. investment in the canal, of some $92 million. On its face, the cited treaty
provision appears to require the United States to pay off all such liabilities before
transfer to Panama. What is the estimated amount of such liabilities at the
termination of the treaty and how would the payments necessary to liquidate
such liabilities be financed?

(10) Minority Counsel Nicholas Nonnenmacher asked General Dolvin, repre-
senting the Department of Defense, a series of questions aimed at getting an
answer to my questions of Mr. Linowitz which he has kept trying to duck, namely,
can the United States under the Neutrality Treaty intervene to keep the Panama
Canal open even if the threat or actual aggression or hositility to the waterway
comes from Panamanians?

The last exchange was as follows :

"Mr. Nonnenmacher. Then it is fair for Members of Congress to conclude
that what you are saying is that we have a right to intervene to take the action
necessary to keep the Canal open even if Panama itself or a dissident Panama-
nian force is the aggressor?

"General Dolvin. I did not use the word 'intervene,' if you will recall. I said
we have the right under the Treaty to take whatever steps we deem necessary
to maintain the neutrality of the Canal, irrespective of its source.

"Mr. Nonnenmacher. With that clarification you just put on it, I say thank
you. I think that answers the question."

General Dolvin's answer specifies clearly that even if the source of a threat
of aggression is Panamanian, the United States can intervene to keep the Canal
open, without violating the provision that the United States cannot intervene
in Panama's internal affairs.

(a) Is the State Department's position on this U.S. right exactly as I have
stated General Dolvin's answer specifies it is — forgetting the nonsense about the
word "intervene" and assuming that "take whatever steps we deem necessary"
includes moving into the Canal area physically, with force?

( 6) Is this Panama's position?

(11) What are the proposed housing rental/purchase arrangements for Pana-
manian citizens who will continue working in the Zone? What recourse do they
have if rents are raised exorbitantly by Panama ?

(12) Please ascertain from the White House if President Carter, should the
U.S. Senate reject the treaties, will proclaim at once to Panama and the whole
world that the United States will defend its Canal and the Zone against any and
all possible violence with all the armed force that may be immediately and sub-
sequently necessary for their adequate and continued defense?

(13) Please ascertain from the White House :

(a) The number of briefings held to date for U.S. businessmen, labor
groups, professional people and the like ;

(6) if any expenses of the guests have been paid for by the Executive
Branch ;

(d) (i) the average number of people invited to each briefing; (ii) the
average number who attend them ;

(ff) if the anti-treaty position is presented to the participants by an able,
articulate spokesman for that viewpoint ;

249

(7i) all costs, other than the above, of the White House effort to have
the treaties ratified since the Carter Administration took office ;

(i) names of personnel assigned to this task for a considerable part of
their time ;

(/) details concerning any of the above as related to : (i) the U.S. Senate;
(ii) the House of Representatives ; and (in) the media.

(14) Submit for the record the answers to similar questions previously asked
by Congressman Robert Dornan regarding costs of all State Department activities
involved in promoting the treaties to the American people and the Congress. In
addition, detail any of the above as related to: (a) the Senate; (&) the House
of Representatives ; and (c) the media.

(15) Have any U.S. Government funds been transferred or funneled in any
manner to any private group or groups seeking public support of the treaties?

See Appendix G for answers to Questions 9 through 15. See also Appendix H
for further answer to Question 14.

APPENDIX F

Department of State,
Washington, D.C., March 7, 1978.

Hon. Ralph H. Metcalfe,

Chairman, Subcommittee on Panama Canal,

House of Representatives.

Dear Mr. Chairman : I refer to my letter to you of January 30, 1978, attached
to which were replies to questions posed by you and Mr. Snyder to Ambassadors
Bunker and Linowitz. At that time, we did not have replies to all questions. We
now attach those remaining replies.
Sincerely,

Douglas J. Bennet, Jr.,

Assistant Secretary
for Congressional Relations.

Enclosure : As stated.

The Declaration and Programme of Action on the Establishment of a New In-
ternational Economic Order, and the Charter of Economic Rights and Duties of
States were products of the United Nations General Assembly in 1974.

Question 1. How do they focus on the international debts of the developing
countries and the problems of repayment?

Question 4- (a) How did the United States vote on these resolutions in the
United Nations? (b) Why?

Question 5. How did Panama Vote?

Question 6. What would be the role of the Panama Canal in this New Inter-
national Economic Order of the United Nations?
[The following answers the above questions.]

Answer. The Declaration and the Program of Action on the Establishment of a
New International Economic Order, twin resolutions initiated by the "Third
World" developing countries, were adopted without vote by the Sixth Special
Session of the United Nations General Assembly on May 1, 1974. There were how-
ever, over 200 reservations expressed on the part of 20 Western industrialized
countries, including the United States. The Charter of Economic Rights and
Duties of States was adopted by the 29th Regular Session of the General Assem-
bly on December 12, 1974, by a vote of 120 in favor, 6 opposed (including the
United States) and 10 abstentions. In the paragraph-by-paragraph voting prior
to the final vote, the United States and a varying number of other countries voted
against or abstained on certain specific provisions. Panama was amongst those
voting in favor of the Charter. In neither of the above cases, however, did
Panama play a prominent role. We do not know the specific reasoning behind
its vote.

None of these three resolutions touched on the situation of the Panama Canal.
They do, however, call for "an end to all forms of foreign occupation, racial
discrimination, apartheid, colonial, neo-eoloniaJ and alien domination and
exploitation through the exercise of permanent sovereignty over natural re-
sources" (Paragraph I.L(a) of the Program of Action). Somewhat similar lan-
guage appears in the other two resolutions, as well as in a host of other United
Nations resolutions. However, the Declaration (paragraph 4(f) ) and the Charter
(Article 16) go beyond the foregoing by asserting the notion of compensation
for the exploitation and depletion of natural and other resources under the
circumstances mentioned — a point that we strongly opposed in both instances.

Attached for your information is a background paper (Item 1) on these
three resolutions, the texts of the resolutions (Item 2-4), the United States

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251

statement of reservations (Item 5) and a compendium of reservations (Item 6-7)
on the Charter of Economic Rights and Duties of States. 1

With respect to debt, the Program of Action on the Establishment of a New
International Economic Order calls for "appropriate urgent measures" to he
taken to assist developing countries in their debt problems. In this context, it
calls for "debt renegotiation on a case-by-case basis with a view to conclud-
ing agreements on debt cancellation, moratorium, rescheduling, or interest
subsidization."

International financial institutions were requested to take into account the
special needs of each developing country in reorienting their lending policies.
According to the resolution, priority attention to the granting of loans on more
favorable terms should be given to the least developed, land-locked, and island
developing countries and to the "most seriously aifected" developing nations.

The Charter for Economic Rights and Duties of States makes no specific
mention of the debt situations of developing countries. However, it calls on
'"all states" to increase their net flows of real resources to the developing
countries.

While the developing nations' position in 1974 was as noted in the Program
of Action, they have since then taken a harder stand on the debt issue. In the
Manila Declaration and Program of Action of the so-called "Group of 77" (Febru-
ary, 1976), the developing nations called for cancellation of the official debts
of the least developed, landlocked and island developing countries, and other
most seriously affected developing countries. They also called for the rescheduling
of commercial debts "of interested developing countries" over a period of twenty-
five years. This is the general thrust of the current position of the Group of 77,
although we know of several countries within the group which privately ex-
press disagreement with this position.

Question 2. Is the international economic order discussed in the report of the
Linowitz Commission the same as the New International Economic Order envi-
sioned by the United Nations? If now, how do the two relate?

Question 3. Is the new world order which is the concern of the Trilateral Com-
mission the same as the United Nations goal? If not, how do the two relate?

Answer. The above questions might best be directed to the Trilateral and
Linowitz Commissions.

Hobart Rowen authored an article in the December 15, 1977, Washington Post
titled, "Central Bank Role Is Urged for IMF".

Central Bank Role Is Urged for IMF

(By Hobart Rowen)

The International Monetary Fund should "increasingly evolve" into an in-
ternational central bank, enabling it to act as a lender of "last resort" in crisis
situations, the Trilateral Commission recommended yesterday.

In a report on '•renovating" current international relationships, the commission
said that the post World War II "international order ... is no longer adequate
to cope with new global problems." ; t

It said that "wide participation" by many countries would impede the decision-
making process, and that the key role should therefore be left to "smaller groups
of countries (who) collaborate together."

The Trilateral Commission was formed m 1973 by Chase Manhattan Bank
chairman David Rockefeller and Zbigniew Brzezinski, now head of the U.S.
National Security council. .

The 200 commission members are drawn from the business, labor, and academic
elite of North America, Europe, and Japan. The commission has been attacked
from the left as a vehicle for domination of the world economy by the large multi-
national companies. Right-wingers have attacked it as a radical front.

The report on renovating the international system was written by Under-
Secretary of State for Monetary Affairs Richard N. Cooper, formerly a Yale
University professor; Karl Kaiser, professor of political science at Cologne Uni-
versity and Masataka Kosaka, professor of law at Kyoto University.

i Subcommitee note : This material has been placed in the files of the subcommittee.

On non-monetary issues, the report urged 1

Trilateral support of the U.N. environmental program. It acknowledged rhnt
most of the world's pollution is in the industrialized countries S r^ufre
them to initiate corrective action. ' " mcn requires

2 aU count . ries - developing as well as developed, to nuclear technolozv
provided they accept international safeguards and controls lecnnoiogy,
A balance of the goal of human rights "with other important goals of world
F^on ,nd e nH POr l' Said ' "S°me trilateral conceptions of detente witn the Soviet
human r^hte." COmimimSt States tend t0 conflict ? Policy of promoting

The study acknowledged that the current order has been "severely criticized"
by Third World countries, who demand a "more equitable sharing of benefits
from the world economy." The report argued for substantial^ increasing the
flow of resources "addressed to alleviating world poverty.*'

Specifically, it endorsed expansion of loans to stabilize export earnings of de-
veloping countries through the International Monetarv Fund, or by expansion
of the Lome' Agreement with the European community.

It added that commodity buffer stocks for the purpose of price stabilization
should be considered, especially for major food grains and non-ferrous metals.

The main thrust of the 68-page document is that an interdependent world
must be better managed, because there are inherent conflicts between interna-
tional cooperation and national interests.

The authors suggests that instead of "playing it by ear." the trilateral coun-
tries should evolve a strategy for management of the international order that
will provide "sense of direcion" for the next couple of decades.

As essential goals, they list "keeping the peace, managing the world economy,
contributing to economic development and the satisfaction of basic human. need's,
and promoting human rights."

The report contends that the trilateral nations "must assume leadership of
the system," which will require informal but close collaboration in economic poliev
making, especially among the U.S., West Germany, and Japan.

It recommends guidelines to keep the various issues separate ("piecemeal func-
tionalism"), accompanied by an effort to decentralize decision making.

The proposal for making the IMF into a central bank was set out in detail
to illustrate how the proposed guidelines could be applied to international mone-
tary problems.

The core of a future international monetary system. Cooper-Kaiser-Kosaka say.
must be "agreed and operated" by the 5 to 10 biggest countries. The other coun-
tries could then adopt "a wide variety of arrangements . . . around that central
core."

The IMF would provide only a forum for "discussion of ongoing developments."
while proposals for formal changes should "originate" with the big powers.

The need for transforming the IMF into a central bank was said to derive
from good management of the flexible exchange rate system, and in order to
make Special Drawing Rights (SDRs) the source of most additional monetary
reserves. "If SDRs become the principal reserve asset," the report says, "the
IMF will play a central role as creator of international reserves."

Question 1. Does the State Department and the Administration of Trilateralist
President Jimmy Carter endorse the conclusion in this report written by Tri-
lateralist Under Secretary of State for Monetary Affairs, Richard N. Cooper —

(a) that the present "international order ... is no longer adequate to cope
with new global problems" ?

(b) that the International Monetary Fund should be converted into an
international central bank?

Answer. The views and proposals of organizations like the Trilateral Com-
mission are of interest to the State Department. However, the State Depart-
ment has not taken a position on the Trilateral Commission's proposals.

Question 2. Is the Trilateral Commission not presenting itself in this report
as a vehicle for control of the world economy by calling for better management of
an interdependent world by the Trilateralist nations?

Answer. This question might best be asked of the Trilateral Commission
directly. Only the Commission can comment on how it may be presenting itself.

Question S. How would, or could, the International Monetary Fund be made
into a central bank for the world banking system?

Question 4- Detail the impact on the U.S. taxpayers of such a development.

253

[The following is the answer to the above questions :]

Answer. This is a matter that might best be discussed by the Trilateral Com-
mission and the IMF. The State Department is not actively considering the
proposal.

Question 5. Briefly describe the nature of SDKs and their potential on the
United States citizens' tax dollars.

Answer. Special Drawing Rights (SDR) is a new form of reserve asset created
by an international agreement among members of the International Monetary
Fund. Often called "paper gold", SDRs held by an IMF member can be trans-
ferred to another member in exchauge for foreign currencies needed to combat
a payments deficit, or in exchange for its own currency. They can also be used to
repay past borrowings from the IMF. They are not used for commercial transac-
tions. Countries which have obtained currencies in exchange for their SDRs pay
interest to the countries, or the IMF, which have received the SDRs, but all
countries are required to limit their average borrowings over a period of years.
The creation of SDRs, unlike gold, uses up none of the world's scarce resources.
Unlike the accumulation of reserve currencies, it requires no disequilibrium in
international payments between reserve and nonreserve countries.

There is no negative impact on the United States taxpayer under the SDR
system.

Question 6. Since the inception of each, what have been the total annual contri-
butions from United States citizens' tax dollars by the government (including
next fiscal year's budget request) to :

(a) the International Monetary Fund

(b) the World Bank

(d) the Asian Development Bank, and

(e) every other governmental and quasi-governmental international bank?
Answer. Since the inception of each, the following amounts (in millions) have

either been committed on a "callable" basis or actually paid to the international
development banks, monetary institutions and special development funds indi-
cated below :

Commitments

Paid in

Total

International Monetary Fund (IMF)

$7, 772

World Bank (IBRD)

$7, 370

819

8, 189

International Development Association (IDA)...

5,258

5, 258

International Finance Corporation.

73
446

Inter-American Development Bank.

2, 784

3,230

IDB Fund for Special Operations

3, 315

3,315

Miscellaneous (IDB) funds

525

Asian Development Bank

561

210

771

200

2C0

Total

10,715

18, 643

29, 358

Question 7. (a) Discuss the reasoning behind the recommendation in the 1974
Report of Sol Linowitz's Commission on United States-Latin American Rela-
tions for the elimination of the effective United States veto over many loans
by the Inter-American Development Bank, (b) Has the Carter Administration
followed this recommendation?

Answer, (a) This question might best be directed to the Linowitz Commission
itself.

(b) The United States continues to maintain its veto on loans originating
from the Inter-American Development Bank's Fund for Special Operation (FSO) .
There are no plans at present to change this arrangement.

APPENDIX G

Department of State,

Washington, D.C., March 23, J978.

Hon. Ralph S. Metcalfe,

chairman, Subcommittee on Panama Canal,

House of Representatives.

Dear Mr. Chairman : I refer to my letter to you of January 30. 1978, attached
to which were replies to questions posed by you and Mr. Snyder to Ambassadors
Bunker and Linowitz. At that time, we did not have replies to all questions. We
now attach those remaining replies.
Sincerely,

Douglas J. Rennet, Jr.,

Assistant Secretary
for Congressional Relations.

Enclosure : As stated.

A memorandum 1 from the United States Embassy in Panama to the State
Department dated October 26. 1976, was inserted in the Congressional Record by
Senator Helms of North Carolina on February 22, 1977. Under "comments",
the following two paragraphs appeared in that memorandum.

(A) Panama's high wages, subsidies, and consumer imports — together with
a moderate tax burden and little public saving — permit a standard of living
wbich no longer appears to be supportable by Panama's inefficient domestic
production.

(B) Increased external financial flows per se, regardless of concessional! ty.
permit Panama to defer grappling with the core problem of low productivity
until a later date when the problem will probably have worsened, unless such
financing bears specifically on some aspect of costs. Indeed, much of the capital
inflow of the past three years has aggravated Panama's economic malaise by
exacerbating its debt service burden without enhancing overall productivity.
Moreover, total inflows greatly exceeded the current account deficit of Panama's
balance of payments, resulting in large negative "errors and omissions" (around
$100 million annually) most of which probably represented outflows of domes-
tically-owned capital.

Question 1. According to the memorandum, the foreign loans made to Panama
have increased the debt service burden without increasing productivity and
therefore Panama's ability to repay the loans. Does this still hold true today V

Answer. Panama's economy is experiencing a recession. It was brought
about partly from the impact of the world-wide recession and partly from in-
creased oil import costs, as well as from domestic causes. After a decade of
growth rates averaging better than 72 per year, the rate fell to 3.5% in 1071
and to 1% in 1 1)77. Indications are that for 107S there may be no growth at
all. largely due to the strict austerity measures imposed by the government to
rectify the country's balance of payments situation.

Panama, along with many other LDC's. has had to borrow heavily, mostly
from commercial sources abroad, to counter the effects of the recession. As a
consequence, it has had to devote increasing amounts of its revenues to repay-
ing these debts.

In an effort to decrease its reliance on external debt financing, the Govern-
ment, has taken steps to improve its fiscal operations. For example, current
revenues in 1977 increased to .$343 million from $281 million in 1076 largely
through a 5 percent sales tax levied on March 1, 1077 on items other than

> Sop Appendix I, B (Exhibit 4).

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255

food, medicines and fuel. In addition, business income tax collections benefitted
from improved record-keeping required by this tax law. Also, some income
was generated by slightly higher petroleum taxes. In a further effort at fiscal
austerity, Panama held its 1977 current expenditures to an 11% increase over
1976 ($343 million vs. $310 million) which permitted it to achieve a balanced
budget for operating expenses. There remains a need to finance capital improve-
ments projects from external sources.

Productivity is a continuing problem in Panama. Accordingly the government
lias undertaken labor law reforms and is attempting to dampen wage demands.

In short, there is a cause for concern, but not alarm, about the present state of
Panama's economy and what the future will bring. It is worthwhile noting, for
instance, that Panama has never defaulted on a loan and that its credit rating
is still good.

One of the reasons why the economy has taken a downturn is that the uncer-
tainty engendered by the Canal treaty negotiation and ratification processes has
held back private investment. If the treaties are ratified, we anticipate that in-
vestor confidence will be restored and subsequent investments will improve
the economic picture, as more investments should bring about heightened
productivity.

Question 2. If it does, why would increased loans to Panama — including the
economic package agreed upon in connection with the new treaties — have any
different effect?

Answer. The economic and military package agreed upon outside the Treaties
does not provide for any loans directly to the Government, or for purposes of con-
sumption rather than investments. The $345 million package includes : $200 mil-
lion in Export-Import loans (to businesses), loan guarantees and insurance : $75
million in Housing Investment Guarantees : $20 million in Overseas Private In-
vestment Corporation guarantees ; and $50 million in foreign military sales cred-
its over ten years. The United States pledged its "best efforts" with respect to
this package. Its implementation will require an exchange of diplomatic notes
and compliance with applicable legal requirements.

By encouraging investment in Panama, the guarantees will assist Panama to
improve its economy and to enhance its economic development.

XVII

La Estrclhi rfc Panama reported on Monday, August 29. 1977, on a meeting over
the weekend held by the Panama Banking Association directors and represent-
atives with three treaty negotiators, Architect Edwin Fabrega, Dr. Nicolas
Arditto Barletta, Minister of Planning and Economic Policy, and Chancellor
Gonzalez. Re-villa.

* * * * * * *

The newspaper further reported :

•Fabrega informed that also foreseen is the use of the pipeline operated by
the Navy with terminals at the Atlantic and Pacific ports. At present, feasibility
studies (on this) are under way, inasmuch as Panama could use 90 per cent
of the pipeline's capability of moving 300,000 barrels, and the Canal Zone utilizes
only 10 percent. Panama consumes 30,000 barrels per day. This would help
alleviate the fuel transportation cost and usage of the Boyd-Roosevelt Trans-
Isthmian Highway.''

Question J. Panama of course, will ultimately get this pipeline which now has
been taken apart in connection with Canal improvements.

(a) Is there any present plan to enlarge this pipeline to increase its capacity?

(6) Is this contemplated in the future?

Answer. The Treaty provides that the pipelines will continue to be under
the supervision of the United States Navy until December 31, 1999. However, the
United States will consider authorizing use of the pipelines by Panama under
terms and conditions to be mutually agreed upon.

The Navy uses the pipelines primarily for refueling of ships. The Depart-
ment of Transportation did a study in 1976 on the feasibility of shipping Alaskan
oil by pipeline. It was determined that the facilities were not adequate for such
large scale use.

At this time, there are no plans for enlargement of the pipeline nor do we
anticipate such construction will take place in the future.

256

No estimates have been made on the cost of enlargement.

However, if such construction is undertaken prior to the vear 2000 we would
assume that the United States provide the funding in conjunction with an
agreement with Panama for continuing use rights in the pipeline.

XIX. Additional Questions of Mr. Snyder

Question 9. Paragraph 1 of Article XIII of the new treaty provides that on
termination of the treaty the Panama Canal shall be turned over to Panama
"free of liens and debts, except as the two Parties may otherwise agree." The
1976 annual report of the Panama Canal Company showed vear end liabilities,
exclusive of the United States investment in the canal, of some $92 million. On
its face, the cited treaty provision appears to require the United States to pay
off all such liabilities before transfer to Panama. What is the estimated amount
of such liabilities at the termination of the treaty and how would the pay men rs
necessary to liquidate such liabilities be financed?

Answer. The Treaty specifies that the Canal shall be turned over "free of
liens and debts." This phrase refers only to obligations which constitute liens on
the Canal itself, or appurtenant facilities and not to normal unsecured liabili-
ties. The latter obligations, however, would be discharged in the process of
liquidation of the Commission. "Free of liens and debts" is also aualified by
the phrase except as the Parties may otherwise agree. We would not expect
Panama to agree to an automatic acceptance of debts contracted by another party,
including the Commission, which were outside her control. However, should
the commission undertake expensive new long-term programs during the latter
years of the treaty period, we would anticipate the Commission would enter
into an agreement with Panama providing for an equitable assumption of any
remaining liability in the year 2000.

The Canal is expected to be self sustaining in its operations, as in the past,
between now and 2000. Therefore, subject to the contingency noted above, we do
not anticipate there will be any residual obligations in the year 2000.

Question 10. Minority Counsel Nicholas Nonnenmacher asked General Dolvin.
representing the Department of Defense, a series of questions aimed at getting
an answer to my questions of Mr. Linowitz which he has kept trying to duck,
namely, can the United States under the Neutrality Treaty intervene to keep
the Panama Canal open even if the threat or actual aggression or hostility to
the waterway comes from Panamanians?

The last exchange was as follows :

Mr. Nonnenmacher. "Then it is fair for Members of Congres to conclude that
what you are saying is that we have a right to intervene to take the action
necessary to keep the Canal open even if Panama itself or a dissident Pana-
manian force is the aggressor?"

General Dolvin. "I did not use the word 'intervene.' if you will recall. I said
we have the right under the Treaty to take whatever steps we deem necessary
to maintain the neutrality of the Canal, irrespective of its source."

Mr. Nonnenmacher. "With that clarification you just put on it, I say thank
you. I think that answers the question."

General Dolvin's answer specifies clearly that even if the source of a threat of
aggression is Panamanian, the United States can intervene to keep the Canal
open, without violating the provision that the United States cannot intervene in
Panama's internal affairs.

(a) Is the State Department's position on this United States right exactly as I
have stated General Dolvin's answer specifies it is— forgetting the nonsense about
the word "intervene" and assuming that "take whatever steps we deem neces-
sary" includes moving into the Canal area physically, with force?

(b) Is this Panama's position?

Answer. Yes. The Department of State has consistently maintained that under
the Neutrality Treaty the United States has the responsibility to assure, through
whatever action may be necessary, including the use of force, that the Canal
remains open, even if it is threatened with violence originating in Panama.

The Government of Panama has concurred in the language of the October 14
Statement of Understanding on this point, and that statement is contained in
the "Leadership" amendment to the Neutrality Treaty.

Question 11. What are the proposed housing rental/purchase arrangements for
Panamanian citizens who will continue working in the Zone? What recourse do
they have if rents are raised exorbitantly by Panama ?

257

Answer. Article VII, Paragraph 4 of the Agreement in Implementation of Ar-
ticle III of the Treaty provides a special regime for the housing currently occu-
pied by non-United States citizen Canal employees. The regime allows such per-
sons to lease or, if Panama decides to sell, to buy such housing at reasonable cost
with long-term financing. If it is not feasible for such persons to continue occu-
pancy of the same housing unit, they will have the opportunity to obtain other
adequate housing within the same areas, at reasonable cost, on a preferential or
priority basis.

Question 12. Please ascertain from the White House if President Carter, should
the United States Senate reject the treaties, will proclaim at once to Panama
and the whole world that the United States will defend its Canal and the Zone
against any and all possible violence with all the armed force that may be im-
mediately and subsequently necessary for their adequate and continued defense?

Answer. The President has repeatedly stated that the United States will de-
fend the Canal if it is attacked. On October 27, 1977, President Carter stated
"we could defend the Panama Canal and if it is attacked by any means I will
defend it." More recently the President has stated that he will take any steps
necessary to defend the Canal.

Question IS. Please ascertain from the White House :

(a) the number of briefings held to date for United States businessmen, labor
groups, professional people and the like ;

(b) if any expenses of the guests have been paid for by the Executive Branch ;

(d) (i) the average number of people invited to each briefing; (ii) the aver-
age number who attend them ;

(e) how many more of such briefings are planned ;

( f ) the source of the funds for the briefings ;

(g) if the anti-treaty position is presented to the participants by an able,
articulate spokesman for that viewpoint ;

(h) all costs, other than the above, of the White House effort to have the
treaties ratified since the Carter Administration took office ;

(i) names of personnel assigned to this task for a considerable part of their
time;

( j ) details concerning any of the above as related to —

(i) the U.S. Senate

(ii) the House of Representatives

(iii) the media

Answer. The information we have is not broken down in the manner in which
you stated your questions. However, we have ascertained from the White House
that at least 30 major briefings have been held in which the President himself
has participated. The number of guests varied from 100 to as few as 20. There
are no plans for further briefings at this time.

In addition the White House held a briefing for Senate staffers and twice a
month, there were briefings for non- Washington press on Panama as part of the
overall White House briefing.

An opponent of the Treaties is not included in these forums.

The only costs incurred are the salaries of the presidential assistants involved,
refreshments if any, and the cost of printing a pamphlet on the Treaties. The
Executive Branch does not pay the expenses of guests.

Question lk- Submit for the record the answers to similar questions previously
asked by Congressman Robert Dornan regarding costs of all State Department
activities involved in promoting the Treaties to the American people and the
Congress. In addition, detail any of the above as related to :

(a) the Senate,

(b) the House of Representatives, and

Answer. From October 1, 1976 continuing until February 17, 1978, State Depart-
ment officers made 160 separate trips outside of the Washington, D.C. area to
speak on the Panama Canal Treaties. These trips involved the use of Public
Affairs funds for travel and related expenses, a large portion of these expenses
are reimbursed by the organizations. Although a composite number is not avail-
able, we estimate that approximately 432 separate engagements took place.

In addition there have been 110 discussions in the Washington, D.C. area, 86
engagements by Diplomats-in-Residence and 113 direct-line telephone discussions
whose funding did not come through the Bureau of Public Affairs.

258

The Department of State has an Office of Congressional Affairs which main-
tains liaison with the Senate and the House of Representatives and has briefed
Congressmen and their staff aides on a regular basis and has responded to
numerous written requests for information in accordance with its normal

practice.

The State Department has held one general briefing for the press on the
Treaties and briefings on the economic and legal provisions. Individual briefings
are held on an almost daily basis.

Subcommittee Note. — See Appendix H for further information supplied to
Congressman Dornan by the Department of State.

Question 15. Have any United States government funds been transferred or
tunneled in any manner to any private group or groups seeking public support
of the treaties?

Answer. No. The Department has not transferred money to any groups seeking
public support of the treaties.

APPENDIX H

Questions of Subcommittee Minority Member, Mr. Dornan, Referenced in
Question 14, Appendix E, Item XIX, Additional Questions of Mr. Snyder

December 6, 1977.

Mr. Cyrus R. Vance,
Secretary of State,
Washington, B.C.

Dear Mr. Secretary : I have recently read accounts of State Department em-
ployees being sent around the country to '"educate and inform the public"' on the
Panama Canal Treaties.

I am concerned that the State Department is using its personnel for political
purposes and for lobbying the Congress on legislation now before it. I have a few
questions in regard to this which I hope will allay my fears about the activities of
State Department employees.

How many employees have been employed in ''educating and informing" ?

Who are they ? What are their positions V

Where did they speak? When? Before which group or organization?
Who requested the meeting? Was it State or the group?

Who was the person who contacted State if the Department was the guest?
Who arranged the meetings if the approach was made by State? Under whose
authority?

Was there an opposing speaker at the meetings? If so, what is the name, ad-
dress and the group represented, if any. If the opposing speaker did not represent
a group, what was his/her background?

What cost was involved in sending a State Department speaker into the field to
' educate and inform"?

Has the State Department invited persons to come to Washington to be
'•briefed" on the Treaties? If so, who?

Who has or would pay for such trips to Washington ?

I look forward to hearing from you before the House adjourns for Christmas.
Sincerely,

Robert K. Dornan,
Member of Congress.

Department of State,
Washington, B.C., March 20, 1978.

Hon. Robert Dornan,
House of Representatives.

Dear Mr. Dornan : The Secretary has asked me to reply to your letter of Jan-
uary 23 requesting information on public discussions of the Panama Oanal Trea-
ties by State Department officers.

Apparently you did not receive my reply of December 23 answering your orig-
inal request dated December 6. Enclosed is a copy of the December 23 letter.

In the meantime, the Bureau of Public Affairs, which has overall Department
responsibility for scheduling public engagements, has prepared a printout giving
all of the information on our public discussions of the treaties which has been
computerized. The printout gives the names of the officers who hare discussed
the treaties in public, where they spoke, to whom, the date of the appearance,
and how the trip was funded. In addition to the printout, I am including infor-
mation which has not been computerized. We do not have, however, information
on private citizens who sometimes appeared before groups which also hosted
State Department speakers.

The printout shows that between January 11. 1977 and February 28, 1978 State
Department officers made 160 trips outside Washington, D.C. to discuss the
treaties. You will also note that each officer usually had several engagements
per trip. Although they are not totaled, a count shows that approximately -132

(259)

260

separate engagements are noted on the printout. In addition to the engagements
shown on the printout, State Department officers participated in approximately
110 face-to-face discussions in Washington, D.C., and in 113 direct-line tele-
phone discussions which were held from the Department. Also, Department of-
ficers serving as Diplomats in Residence on college campuses gave 86 talks on
the treaties. As you probably know, Secretary Vance also spoke on the treaties
in Charleston, West Virginia ; Louisville, Kentucky ; and New Orleans, Louisiana.

The cost for the trips listed on the printout was $39,426.97. Of this amount,
sponsoring organizations paid $21,217.53. The Bureau of Public Affairs con-
tributed the remaining $1S,209.26. We calculate that speeches on the treaties by
the Secretary and the one other by Ambassador Elsworth Bunker which was not
in the printout, cost the Department of State an additional $8,375.95.
Sincerely,

Douglas J. Bexxet, Jr..

Assistant Secretary
for Congressional Relations.

Department of State,
Washington, D.C., December 23, 1977.

Hon. Robert K. Dornan,
House of Representatives.

Dear Mr. Dorxax : Thank you for your letter of December 6 in which you
asked a series of questions relating to the Department of State's range of
activties regarding the Panama Canal Treaties.

I would like to set the record straight immediately by saying that any public
activity in which we are involved regarding the Panama Treaties or other foreign
policy issues of interest to the public is for the specific purpose of better in-
forming, educating and responding to our citizens on issues of national foreign
policy interest. This has always been the concern and responsibility of the
Department of State. In regard to speakers on Panama, other than the Secretary
and Department principals who have of course discussed Panama at various
times in the course of relevant speeches, news conferences or briefing sessions,
thirty-five officers have at one time or another over the past four months spoken
in a public context on Panama. These officers are scattered throughout the De-
partment of State personnel structure, from mid-level economic and legal
officers to the Co- Negotiators of the Treaties.

Because of the tremendous public interest on the Panama issue, requests for
speaking engagements have been received from all over the country. There have
been some instances in which the State Department took the initiative in contact-
ing interested citizen groups. The Office of Public Programs of the Department's
Bureau of Public Affairs, handles all arrangements for these trips and maintains
contact with the sponsoring group. Host groups have ranged from World Affairs
Councils to the American Legion to Rotary Clubs to the National Conference of
State Legislative Leaders to Town Meeting forums. In many cases an opposing
speaker is part of the program format, in other cases, not. Our policy is to
communicate in all types of forums and to be as responsive as we can on this
or any other issue of foreign policy which is a matter of national public concern.
In most instances, sponsoring organizations reimburse the Department for the
officer's transportation, food and lodging. If those expenses cannot be covered by
the organization, they are covered by the Department. At the prespnt. the ap-
proximate net non-reimbursable figure over the past four months which reflects
money expended by the Department for personnel addressing themselves to a
riioussion of the Panama Canal Treaties is $8,805.

The Department of State also conducts briefings, conferences and seminars for
a wide variety of public leadership and grass roots organizations on issues of in-
ternational interest. These groups range, for example, from World Affairs Coun-
cils to Hispanic media groups to business leaders. In response to your question,
however, as to whether the State Department has invited persons to come to
Washington for a specific briefing on the Treaties, the answer is no. As part of
the Department's briefing and conference program, however. dpsi«med to inform
the public on current issues and to increase the dialogue with interested indi-
viduals and groups. Panama has been discussed often.

If yon need additional information, please let me know.
Sincerely,

Douglas J. Bennet. Jr..

Assistant Strcrrtarv fr-r
Congressional Relations.

Enclosure: Correspondence relurned.

261

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APPENDIX I

Speeches ok U.S. Senators Containing Memoranda Referenc ed Either in Mr.
Snyder's Questions or in Answers to Them

A. Appointment of Ambassador Sol Linowttz
[From the Congressional Record. March 10, 1977.]

Mr. Spark van. Mr. President, I want to bring to the attention of my col-
leagues a couple of items of information bearing on the appointment of Am-
bassador Sol Linowitz to be a conegotiator in the Panama Canal talks.

In this regard, I wrote to Secretary of State \'ance shortly after he discussed
this appointment with me. Our exchange of correspondence on this issue makes
it clear that Ambassador Linowitz's appointment will not extend beyond 6
months; and that this appointment is limited to the role of conegotiator and
is not intended in any way to supplant Ambassador Bunker's role.

I ask unanimous consent that this correspondence be printed in the Record
at the close of my remarks, along with that provision of the Foreign Service
Act of 1946, as amended, which provides for short-term Presidential appoint-
ments with the personal rank of Ambassador.

The Presiding Officer. Without objection, it is so ordered.

(See exhibit 1.)

Mr. Sparkman. In addition to the above. Mr. President. I want to bring to
my colleagues' attention a letter dated March 7, which I received from the
Department of State and which bears on certain conflict-of-interest allegations
with respect to Ambassador Linowitz's current position. The conclusion of this
letter reads as follows :

"As a result of the Department's review and the foregoing undertakings by
Mr. Linowitz. the Acting Legal Adviser gave a written opinion which con-
cluded that the requirements of the applicable statutes and Department of
State regulations on conflicts of interest had been satisfied."

Mr. President, I believe this letter and enclosures will be of interest to my
colleagues and I ask unanimous consent that it. too. be printed in the Record
following the above-mentioned material.

The Presiding Officer. Without objection, it is so ordered.

(See exhibit 2.)

Exhibit 1

Janfary 31. 1077.

Hon. Cyrus R. Vance,

Secretary of State, Department of State,

Washington, B.C.

Dear Mr. Secretary: I am writing yon witli respect to <>ur recent conversa-
tion concerning the api>ointment of Mr. Sol Linowitz.

It is my understanding that this appointment will be made for a i>eriod not to
exceed six months and for the purpose of putting Mr. Linowitz in the position
of U.S. co-negotiator on the Panama ('anal talks. As I indicated to you, I have
no objection to this Arrangement for a not-to-exceed-six-month period, so Ions:
as the negotiations from the U.S. side are bended up jointly by Ambassador
Bunker and Mr. Linowitz. I am sure you will agree with me that Ambassador
P.unker has performed admirably throughout his tenure as chief negotiator and
I am confident, as I am sure you are. that he will continue to perform in this
fashion until these negotiations are brought to a successful conclusion.

I know that you will apprise me of any misunderstanding on my part about
Mr. Linowitz's role. Similarly. I would appreciate being informed beforehand
of any change in the co-negotiating procedure.
Sincerely.

John Sparkman,

Chairman.

(270)

271

The Secretary of State,
Washington, February 10, 1977.

Hon. John Sparkman,

Chairman, Committee on Foreign Relations,

U.S. Senate.

Dear Mr. Chairman : Thank you for your letter of January 31 concerning the
appointment of Mr. Sol Linowitz. This is to confirm that your understanding
that Mr. Linowitz is to be appointed as Co-Negotiator with Ambassador Bunker
on the Panama Canal Talks, with the personal rank of Ambassador for a period
not to exceed six months, is entirely correct. There has been absolutely no
change in the co-negotiating procedure.
Sincerely,

Cyrus Vance.

Excerpt From Foreign Service Act of 1946, as Amended
appointments

Sec. 501. (a) The President shall, by and with the advice and consent of the
Senate, appoint ambassadors and ministers, including career ambassadors and
career ministers.

(b) The President may, in his discretion, assign any Foreign Service officer to
serve as minister resident, charge d'affaires, commissioner, or diplomatic agent
for such period as the public interest may require.

(c) On and after the date of enactment of the Foreign Relations Authoriza-
tion Act of 1972, no person shall be designated as ambassador or minister, or be
designated to serve in any position with the title of ambassador or minister,
unless that person is appointed as an ambassador or minister in accordance
with subsection (a) of this section or clause 3, section 2, of article II of the
Constitution, relating to recess appointments, except that the personal rank of
ambassador or minister may be conferred by the President in connection with
special missions for the President of an essentially limited and temporary
nature of not exceeding six months.

Exhibit 2

Department of State,
Washington, B.C., March 7, 1977.

Hon. John J. Sparkman,

Chairman, Senate Foreign Relations Committee,
U.S. Senate.

Dear Mr. Chairman : In light of certain statements by a member of the Senate
and a member of the House with respect to Ambassador Sol M. Linowitz, I would
like to make the following observations which may assist you and the members
of your Committee in responding to questions or inquiries.

Ambassador Linowitz was appointed, last February 10, as Co-Negotiator for the
Panama Canal Treaty, in the capacity of Special Government Employee with a
six-month appointment to the personal rank of Ambassador, in accordance with
applicable Federal and Department of State regulations and established proce-
dures. He is serving in this capacity without compensation.

The Department of State conflict-of-interest regulations provide that no De-
partment employee may "have a direct or indirect financial interest that conflicts
substantially, or appears to conflict substantially, with his Government duties
and responsibilities" (22 CFR 10.735-205). Pursuant to these regulations, Mr.
Linowitz prior to his appointment submitted to the Department a full statement
of his memberships on boards of directors as well as his financial holdings. These
were reviewed thoroughly by the Office of the Legal Adviser.

In the cases of two companies, Pan American World Airways, Inc., and Marine
Midland Banks, Inc., Mr. Linowitz furnished information from them outlining
their activities and financial interests in Panama. Appended are the statements
from the Presidents of these two companies. Based on the Department's review,
Mr. Linowitz agreed that in the unlikely event any aviation issues arise during
the course of the treaty negotiations which might be of possible interest to Pan
American, he would excuse himself from participation in the negotiation of any

25-605—78 19

272

such issues. Continued membership on the board of Marine Midland Bank did not
violate the applicable regulations because of the relatively low level of financial
transactions of the bank with and in Panama.

Mr. Linovvitz also agreed that his law firm "is not now and will not while I am
serving in this capacity, represent any client on any matter related to the Panama
Canal Treaty negotiation or the Canal Zone."

In the case of Mr. Linowitz' financial interests, two companies in which he had
small shareholdings — AT&T and Texaco — did have business which the Legal
Adviser believed might be affected by the outcome of the Canal Treaty negotia-
tions. Consequently, Mr. Linowitz agreed to sell his shares in those companies,
and has done so.

As a result of the Department's review and the foregoing undertakings by Mr.
Linowitz, the Acting Legal Adviser gave a written opinion which concluded that
the requirements of the applicable statutes and Department of State regulations
on conflicts of interest had been satisfied.
Sincerely yours,

Kempton B. Jenkins,
Acting Assistant Secretary
for Congressional Relations.

Note

Note to F. C. Wiser.

Re Pan Am Activities in Panama — Intertrade.

Intertrade is a small distribution company, wholly-owned by Pan Am. Estab-
lished in 1972, its principal functions are :

Provides bonded warehouse services, including customs clearance services and
some inventory management services. It now has facilities at three locations :
Colon Free Zone, Panama Airport, and Panama City.

Provides extensive local trucking services primarily between the Airport and
its bonded warehouses.

Acts as Pan Am's General Sales Agent in Colon and certain other points in
Panama.

Provides sea j air transhipment services ; arranges for the receipt of goods by
sea from Japan and other points in the Orient and for onward shipment, usually
by air to points in Central and South America.

As indicated in the attached 1977 projections, 1977 Intertrade sales are ex-
pected to increase from the 1976 level of $703,000 to $946,000 and net profit before
tax from $125,000 to $142,000. Pan Am originally invested $10,000 to establish
the company. The underlying book value of our equity is now $170,000.

Intertrade is under the direction of Art Sumner, who has been with Pan Am 35
years, most of them as a resident of Panama. The other 58 employees are citizens
of Panama.

Also attached is a recent brochure on Intertrade which may be of interest.
I understand you are being provided with information on SDISA through Art
Best.

Charles W. Trippe.

January 7, 1977.

Note to F. C. Wiser.

Subject Pan American Operations, Panama.

Sales office location : Edificio Hatillo, Avenida Justo Arosemena, Panama City,
Republic of Panama.

Hours/Telephone : Mon.-Fri. 8 :00 a.m.-12 Noon/1 :00 p.m.-5 :30, Sat.-Sun. closed.
Telephone : 25-5425.

Airport/location: Tocumen International Airport, located approximately 1&

miles from Panama City. The airport oi>eration at the present time, is 100%
handled by Pan American personnel, with the exception of inbound cargo, which
is handled by Intertrade.

Director: Reeder Chaney. Office Phone: 25-6510. Home Phone. 26-0659.

Mr. Chaney is the only international employee in Panama, and is responsible
for not only Panama, but offline west coast/South American General Sales
Agents in Colombia, Ecuador, Bolivia and Peru.

Present Employment: 151 people.

Passenger Operations : 75 movements/month.

Passenger Sales/1976: *io.000,00O.

Cargo Sales/1976: $4,000,000.

273

General Information : New Airport and terminal facilities will be in operation
by fall of 1977.
'Separate Corporations in Panama :

(a) Intertrade (separate report being prepared by C. Trippe) .

Intertrade is wholly owned Panamanian cargo company and is the general
Sales Agent for Pan American on the the Atlantic side of the canal for cargo and
passengers. They are also general Sales Agents for Pan Am for the balance of
the Republic of Panama, other than the Oity of Panama.

An agreement has recently been signed with Intertrade to do all of our in-
bound cargo handling at Tocumen Airport.

(b) SDISA (Servicios y Diversiones Internacionales, S.A.).

A Pan Am wholly owned Panamanian Catering operation located at Tocumen
Airport servicing all carriers.

A. S. Best.

Pan American Operation, Panama

Prior to World War II, Pan American operated from both the Atlantic and
Pacific side of the Canal Zone in Panama. When World War II started, the
operation at France Field, located on the Atlantic side, was consolidated with
the operation at Albrook Field on the Pacific side.

Pan American's operation continued at Albrook Field until the Republic
of Panama developed an International Airport at Tocumen in October, 1949.

At one time, our operation in Panama was considerably more active than at
present. Due to retrenchment in military forces, reduction in Panama Canal Zone
international employees, long-range and wide-bodied aircraft, Pan Am has de-
creased its total activity through Panama.

The present 151 employees represent only 9.2% of our employees in Latin Amer-
ica or slightly over 1% of our employees worldwide in the field marketing group.
Likewise, today the total sales of $10,000,000 for passengers and $4,000,000 for
cargo represents .8% of our revenue.

Marine Midland Banks, Inc., Operations Related to Panama

A. Past or Dormant Investments

1. Banco Inmobiliario de Panama S.A. — This is a small mortgage bank in
Panama that engages in medium to long-term housing mortgages and the ware-
housing of mortgage paper. We have just sold our 2y 2 percent interest.

2. Financiera Centroamericana S.A. — This is a general finance company en-
gaged in commercial, industrial, and real estate lending in Central America, as
well as holding an equity interest directly and indirectly in bonded warehouses
in Central America and the Caribbean. This 22.4 percent investment was just
disposed of.

3. Servicio de Anuario Telefonico Internacional S.A. — This company sold and
distributed telephone books in several Latin American countries. We have pre-
ferred shares at modest value. This investment will be written off.

B. Current Investments

Marine, through Intermarine London, owns Bream Shipping, which was formed
a few years back in conjunction with the international lending operations of
Intermarine London. This company is presently not being used ; however, it has
limited assets resulting from prior activities conducted external to Panama.

C. Branch Operations

Most international banks have involvements in Panama consistent with that
country's currency relationship with the dollar and its favorable climate as a
financial center. Accordingly, the Marine started in Panama with a Regional
Representative Office for Central America in 1971. It subsequently opened a
branch operation in October 1973 to complement the Representative Office with
a primary focus on generating corporate business in Panama and Central Amer-
ica, as well as deposit gathering from Latin America. As of November 30. 1976,
it has total claims of approximately $32.4 million (of which $18.5 million is
claims in Panama, and the remainder is almost entirely claims due from other
Central American corporate clients). In Panama much of its business involves
financing trade of corporations located in the Colon Free Trade Zone. The com-

274

bined Representative Office and Branch have a staff of 25, 3 of whom are U.S.
nationals. This operation is not large when compared to the activities of several
others.

D. Loans

As a large international money center bank, the Marine conducts business
throughout the world. Panama has long been a center for trade as well as a
notable financial center. Loans in Panama are a national consequence of the posi-
tion of the bank and the country.

Marine Midland, either directly from New York or through the Bahamas or
Panama Branch or foreign affiliate, has a $100,000 short-term, unsecured loan
available to the Hydroelectric Power Authority of Panama.

There is a $100,000 loan to the Agricultural Development Bank in Panama.

There is a $4 million loan to the Republic of Panama, due in November, 1983.
There is Marine's share in a $115 million international syndicated loan, managed
by Citibank/New York. InterUnion/Paris, in which Marine directly owns 45
percent, also has a loan of $2 million to the Republic of Panama.

In addition to these direct loans to the Government of Panama or institutes of
the Government, the Marine is engaged in normal short-term lending operations
through the banks and the private sector in that country.

Intermarine owns two Panamanian special-purpose shipping companies, Inter-
national Ship Finance (Panama) Inc., and Avon Shipping, Inc. These companies
each own a Panamanian flag vessel on behalf of Japanese owners, which vessels
are financed by Intermarine. These corporations are financing vehicles, and they
are only notionally involved with Panama.

II. Soi. Linowitz: Banker and Treaty Negotiator — A Conflict?

[From the Congressional Record, Feb. 22, 1977]

Mr. Helms. Mr. President, I am greatly concerned that Mr. Sol Linowitz, who
is presently in Panama as a chief conegotiator of the proposed new Panama
( anal treaty, is, at the same time, a director of Marine Midland Banks. Inc..
ami Pan American Airways, Inc. Both of these institutions have a direct finan-
cial interest in the support of the Torrijos dictatorship in Panama because of
their activities there and their need to curry favor with the Panamanian Gov-
ernment. Indeed. Marine Midland has made risky loans directly to the Republic
of Panama.

The proposed treaty, a treaty which Mr. Linowitz has long advocated, would
give away billions of dollars of the American taxpayers' investment in the Canal
Zone, vastly increase payments to the Republic of Panama, and strengthen the
Torrijos regime, which is tottering both financially and politically.

There is no indication that Mr. Linowitz, who was not confirmed by the Sen-
ate, has taken steps to avoid the appearance of conflict of interest by resigning
his directorships or private business associations. Until this matter is clarified,
Mr. Linowitz should step aside; he may already have irrevocably tainted any
treaty which is the product of his negotiations.

Mr. President, allow me to go into detail on these issues.

For the past week, a U.S. negotiating team has been in the Republic of Panama
for the purpose of negotiating a new treaty regarding the Panama Canal. The
conegotiators at the head of that team are Ambassador-at-Large Ellsworth
Bunker, a career ambassador, and Ambassador Sol Linowitz, a businessman and
lawyer sworn in on February i) as special representative of the President, with
the personal rank of ambassador.

The nomination of Mr. Linowitz was not presented to the Senate for advise
and consent. I am informed by the Department of State that it is not the cus-
tom to seek advise and consent on appointments which are expected to be of
less than (> month's duration. The administration is of the opinion that the

new treat v will be completed in less than 6 months.

Thus the Senate has not had the opportunity to investigate Mr. Linowitz'

suitability for the post, nor to inquire into what many would judge to be, on

the face of it, a gross Impropriety and conflict of interest. It is a case which

hardly Seems suited to our post-Watergate morality.

275

According to the best information which I have been able to find. Mr. Lino-
witz sits on the board of directors of two large corporations which have a com-
pelling financial interest in the outcome of events in Panama. There is no indica-
tion that he has resigned from these boards.

Indeed, press accounts from the period before he was sworn in quote Mr. Lino-
witz as saying that he would not take the job if he had to give up his private
business associations. Biographic data furnished last week by the Department
of State indicates that he is present a member of both these boards. And both
institutions have informed me that he is presently a member of their boards.

Mr. President, I ask unanimous consent that the biographic data furnished
by the State Department be printed in the Record at the conclusion of my
remarks.

The Vice President. Without objection, it is so ordered.
(See exhibit 1.)

Mr. Helms. Mr. President, the two corporations are Pan American World Air-
ways, and Marine Midland Banks. Inc.

Pan American, of course, has an office in Panama, and uses Panama City as a
convenient midway stop on its Caribbean and South American flights. It is of
both logistical and financial interest to Pan American to maintain landing
rights in Panama, which is seeking to develop its tourist business further.

The Marine Midland connection, however, is far more immediate. Mr. Linowitz
serves not only on the board of directors of Marine Midland Banks, but also on
its executive committee. And Marine Midland has, over the past few years, par-
ticipated in a number of loans to the Government of Panama's dictator, Omar
Torrijos. Because commercial banks regard such information as proprietary in-
formation, I have been unable to document completely the extent of Marine
Midland's participation and financial exposure in Panama. But I have found an
advertisement from the Wall Street Journal of November 20. 1973. announcing
a loan of $115,000,000 to the Republic of Panama consummated on October 19.
1973. I am told that there are other such loans. Perhaps Mr. Linowitz could
give the details.

In the usual format of such advertisements, the amount of exposure of each
participating bank is not listed. However. Marine Midland is listed as a partici-
pant, along with Chase Manhattan. Bankers Trust. First National City Bank.
First National Bank of Chicago, and others.

Mr President, I ask unanimous consent that the advertisement from the
Wall Street Journal of November 20. 1973. be printed in the Record at the con-
clusion of my remarks.

The Vice President. Without objection, it is so ordered.
(See exhibit 2.) . -M . __. „

Mr Helms. Mr. President, the mere fact of the existence of Marine Midland s
financial commitment to the Government of Panama would be sufficient to ques-
tion the proprietv of a man who sits on Marine Midland's executive committee
participating in the negotiations. It is unfortunate that the Senate had no oppor-
tunity to question Mr. Linowitz. But when one inquires into the actual situation
in Panama, far deeper questions arise.

For the fact is that the Panamanian Government is presently in a deep finan-
cial crisis as a result of its own mismanagement, and the international banking
community has grave doubts whether the outstanding indebtedness incurred by
Torriios can be paid. Moreover, if the Torrijos government falls because of its
financial crisis, it could well mean the end of the bankers paradise created by
Torrijos which provides the United States and other banks with a haven for
international financial transactions outside the I nited State-*.

To bP brief Air President, when Omar Torriios took over Panama in a military
Jp L reorganized the banking laws of the country in 1970. following he
adviee of the New York banking community. The new laws were so favorable
H^t the banking industrv in Panama went through a startling expansion from
wh^t was then a few banks with assets of a few millions of dollars, serving
rnlv plnama f s small economy. Today, only 6 years later, there are ,3 banks m
Panama with assets of $8.6 billion, involved in transactions throughout the
worTd ?n Panama, such transactions are free of taxation and enjoy other ■ advan-
£°ge7 fbanking office in Panama is like the flag of convenience which Panama

^eS^.^^S^rin. Midland is among those banks which
take advantage of those transactions with an office in Panama.

276

Is it inconceivable, Mr. President, that the longevity of the regime of the dicta-
tor who set up this banker's paradise is a matter of some concern to the execu-
tive committee of Marine Midland Banks, and to their colleagues in associated
banking institutions?

Of course, even in a paradise, there have been some drawbacks. The principal
drawback has been the insatiable appetite of the Torrijos regime for money.
The indebtedness of the Republic of Panama has risen from some $167 million
when Torrijos took over to an estimated $1.5 billion today. Not all of that is from
commercial banks, of course. A great deal is from bilateral and multilateral
lending institutions. Again it is difficult to obtain accurate figures for the cur-
rent year. But the most recently available statistics from the World Bank show
that at the beginning of 1975, commercial banks provided half the lending.

Moreover, a document leaked recently from Panama's Department of Plan-
ning, states that debt service alone will take 39 percent of Panama's budget in
1977 — versus 7 percent in the United States — that the deficit alone may be as
high as $139 million and that to refinance loans falling due, combined with the
deficit, will require $324 million this year. The key paragraph in the memoran-
dum states, in translation :

"We feel it will be extremely difficult to syndicate loans with the commercial
banks in the amounts previously mentioned, taking into account that during the
present fiscal period we must contract for a total of B/323.6 million ($323.6
million) with those sources, who in turn have become more demanding each time
that an accord has to be finalized. Besides the relation between servicing the
debt and current revenues of between 38.9% and 39% suggests a deteriorated
capacity to service this debt and thus will increase the risk as realized by the
lending institutions."

The financial crisis in Panama has been aggravated by governmental interven-
tion into the economy with counter-productive measures, such as minimum wages,
rent control, and price supports, all of which have priced Panama's exports out
of the world market. A confidential memorandum sent to the Department of
State by the U.S. Embassy in Panama last October had this to say:

"Economic conditions in Panama worsened steadily during the 1976 first half.
There were decreases from a year ago in key indicators . . . overall growth is
likely to be near zero for 1976."

Moreover, even the extraordinary upsurge of Panama's worldwide indebted-
ness has failed to prop up a sagging and mismanaged economy. The confidential
State Department memo points out that the increase in foreign loans has made
matters worse, not better :

"Increased external financial flows per se, regardless of concessionality, per-
mit Panama to defer grappling with the core problem of low productivity until
a later date when the problem will probably have worsened, unless such financ-
ing bears specifically on some aspect of costs. Indeed, much of the capital inflow
of the past three years has aggravated Panama's economic malaise by exacerbat-
ing its debt service burden without enhancing overall productivity."

Mr. President, I ask unanimous consent that a translation of the memorandum
from the Ministry of Planning of Panama and a copy of the State Department
memorandum of October 26, 1976, be printed in the Record at the conclusion of
my remarks.

The Vice Presioent. Without objection, it is so ordered.
( See exhibits 3 and 4.)

Mr. Helms. Mr. President, the interest of Marine Midland goes beyond the
normal proprietary interest which a lending institution has in a loan it has ex-
tended. The series of loans from private banks has been used to prop up an in-
competent dictatorial regime; the regime for its part has returned the favor by
providing a haven for the banks to expand their international operations. But
the whole mutual arrangement depends upon the personal favor of the dictator
who bas complete control, General Torrijos. If Torrijos falls, no one can tell
what kind of a government will follow.

But the banks have just about reached the limit in the amount of credit they
can extend. New sources of funding the Torrijos government must be found if
the present beneficial environment for the bank is to continue. The treaty nego-
tiations have been talking about a $40 million annual payment from the United
States to Panama under the new treaty.

277

Mr. President, is it beyond reason that the members of the banking fraternity
involved in Panama are looking to the proposed surrender of U.S. sovereignty
and territory in the Canal Zone as a way of propping up the Torrijos regime and
providing increased revenues to his government? Is it not fair to ask whether
the short range interests of those financial institutions might not be subordinated
to the long-term interests of the United States?

I have many friends in the banking industry, and was closely associated for
a time with the industry in my State, and I am not trying to impugn their motives.
But in international situations, it is no easy matter to separate personal interests
and national interests, and to make objective judgments.

For example, I think that anyone who thinks that the best way to assure sta-
bility in Panama is to give away the Panama Canal is making a disastrous mis-
take. Similarly, anyone who thinks we can defend the Panama Canal if we only
have a status-of-forces treaty with Panama is making a big mistake. Moreover,
anyone who thinks that appeasement of a left-wing dictator will provide a base
for enduring relations with Panama is making a terrible mistake-
But these are judgments that will ultimately come to the Congress of the
United States for debate. Meanwhile, it seems to me that it is a grave error to
have a banker who is in bed with Torrijos negotiate the proposed treaty. I
regret that Mr. Linowitz' nomination bypassed the usual path of advise and
consent in the Senate.

Had Mr. Linowitz' nomination come before the Senate, there would have been
the opportunity to question Mr. Linowitz about 18 U.S.C. 208, which says in
part :

' Whoever, being an officer or employee of the executive branch of the United
States Government, of any independent agency of the United States, or of the
District of Columbia, including a special government employee, participates
personally and substantially as a government officer or employee, through deci-
sion, approval, disapproval, recommendations, the rendering of advice, investiga-
tion, or otherwise, in a judicial or other proceeding, application, request for a
ruling or other determination, contract, claim, controversy, charge, accusation,
arrest, or other particular matter in which, to his knowledge, he, his spouse,
minor child, partner, organization in which he is serving as officer, director,
trustee, partner, or employee, or any person, or organization with whom he is
negotiating or has any arrangement concerning prospective employment, has a
financial interest —

Shall be fined not more than $10,000 or imprisoned not more than two years,
or both."

Had such questioning been possible, perhaps the Nation would have learned
what steps Mr. Linowitz intended to take to avoid a conflict of interest, or the
appearance of conflict of interest, as the case may be. He certainly is an em-
ployee, or a special employee ; he is participating personally and substantially ;
he is making decisions and recommendations and rendering advice ; it is a partic-
ular matter in which an organization of which he is a director has a financial
interest — in fact two organizations of which he is a director. The American
people deserve to know how he will avoid a conflict.

It is worth pointing out that only a week ago, U.S. Attorney General Griffin
B. Bell quite properly informed Mr. Charles Kirbo, the close friend and con-
fidant of the President, that he would be classified as a "special employee" of the
government whenever he gave advice to the President — even though he was
receiving no compensation from the Government. General Bell's opinion was
that the conflict-of-interest statutes prohibited Mr. Kirbo, as a "special employee",
from giving advice to the President on any matter in which he had a financial
interest.

If this is true of Mr. Kirbo, who is not even officially employed by the Govern-
ment, is it not proper to ask whether it applies to Mr. Linowitz, who has been
sworn in as an ambassador and "special representative" of the President?

Mr. President, until these matters are resolved, it is inappropriate for Mr. Lin-
owitz to participate in the negotiations. Indeed, because of press reports that
substantive progress has been made during the past week toward a treaty draft,
it could well be that any treaty draft ultimately produced, even if Mr. Linowitz
resigns, will be fatally flawed. A controversial treaty that has the appearance of

278

seing tainted by special interests does not deserve the consideration of the
Senate. Mr. Linowitz should voluntarily stand aside, and offer an explanation to
;he American people and the Congress.

Mr. President, I ask unanimous consent that an article from the Washington
Post, "Carter Confidant Is Ruled Subject to Conflict Curbs," of February 15, 1!)T7,
3e printed in the Record.

The Vice President. Without objection, it is so ordered.

See exhibit 5.

Exhibit 1

Biographic Data : The Honorable Sol M. Linowitz
Age : 62, b. Trenton, N.J.

Marital Status: Married; four daughters (Mrs. Kenneth Mozersky, Mrs.
jabriel Gerstenblith, Jan, Ronni).

Senior Partner of the international law firm of Coudert Brothers. One Farragut
Square South, Washington, D.C. 20006 ; 200 Park Avenue, New York, N.Y. 10017.

Co-Chairman (formerly Chairman), National Urban Coalition.

President, Federal City Council.

Chairman, National Council of Foreign Policy Association.
Chairman, Commission on U.S.-Latin American Relations.
Chairman of the Board, Jewish Theological Seminary of America.

MEMBER

Board of Directors, Time, Inc. (also Chairman of Audit Committee ».
Board of Directors, Pan American World Airways (also member of Executive
Committee) .

Board of Directors, Marine Midland Banks. Inc. (also member of Executive
Committee).

Board of Trustees, Mutual Life Insurance Company of New York.
Board of Trustees, Center for Inter-American Relations.
Board of Directors, International Executive Service Corps.
National Commission on Critical Choices for Americans.
Council on Foreign Relations.
National Board on Graduate Education.

FELLOW

American Academy of Arts and Sciences.
Royal Society of Arts.

PREVIOUS POSITIONS

U.S. Ambassador to the Organization of American States (Nov. 1966-May
L9G9).

U.S. Representative to the Inter-American Committee of the Alliance for Pro-
gress (Nov. 1966-May 1969).

Chairman of the Board, Xerox Corporation ; previously Chairman of Executive
Committee and General Counsel ( 19or>-19<>6) .

Senior Partner, Harris, Beach, Wilcox, Dale and Linowitz (Rochester, New
.'oik. 1958-1966).

Chairman, National Committee for International Development ( 19IJ4-1966) .
Vice Chairman, J. F. Kennedy Center for the Performing Acts (1965-1970).
Chairman, State Department Advisory Committee on International Oiganiza-
ions (LHtt-1966).

Assistant General Counsel, Office of Price Administration (1942-1944).
Lieutenant, U.S. Naval Reserve (1944-1946).

EDUCATIONAL

A. P.. Degree (1985) : Hamilton College ( Salutatorian) : Phi Beta Kappa : Delia
Sigma Rho; Phi Delta Epsilom.

J.I). Degree (1988) : Cornell Law School (Editor in Chief, Cornell Law Quar-
erly ; Phi Kappa Phi ; order of Coif).

279

HONORARY DOCTORATE DEGREES (LL.D. AND L.H.D.)

Allegheny College.
American University.
Amherst College.
Babson Institute.
Bucknell University.
Colgate University.
Curry College.
Elmira College.
Ithaca College.
Marietta College.
Notre Dame University.
Oberlin College.

Pratt Institute.
Roosevelt University.
St. John Fisher College.
St. Lawrence University.
Syracuse University.
University of Judaism.
University of Michigan.
University of Missouri.
Washington University.
Wooster College.
Yeshiva University.

TRUSTEE

Cornell University.

Hamilton College.

The Johns Hopkins University.

The American Assembly.
The Salk Institute.

Exhibit 2

Republic of Panama: $115,000,000

(Ten Year Eurodollar Loan)

Managed by Citicorp International Bank Limited, Dillon, Read & Co. Inc.,
Smith, Barney & Co. Incorporated, and Banco Nacional de Panama.
And provided by — Asia Pacific Corporation Ltd.
Banco de Santander Y Panama.

Bank of America NT & SA. San Francisco, California.

Bank of Montreal.

The Bank of Nova Scotia.

The Bank of Tokyo, Ltd.

Bankers Trust Company.

Banque Ameribas.

Banque Nationale de Paris.

The Chase Manhattan Bank, N.A.

Citicorp International Bank Limited.

Compagnie Luxembourgeoise.

De Banques A.

Dresdner Bank Group.

The First National Bank of Boston. Panama Branch.

The First National Bank of Chicago.

First National City Bank.

The Fuji Bank, Limited.

The Industrial Bank of Japan Limited.

Interunion-Banque.

Lloyds & Bolsa International Bank Limited.

London & Continental Bankers Limited.

The Long-Term Credit Bank of Japan Limited.

Marine Midland Bank New York.

The Mitsui Trust and Banking Company Limited.

National and Grindlays Bank Limited.

Republic National Bauk of Dallas.

Rothschild Intercontinental Bank Limited.

The Roal Bank of Canada.

Security Pacific National Bank.

The Sumitomo Bank, Ltd.

The Tokni Bank, Limited.

Toronto Dominion Bank.

Assent : First National Citv Bank.

October 19, 1973.

280

Exhibit 3
Memorandum

To Eng. Demetrio B. Lakas, President of the Republic, Presidency of tne ixepublic.
From Nicolas Arditto Barletta. Planification Minister.
Matter Financial perspectives for 1977.

The purpose of this Memorandum is to call attention to the financial basis upon
which will be defined the budget policy of 1977 thus permitting to show the perti-
nent limitations that are being detected in this year's budget.

(a) The current revenues should increase between B/43.6 million and B/44.2
million with respect to this year's revised income figures thus reaching totals of
B/339.7 million or B/333.3 million ; dependent on whether or not there is a re-
cuperation in the economic activity during the last six months of this year.

(b) The increase in current revenues assumes an economic upturn of 3% and
an inflation rate of 5% through 1976.

(c) It also assumes a B/21.0 million package increase of taxes which should not
interfere significantly in the desired economic recuperation process.

(d) The technical group involved in this evaluation has concluded that the fol-
lowing are the tributary measures that would fill the above requirements :

A consumer tax designed in such a manner as to minimize its effect on prices
and on lower income groups. This type of taxation tends to divert private expendi-
ture towards investments, thus stimulating economic development.

Reform import duties in order to replace specific value taxes by value added
duties. This measure will adjust the increase of tax income to the increased cost
of imported goods, and will thus help to stimulate internal production.

Limit the tax deduction permitted on interest paid for mortgage loans used to
buy homes for one's personal use.

Consolidate the progressive tax structure for corporations into one tax rate
in order to avoid the use of numerous companies to lower the effective tax rate.

(e) At the same time, operational expenses are estimated to increase from be-
tween B/50.3 million and B/50.7 million and will reach totals of B/340.6 million
or B/341.0 million, depending on how the economy is reactivated during the sec-
ond semester of this year.

(f) The fact that the increase in revenues will be inferior to the increase in
expenses suggest that there will virtually be no new recourses to augment the
coverage of public services.

(g) The significance of the rigidity to which the new budget elaboration will be
subjected will be understood when one observes that only B/3.1 million will cor-
respond to net reincorporations of previously frozen expenditures, while the
remaining B/47.2 million correspond to commitments of an obligatory nature.

(h) These commitments of an obligatory nature can be broken down in the fol-
lowing maimer :

(1) From between B/42.3 million to B/42.7 million for servicing the foreign
debt which will increase from between B/87.5 million to B/129.8 million or
B/130.2 million in 1977, depending on whether or not the economy recuperates
during the last semester. Interest will increase from between B/24.8 million or
B/25.2 million, depending on the above observation, while the amortizations will
be increased by B/17.5 million. Due to the tendency required to service the foreign
debt, its ratio in respect to current revenue increases from 29.6% to between
38.2% and 39.0% which significantly deteriorates our capacity for further
indebtedness.

(2) B/2.3 million of the amortization of salaries are for:
Education — B/1.4 million.

Health— 0.4 million.

Housing — 0.1 million.

Other institutions — 0.4 million.

(3) B/1.3 million of current transferences which reflex the increase in subsidy
to the National University, the payment of Balboa notes subscribed to BID and
the increased consumption of water.

(4) B/0.4 million in salary increases to :
Health— 0.3 million.

Government and Justice, Labor .

Presidency — 0.1 million.

(5) B/0.3 million for the XIII month of public functionaries.

281

(6) B/ 0.2 million for inclusion in the MIDA budget for personnel frozen in its
investment portion of said budget and for the hiring of new auditors for the
France Ministry. ^ ^ bolster the supply budget of the Health Ministry

and other compulsory expenditures. , . '

(i) Since, for the above reasons, all other expenses must be maintained at the
budgeted fiscal 1976 level, it is convenient to eliminate from the budgeting
process all programmed budgeting meetings in order that the respective institu-
tions and our analyst can dedicate the most amount of their time poss'ole to
formulate, evaluate and turn in punctually their budget by program.

(j) As to the Central Government contribution towards the public investment
program, we calculate that it will be B/ 78.0 million which represents an in-
crease of B/ 18.0 million over the B/ 60.0 million that is estimated will have been
contributed this year.

(k) As a result, the global deficit will be between B/ 131.9 million and B/ 138.7
million, depending on how well the economy recuperates during the second
semester.

(1) To finance this deficit we will require B/ 15.6 million from the Venezuelan
Investment Fund, B/ 5.0 million in Internal Bonds, and from B/ 111.3 million to
B/ 118.7 million from the private banks.

(m) Thus, the amounts that must be financed as well as the amounts that
must be obtained, create very concrete problems which in turn reiterate the
need to increase expenses and investments only in those areas of an obligatory
nature and to dedicate the most of time possible to the conscientious elaboration
of a budget by programs in Order to execute the largest possible amount of
services required by our society with the scarce resources that are available.

(n) On the one side, the required new financing of between B/ 131.9 million and
B/ 138.7 million implies that there will be pressure on the liquidity and solvency
of the National Bank which must provide the Central Government the monetary
resources while the 3 previously mentioned financial operations can be formalized,
all of which should take at least four months. During this period, the National
Bank will have to recur to its lines of credit as well as to its internal reserves
which have been practically saturated during the present year by having to
finance the global deficit of B/ 99.3 million which in turn is between B/ 32.6
million and B/39.4 million less than what has been estimated for 1977.

(n) On the other hand, we feel it will be extremely difficult to syndicate
loans with the commercial banks in the amounts previously mentioned, taking
into account that during the present fiscal period we must contract for a total of
B/ 323.6 million with those sources, who in turn have become more demanding
each time that an accord has to be finalized. Besides, the relation between serv-
icing the debt and current revenues of between 38.9% and 39% suggest a deterio-
rated capacity to service this debt and thus will increase the risk as realized by
the lending institutions.

(o) In short, 1977 lines up as extremely delicate due as much to current ex-
penses increasing more than current revenues, as well as to the amount and
structure of the new financing that must be contracted which reaches the limits
available to the Nation as such.

(p) As a result of the above, I respectfully request your backing in eliminat-
ing the budgeting meetings and in demanding from the institutions that they
pay the most attention to formulating and elaborating a budget by program.
Also, I ratify the need for you to back the approval and execution of the taxing
measures that we have presented for your consideration, once that we have
finalized the pertinent studies.

With my highest consideration and appreciation.

Exhibit 4

(Sent by United States Embassy in Panama to the State Department on Oct.

26tfo, 1976)

Tags : ECON, EFIN.

Subject : Panama's Recession Is Structural — A Result of Low Productivity.

L This message is part of a continuing series of mission economic studies of
the state of the Panamanian economy and projections for its future.

282

2. Summary : Panama's recession, which deepened during the first half of 1976,
is neither cyclical nor primarily a product of economic conditions outside Pana-
ma. In our view the economy is floundering mainly because its high cost output is
not competitive in the world market and few opportunities exist for available
private investment. To establish a basis for renewed sustainable growth will re-
quire actions that lead to lower costs and improved productivity. These could in-
clude easing the labor code, reducing subsidies, boosting domestic savings, and
directing resource flows more toward the international service sector where
Panama has natural advantages; however, most such actions would cut back
social benefits granted to the working classes under the "revolution", and might
not be politically acceptable under the present government; inflows of foreign
capital have not been getting at the core problem of high costs (low productiv-
ity). Lack of access to relevant Canal Zone sites is delaying GOP development
of infrastructure which is prerequisite to the growth of various commercial
services industries by the Panamanian private sector. End summary.

3. Economic conditions in Panama worsened steadily during the 1976 first
half. There were decreases from a year ago in key indicators — manufacturing,
construction, external trade, unemployment, (increase), and sales to the Canal
Zone (see reftel), overall growth is likely to be near zero for 1976.

4. Failure of the economy to respond to a variety of stimulants indicates
that the recession is more than a cyclical maladjustment. Credit has remained
relatively plentiful, with preferential rates available from the government for
both agricultural and industrial projects. There are tax subsidies for new ex-
ports, and tax benefits for reinvested profits. No basic changes have been made
in the "rules of the game" under which business operates, such as the labor
code or tax laws, since before the onset of recession, in fact, the GOP in recent
months has actively sought by various direct means to improve the business cli-
mate. A large boost in 1975 public sector spending had little effect on either pri-
vate investment or aggregate demand.

5. Also, Panamanian economic problems do not seem to be caused primarily
by worldwide economic trends or world trade. In contrast to Panama's continuing
decline, other developing countries (LDC's) have been experiencing a quickening
economic tempo so far this year in response to rapid recovery by the industrial-
ized countries, plus some correction of structural maladjustments, LDC exports
have been generally increasing as a part of the marked improvement, in 1976
first half world trade (plus 10 percent) while the value of Panamanian exports
remained at its 1975 level (excluding an abnormal decline in petroleum products
exports), changes in Panama's economy also differed from the worldwide pattern
both during the 1974-75 world recession and the years immediately preceding it.
Despite sharp 1974-75 recession among the industrialized countries (zero
growth), LDCs' gross domestic product (GDP) increased 5.5 i>ercent in 1974 and
1.7 percent in 1975. Growth had begun tapering off in 1971 whereas during
1971-73 the rest of the world including Latin America experienced unprecedented
boom. - „ .

6 Private investment in Panama reached a peak in 19<1. Growth in manu-
facturing began to fall off in 1971 with a decline in the number of attractive
import substitution possibilities, little increase has subsequently taken place
in the volume of manufactured exports, output of both construction materials
and intermediate goods stopped expanding in 1973. Expansion of construction
activity began slowing in 1972 and has actually been declining since 1974. Imposi-
tion of rent controls in 1973 brought private investment in low cost housing to
a standstill. On the other hand, growth of the important services sector re-
mained near 8 percent annually through 1974 (plus 3 percent in 19,5) due ni
part to the major expansion of the foreign banking sector since 1971, growth
in agricultural output lias remained sluggish since 1970 at about 3 percent annu-
ally, much slower than during tlje 1960's. , .

7 Panama's basic economic weakness in our view and the reason helium
current stagnation is its non-competitiveness in the world market— a structural
problem involving primarily high cost production (coupled with a lack of re-
sources) in both agriculture and industry. The export potential for Panamanian
agriculture is extremely limited at present, the main exports. D^aMs^lS
the bands of foreign plantation operators, and has probably reached its peak in
an increasingly comiietitive world market. In general, land is of poor quality
and farm labor costs are high— the $3 per day minimum wage is estimated to he
at least double the rate anywhere else in Central America. The government e£
conrages high cost production, including rice, the principal crop ^™sittlz-
ing producers through support prices typically set above the world maiket. 1 bus.

283

Panama cannot profitably export major crops such as rice and corn and is further
precluded from developing any profitable export potential for various lesser crops
by the small domestic market base in Panama. Accessible forests have been cut
over and there is little potential for meat exports while access to the U.S.
market is restricted. Panama's sugar industry is likewise non-competitive due to
high costs of both cane production and refining operations.

8. As with agriculture, Panama's manufacturing industry currently has little
export or overall growth potential because of high production costs coupled
with a dearth of natural resources (copper deposits have not yet been determined
to be economically exploitable). Minimum wages and the general wage and
benefit structure in Panama are estimated to be the highest in Central America
and among the highest in all Latin America. Higher wages and benefits in the
Canal Zone exert upward pressure on wages in the republic as employers com-
pete for the generally better qualified workers attracted by Zone wages. The
dominance of the service sector in Panama's central urban areas with its higher
skill levels also creates upward pressure on the entire wage and benefit struc-
ture. Employee benefits under Panama's labor code add to direct employment
costs. The code exerts indirect pressure on costs through subsidies such as firing
restrictions imposed on employers and, by strengthening the trade union move-
ment, bolsters the trend toward costlier contract settlements. High labor costs
encourage the substitution of capital for labor, thus boosting structural unem-
ployment throughout the economy. Also, relative capital costs — mostly foreign
sourced — are likely to rise as Panama's already high debt service burden worsens
and the economic outlook for other LDCs improves relative to Panama.

9. Establishing the basis for renewed growth and improved economic well
being that can be sustained will require actions that lead to a lower cost struc-
ture. One widely discussed possibility is an easing of the labor code, although
its real impact on costs remains uncertain (it did not bring on recession although
it may have stood in the way of needed private sector adjustments). Changes
probably would not induce an immediate surge of private investment, however,
the business community has made clear its conviction that changes are essential,
giving them an additional psychological importance that bears importantly on
the general investment climate. Changes might be a convincing sign of GOP
concern over the private sector's economic plight.

10. Appropriate belt tightening also could include lowering subsidies as well
as the wage/benefit structure to reduce relative production costs, and increasing
personal taxes to curb consumption (particularly imports) and expand domestic
savings. These effects are usually achieved indirectly by currency devaluation.
Since Panama's currency is the U.S. dollar, such actions must be taken directly,
in addition, resources may need to be more heavily concentrated in the inter-
nationally-based services sector where Panama has more natural advantages,
with proportionately less in agriculture and the non-productive social sectors.

11. Comments :

(A) Panama's high wages, subsidies, and consumer imports — together with a
moderate tax burden and little public saving — permit a standard of living which
no longer appears to be supportable by Panama's inefficient domestic production.

(B) Increased external financial flows per se, regardless of concessionality,
permit Panama to defer grappling with the core problem of low productivity
until a later date when the problem will probably have worsened, unless such
financing bears specifically on some aspects of costs. Indeed, much of the capital
inflow of the past three years has aggravated Panama's economic malaise by
exacerbating its debt service burden without enhancing overall productivity.
Moreover, total inflows greatly exceeded the current account deficit of Pan-
ama's balance of payments, resulting in large negative "errors and omissions''
( 'around $100 million annually) most of which probably represented outflows of
doi i lestically-owned ca pital.

(C) The types of actions mentioned above for addressing Panama's high cost
structure run headlong into the "revolution" — the social and economic benefits
granted to the urban and rural working classes over the past eight years which
would need to be reversed in part. In short, the "revolution" has collided with
growth and one or the other must yield, whether or not actions of sufficient scope
to be economically meaningful along the above lines are politically possible for
the present government is questionable.

(D) Panama's best economic prospects lie in the development of its potential
as a hub for servicing international commerce, various aspects of cargo handling
are an essential part of the picture. Thus, the GOP has a valid case in urging
early access to relevant canal zone sites needed to develop the infrastructure
on which growth of various transport, storage and other commercial services.

284

Exhibit 5

[From the Washington Post]

Carter Confidant Is Ruled Subject to Conflict Curbs

(By Morton Mintz)

Seattle, February 14. — Attorney General Griffin B. Bell said today that presi-
dential confidant Charles Kirbo is subject to federal conflict-of-interest laws be-
cause under a strict, 14-year old statute, he is a "'special employee" of the
government.

Kirbo "is a special employee every time he advises the President," Bell told
a news conference here, where he is attending the American Bar Association's
winter meeting. No one can give the government advice "as a friend," Bell said ;
in this context, '"there's no such thing as a friend."

Bell also said it makes no difference under the statute that Kirbo, a partner
in King and Spalding, the Atlanta law firm Bell left to become Attorney General,
it not paid for advising President Carter.

Bell said he told Kirbo last November that he is in special-employee status,
which prevents him from advising Carter or anyone else in government about
any matter in which he or the law firm has a financial interest.

So far as is known, no friend of a past President who has provided unpaid ad-
vice in the White House has been formally classified as a special employee. The
statute making such an employee subject to the conflict-of-interest laws took
effect in January, 1963, during the Kennedy administration.

Charles G. (Bebe) Rebozo, for example, was a close confidant of President
Nixon, but was not known to have been classified as a special employee.

In Atlanta, Kirbo confirmed to reporters that he is in special-employee status,
although he collects neither a possible $100-a-day consultant's fee nor expenses
when he comes to Washington.

When he comes to the White House, he said, he tries to help Carter carry out
his campaign commitments and proposals, although at times he simply listens
to the President.

The primary restraint of his special-employee status, he said, is that "you can't
give any advice on any matter you have an interest in."

Bell, responding to reporters' questions, said that to avoid any possible conflict
from arising out of his former partnership in King and Spalding he will, within
a few days, provide Justice Department officials with a list of all of the law firm's
clients. He said reporters will be able to see the list, which includes numerous
large corporations.

Bell, who met with reporters after speaking briefly to the ABA's House of
Delegates, said that Carter soon will issue an executive order creating commis-
sions to propose candidates, on the basis of merit, for vacancies on U.S. courts of
appeals.

Bell said the order will allow the commissions to propose their own candidates,
rather than be bound to names submitted by senators from affected states.

The number of vacancies shortly will reach six. For each one, a commission
will propose five names to the President, who will choose one for final nomina-
tion to the Senate. Each affected state will be represented on the commissions,
each of which will have 11 members.

Some members will be laymen. Bell said that the draft White House order does
not prohibit judges from being members, but that he doesn't know if Carter will
agree with a suggestion for inclusion of judges that was made to the ABA Sun-
day by Chief Justice Warren E. Burger.

All told, there will be 13 commissions — one for each of nine circuits, and two
each for the huge fifth and ninth circuits in the South and Far West.

In his talk to the House of Delegates, Bell pleaded for a delay until the August
meeting of the ABA's policymaking body on pending resolution to overhaul the
federal grand jury system.

By August, Bell said, he will have completed a review of the proposals. One of
thpm would allow counsel to accompany witnesses in the grand jury room. At
least tentatively, Bell said, he feels that this proposal would convert grand jury
proceedings into secret trials, with the result that prosecutors would try to bypass
grand juries and file charges by themselves.

APPENDIX J

Background on Panama as an Offshore Banking Center

U.S. Banks Abroad

INTRODUCTION

[From "International Banking", Part 4, FINE Study, House Committee on Banking,

Currency and Housing, 1976]
Multinational corporations have received attention and aspects of their
activities have become important political issues but interest in international
banking has not spread very far beyond the small group who are actually partici-
pants in the activity. Only recently has an effort been made to sort out areas
where the activities of multinational banks have important effects on public
policy in the United States and to determine if those effects are in the public
interest

It is hoped that this study will provide background information for further dis-
cussion and analysis of the political and economic effects of international banking.
Its principal purpose, however, is to call attention to the impact of overseas ac-
tivities of U.S. banks on the domestic banking system. The legal and institutional
structure of foreign operations, the scale and range of activities and the regulatory
and supervisory framework in which they are conducted are discussed in the
next four sections of the paper. These are followed by a section covering one of
the more important operational areas in international banking — foreign exchange
operations. Next are sections describing the activities of the 12 largest multi-
national banks; some special problem areas involving the so-called "country
loans,'* term lending and the adequacy of capital and an analysis of the Federal
Reserve's role as lender of last resort to Franklin National Bank.

Several sections of the study comment on policy issues outside the context
of banking regulations and there is a detailed discussion of some of the areas in
which multinational banks have played a major role in shaping economic and
monetary events. Since banks do have a key role in determining economic con-
ditions, an outline of the development of international banking in the context of
monetary and economic events on which it has had a determining influence will
be useful as an overview for the material which follows.

The recent development of truly international banking by U.S. banks was
preceded by foreign lending by the larger U.S. banks primarily from their home
offices using domestic funds. This activity became an important part of their
business in the early 1960's. Because their activities contributed to deficits in the
U.S. balance of payments, various controls on the extension of foreign credits
were imposed, including in 1965 a ceiling on additional foreign lending by U.S.
banks. In response to these controls, banks with established foreign business
moved overseas, and funded their foreign loans with foreign deposits. The larger
banks established branches in London and other major international financial
centers. 1 Some banks invested in foreign banks as a way of entering a given
banking market and in time, all of the larger banks acquired an interest in a
merchant bank, establishing wholly owned subsidiaries or investing with other
U.S. or foreign hanks in joint ventures.

In the late 1960's the Federal Reserve Board allowed banks to open "shell"
branches in the Bahamas. In reality a "shell" branch is a euphemism for Euro-
currency banking operations conducted at the home office. The requirement was
that, like branches in London and elsewhere, virtually all loans by the shell
branches had to be foreign loans and liabilities had to he foreign liabilities.
This would allow international banking to be done at home but without violating

1 Three banks — First National City. Bank of America, N.T. & S.A., and Chase Manhattan
Bank — already had worldwide networks of branches.

(285)

286

capital controls. It also opened up the market to a larger number of banks since
the cost of getting a license in Nassau was not great nor was the expense of hiring
someone to maintain a set of books which were actually duplicates of records
kept at the home office.

The story of the development of the Eurodollar market is a familiar one. It
began because the U.S.S.R. had dollar balances acquired during World War II
which it did not wish to deposit in U.S. banks for fear the funds would be con-
fi seated to satisfy unpaid loans from the United States. British banks accepted
the funds and re-lent them. There was a demand for dollar loans and other
countries began to deposit dollar reserves, acquired as a result of U.S. balance of
payments deficits, with banks in London. U.S. banks with branches in London
attracted a share of these deposits and, after the Voluntary Foreign Credit Re-
straint Program in 1965 constrained foreign lending from domestic offices, they
began to compete vigorously for Eurodollar deposits to continue and expand their
foreign business.

In 1966, tight money in the United States made it profitable for the foreign
branches to lend their Eurodollar deposits to their home offices for relending to
domestic customers. Higher interest rates in the United States after 1966 en-
couraged foreign branches to continue to lend about one-fourth of their total re-
sources to their parent banks over the next several years. It also encouraged more
banks to establish branches in London and in 1969 banks responded to the Fed-
eral Reserve's tight money and high interest rate policies by importing al>out 14
billion Eurodollars for domestic lending.

These funds were loaned by the large international banks to their large corpo-
rate customers who could afford the cost. As a result, money remained tight and
interest rates high as the Federal Reserve prolonged its efforts to cool the econ-
omy. The credit crunch and liquidity problems exi>erieneed by other sectors of the
economy — especially housing, and state and municipal governments — were quite
serious. The Federal Reserve responded by imposing a 10 f / r marginal reserve
requirement on additional Eurodollar borrowings by U.S. banks from their for-
eign branches to discourage a similar inflow of funds in the future. And. recog-
nizing the competitive advantages which the international banks had enjoyed, the
Board also agreed to the establishment of the shell branches so that more banks
could compete in international markets.

As loan demand and interest rates declined during 1970. U.S. banks repaid a
substantial portion of their borrowings to their foreign branches. Without the
domestic market as an outlet for lending, the foreign branches had to find new
uses for funds. 2 They increased their lending to foreign subsidiaries of U.S.
multinational corporations, but still had an excess of funds for lending. The avail-
ability of dollar loans and lower interest rates on both Eurodollar funds and in
the United States, as well as the domestic inflation and recession encouraged
expectations that the dollar would be devalued. Speculators borrowed dollars
and converted them into assets in other currencies. Central banks in several
European countries bought the dollars because they feared the effect of upward
revaluation of their currencies on their exports. In so doing, they added substan-
tially to their own money supplies and to their domestic inflation. In the end, the
disadvantages of preventing a devaluation of tbe dollar seemed greater than the
advantages and the dollar was devalued.

In the aftermath of these events, a number of European countries imposed
exchange controls on inflows or outflows of funds and this served as a brake on
expansion of foreign branch activities in 1972. The branches found it difficult to
bud to prime customers — subsidiaries of U.S. multinational corporations as well
as other multinational firms in developed countries — because of the exchange
controls and began to lend to less developed countries and to public and quasi-
public institutions in Italy and the United Kingdom — the two developed coun-
tries coping with chronic capital outflows.

In 1972 as in 1970, expectations developed that the dollar again would be de-
valued and speculation again created pressures that, made additional devaluation
a certainty. But. because of capital controls in European countries, the mecha-
nism this time was somewhat different. The foreign branches did not lend dollars
to speculators to be exchanged for foreign currencies by central banks. For-
eign branches of U.S. banks borrowed foreign currencies in the international

2 The Federal Reserve P.oard had also discouraged loans to U.S. residents other than
the parent banks.

287

interbank market which was not covered by exchange controls and reloaned the
funds to speculators who could not acquire foreign currency assets directly from
domestic banks in European countries. They also swapped balances for custom-
ers unable to get funds out of domestic markets and for those unable to get funds
in by selling deposits to the domestic interbank market or acquiring deposits from
domestic banks. But the effect was the same as in 1971. European banks ended up
with dollars which they swapped at their central banks for their own currencies.

After the dollar was devalued and floating exchange rates adopted as a re-
sult of continuing speculation, 7 European countries put reserve requirements on
external liabilities of banks operating in their countries to curb speculative
activity through domestic and international interbank markets. 3 This had the
effect of greatly reducing the business of branches of U.S. banks in several of
those countries and forcing them to rely on the domestic interbank market for
funds. Since that time, there has been very little increase in the assets/liabilities
of American branches in continental Europe. 4

There was a virtual explosion of growth in U.S. bank activities overseas in
1973. Assets of branches grew 56% in that year while the number of U.S. banks'
investments in foreign banks, finance, and leasing affiliates rose to 1670 com-
panies in 102 countries from 416 companies in 74 countries in 1971. Some banks
were clearly overextended and events in the following year — problems in financ-
ing oil deficits and of recycling OPEC deposits, the after effects of a collapse
in property values in Great Britain and the crisis of confidence caused by the
failures of Franklin National Bank and Herstatt — hastened a wind-down in
international activity and slowed the growth rate of branch assets to 25% for
the year.

There was very little growth in international banking activities in 1975 due
to the world-wide recession and to the fact that dollar funds used by foreign
countries to make oil payments to OPEC countries were largely drawn from the
Eurodollar market but a lesser amount was returned to that market. OPEC
countries have deposited a substantial amount in the Eurodollar market, but
they have also invested heavily in domestic markets, including the United
States. Given the shrinkage in foreign funds available for new lending, the
foreign branches of U.S. banks relied heavily on their parent banks to supply
funds to expand their business in 1975. Branches borrowed $20 billion from U.S.
residents in 1975, $12 billion of it from their U.S. parents. This compares with
$5.8 billion borrowed from parent banks in 1974 and $1.6 billion in 1973.

Since loan demand was slow in the United States in 1975, it could be argued
that the actions of U.S. banks in supplying domestic funds to their overseas
branches for foreign lending did no harm to the U.S. economy and positively
benefited other countries struggling with the Charybdis of a rise in oil prices
and the Scylla of recession. This might be true but the argument would have
more weight if we knew to whom and for what those foreign loans were made.
There is also evidence for the argument that, in its efforts to attract funds back
into the country to counteract outflows to the branches and to improve the ex-
change rate of the dollar, the Federal Reserve kept interest rates at levels
which were sufficiently high to contribute to the lag in loan demand.

The 1975 outflows to the branches are described in other sections, 5 as are
other issues noted here. This outline of events is intended as a reference for the
more detailed discussions which follow. It is also intended to suggest the growing
importance of international banking and its impact on public policy. While
foreign activities of U.S. banks have no doubt aided the development of world
trade, these activities have also posed important problems for domestic mone-
tary policy and for the stability of the U.S. banking system. These problems will
be discussed in greater detail in the following sections.

3 These countries were Germany. Switzerland, France, the Netherlands. Belgium, Luxem-
bourg and Spnin.

* See table 5. Chanter 2.

As discussed in Cbapter 11, these restrictions were relaxed in January and February
1074 but reintroduced by Switzerland in November of that year. Despite tbe relaxation,
the German Bundesbank and Bank of France still retain discretionary controls in the form
of requirements that the use of external funds by domestic residents be approved.

5 See chapters 2 and 10.

25-605—78 20

288
ii

Selected Excerpts Fbom "International Banking"

Like all banks, Eurocurrency banks bold reserves. But, for tbe most part,
they are exempt from mandatory reserves and tbis is very advantageous botb in
terms of profitability and flexibility.

Reserve requirements are not imposed on liabilities of brancbes in tbe United
Kingdom, Luxembourg, Panama, the Bahamas, Cayman Islands and Singapore.
Branches in these locations hold $124.3 billion of liabilities or 75% of total for-
eign branch liabilities. But in other countries as well, reserve requirements are
net imposed on liabilities derived from other banks (domestic or international)
or liabilities denominated in external currencies. The amount of domestic nonbank
deposits which the branches attract is insignificant as a percentage of their total
liabilities. Thus, the assertion by the Federal Reserve Board Governor Robert C.
Holland that Eurocurrency operations constitute "an unregulated and reserve-
free market in bank services" is quite accurate, and the result is a reduction in
control by monetary authorities over the level of Eurocurrency activity. 1

*******

Very little information is available on the business of nonbank borrowers in
Eurocurrency markets. The information is available to bank examiners but, as of
year-end 1975, it was not reported on a regular basis as are data on the domestic
loans of large banks. This important gap reveals the weakness of the data on
international banking for economic analysis. It is difficult to determine from
generalized, aggregate information on branch activity whether these offices are
engaged in trade financing, financing overseas offices of U.S. based multinational
corporations, making development loans to developing nations, etc.

Foreign branches of U.S. banks report the location of branches where loans
are made but not the country of origin of the borrower, except in the case of
U.S. nationals. Borrowers and depositors are reported under the categories of
nonbank, governments and official institutions, the parent bank network and
other banks. 2

*******

The salient characteristic of the Latin American branches is the extraordi-
narily high proportion of loans to private foreign borrowers — 87.6% in 1971 and
83.7% in 1973. This amount of lending involvement with the private market is
not matched, however, on the liability side. Private foreign depositors are not
important sources of funds. The most important source in both 1971 and 1973
was the intrabranch network of the parent banks which provided funds both
directly and indirectly to the Latin American branches, the major portion being
supplied indirectly ; through branches in Panama. Latin American branches de-
rived less than 1% of their liabilities from the international interbank market
in 1971 but by 1973, 32.5% of their liabilities came from that source. Most of this
represents borrowings by the Panama branches and reflects the growth of Panama
as an international financial center over this period. A very small share of Latin
American branch assets are claims on foreign banks or the parent branch net-
work. As noted, private foreigners receive the bulk of the loans, a little over $1
billion in 1973. Who these borrowers are and in which countries they operate is
not known. 3

*******

Some of the reasons why U.S. banks have established subsidiaries and affiliates
in individual countries and areas and the form these investments have taken are
discussed below. 4

*******

1 P. 816.

2 P. 817.
■ P. 886.

* Pp. 8.-3G-S59.

289

Latin America

The dominant position among foreign banks held by a few of the larger U.S.
banks in a number of Latin American countries reflects the fact that three banks —
Chase Manhattan Bank, First National City Bank and the First National Bank
of Boston — have been active in Latin America for several decades. They have
substantial branch networks as well as subsidiaries and affiliates engaged in a
wide range of financial and nonfinancial activities. In a few countries — Colombia,
Venezuela, Costa Rica and Equador — a number of other banks are also active and
again, there is a wide range of activities. Investment banks seem the dominant
institutional form but not enough information is available to describe the business
of these banks.

Clearly, U.S. banks play an important role in the economies of countries such
as Brazil and Argentina where they have both numerous branches and subsid-
iaries and in the economies of other Latin American countries as well. They have
introduced U.S. banking techniques — credit cards, for example — and provide a
wider and more sophisticated level of financial services than might otherwise be
available. However, considerations of either benefits or injuries accruing to other
economies through the activities of U.S. banks overseas are beyond the scope of
this study. The principal concern is the impact of these activities on the U.S.
economy and banking system. The pattern of investment in Panama and Mexico
are therefore of greater concern here — Panama because it is an unregulated bank-
ing market and tax haven and the concentration of merchant and investment
banks and finance companies reflect activities similar to those in other centers
such as London, Luxembourg and Hong Kong ; Mexico because, like Canada and
Australia, it is a major area for U.S. bank investment and one in which local
authorities prohibit commercial banking activity. Very little of the activity of
U.S. banks in Mexico is of a financial nature other than lease financing. Most of
the companies in Which they have holdings are engaged in manufacturing services
and consulting and real estate.*

* * * * * * *

The shift in foreign branch lending from the private to the public sector has
important implications for public policy. Questions relating to the likelihood of
payment has tended to shift the focus on the issue of country loans to the LDCs.
But the scale of bank credits to a few individual countries has been such as to
indicate the need for an appraisal of the appropriateness of direct lending to
governments. It may be that such an appraisal is already under way and is re-
flected in the drop in Eurocurrency bank credits and sharp increases in Eurobond
issues by developed countries in 1975. If so, it is a welcome development in that
the shift to the Eurobond market acts to distribute these debts to a larger num-
ber and wider range of creditors in the private market. The concentration of
country credits in banks had a potential for forcing a too close integration of
public and private interests in that, as the above quotation 5 indicates, U.S. gov-
ernment policy might be disproportionately shaped by the need to protect the
U.S. banking system from a major default by a given country. 8

*******

* Pp. 856-859.

5 Though it was never articulated in so many words, most bankers must also have as-
sumed that loans lent to LDC governments would be underwritten by the official aid pro-
gram mes of the developed world. No Western government had any wish to see a debtor
country default, or to inflict a major loss on its own banking svstem. (Pierre Latour,
''Euromarkets wait for LDCs' Credits to be Paid," Euromoney. October 1975).

«P. 902.

290

OVERSEAS INVESTMENTS OF U.S. BANKS 7

Name of country and overseas Percent of Owned

affiliate or subsidiary Type of business U.S. bank parent ownership by-

Panama:

•Latin Mutual Investment Inc., R.D Bank of America.

*San Faustin S.A do.

•Financiera Bamerical S.A. ? Panama do

•Latin American Agribusiness Develop- Finance company Bank of America

ment Corp. (LAAD), Panama City. N.T. & S.A., San

Francisco.

•Desarrollo Industrial S.A., Panama City Development bank do..

finance corp.

*Do Development bank. . Chase Manhattan Bank.

Club de Golf, Playa Coronado, Panama City.. Country club do.

•Manufacturer Latino Americano S.A. Holding compnay do

Panama.

•Compania Almacendora Interamericana, Warehousing.. do..

S.A., Colon.

Latin American Agrobusiness Develop- Farming do...

ment Corp.

•Aircraft Leasing Company, S.A., Panama Leasing of aircraft... First National City
City. Bank.

Union de Bancos S.A. (Unibank), Panama Commercial bank First National Bank

City. of Louisville.

Latin American Agrobusiness Develop- Miscellaneous First National Bank

ment Corp. S.A., Panama City. banking. of Miami.

•Private Invest. Co. for Asia Investment First National Bank

company. in Dallas.

•Private Investment Company for Asia do Continental Illinois

S.A., Panama City.

•Do. do. National Shawmut

Bank.

•Financiers Intercomercial, S.A., Panama Finance company First National City

City. Bank, New York.

•Financiers Centroamericana de Desar- do Marine Midland Bank,

rollo, S.A., (FICENTRO), Panama City. New York.

Avon Shipping, Inc., Panama City Business credit do

•Servicos de Anuario Telefonico Inter- Produces telephone do

nacional S.A., Panama City. directories.

International Ship Finance (Panama), Inc.. Business credit do

Deltec Panamerica S.A Holding company, Pittsburgh National

merchant bank. Bank.

Union De Bancos, S.A., Panama. Mercantile Trust Co.,

St. Louis.

•Servicos De Anuario Telefonico Inter- Northwestern National

nacional, S.A , Panama City. Bank of Minneapolis.

Banco International de Panama S.A Commercial bank Philadelphia National

Bank.

Primer Banco de Aberras, Panama Savings bank do

•Dibeag Finance Corp., Panama Finance and do

brokerage.

Security Pacific Bank (Panama) S.A., Merchant bank Security Pacific Na-

Panama. tional Bank.

Security Pacific Interamerican Bank S.A., do .do

Panama.

•Forrento de Inversion S.A. , Panama.. Holding company Wachovia...

Empressa Financieros Continental S.A., do Wells Fargo

Panama.

* Company acquired and held in 1971.

No asterisk denotes company acquired and held between 1971-1973.

Source: Federal Reserve Board.

Key to symbols relating to ownership:

A = Agreement Corporation.

B ■ Bank.

BHC = Bank Holding Company.
E = Edge Act Corporation.
S=Subsidiary.

SBHC, SE, etc. ^Subsidiary of Bank Holding Company, of Edge Act Corporation, etc.
SSBC, SSE = Subsidiary of a Subsidiary of a Bank Holding Company;

Subsidiary of a subsidiary of an Ed,- : e Corporation, etc.

16.7

SSE

100

2.5

SSE

43.3

7.7

100

10.5

. 8

100

22.4

100

SSE

12.7

1.7

11. 1

12.7

8.3

100

•Pp. 971, 972.

291

WHAT MAKES AN OFFSHORE FINANCIAL CENTRE ? 1

Introduction

Why do banks undertaking international business proliferate in some centres
and not in others?

Absence of direct taxation is not necessarily a decisive factor in the choice of
a particular centre, although it does help. The Bahamas is a tax haven but the
figures show that it is much more important as a financial centre than Bermuda
or the Cayman Islands, which are just as attractive as pure tax havens. The most
important centre of all, the City of London, is located in one of the most highly
taxed countries of the world and Singapore and Hong Kong are not in any general
sense tax havens. The secrets of success are more subtle.

Exchange Control

Banks in an offshore financial centre earn their profits by borrowing from
depositors outside that centre and re-lending to other non-residents. If either leg
of the transaction is restricted in any way business will simply not develop. If
approval is obtained, but only after bureaucratic delays, it is highly unlikely that
banks will conduct business in the particular centre rather than elsewhere. Para-
doxical though it may seem at first, London, Singapore and the Bahamas all do
have exchange control restrictions, but they operate these restrictions liberally
and intelligently in such a way as to give virtually complete freedom to intermedi-
ary business in nondomestic currencies. As Table I shows, for many years the
sheer volume of banking business in non-sterling currencies in the UK has ex-
ceeded the volume of sterling business (which includes all the ordinary retail
banking business). These figures, however, do not tell the whole story as they
include a vast volume of interbank business clone on very low margins and argu-
ably significant double counting. Nevertheless, the figures are still very impressive.

Even though the traditional prominence of the sterling "bill on London" in
financing world trade has declined, the City has simply turned its skill to provid-
ing a similar service in currencies other than sterling, mostly the U.S. dollar.
The Bank of England, it has been said, has ably succeeded in preserving the City
of London's reputation for skill and integrity, even during periods when the
world might have doubted the existence of quality in those politically responsible
for the management of sterling and of the British economy. Of course the view
may be taken that restrictions on traditional business may have been a stimulus
to the development of new methods of carrying out international business.

Direct Taxation

Taxation is an important factor in the choice of a centre but not necessarily in
the ways that are commonly supposed. Much international business of the type we
are discussing is carried out for a very small margin, say a quarter per cent or
even less. This would apply, in particular, when a bank borrows on the interbank
market and re-lends to another bank. A tax on net profits, i.e. the quarter per cent
Inrn less expenses may not be a real deterrent although, other things being equal,
a group would prefer to handle its transactions in a low tax territory. For
instance an American bank with operations both in London and in the Bahamas
and which has business involving entirely different countries might write the
business in the Bahamas because a marginal one quarter per cent take there is
worth one quarter per cent to consolidated profits, while if taken in London the
transaction would be worth only one eighth per cent to such profits. On the other
hand, most of the banks would probably rather concentrate their business in
London where the skills are and they are encouraged to do so by the Bank of
England. However, the Inland Revenue, by insisting on a minimum taxable turn
on "in and out" business, loads the dice ever so slightly in favour of the Bahamas.

TV ith holding Taxes

Taxes on gross interest are a far more serious deterrent to offshore business. A
withholding tax. even at a modest rate of 5 per cent, would kill any offshore busi-
ness more surely than a 50 per cent tax on net profits. Banks in the international
market have both to borrow and to lend in competition with other banks. If they

1 Reprinted with permission from "Offshore Investment Centres," puhlished by the
Banker Research Unit of the Financial Times. Ltd., London, England, 1975.

292

have to pay a 5 per cent withholding tax on the money borrowed (assuming, as is-
usually the case, that the lender is in a tax free jurisdiction and is, therefore, not
interested in credit relief for the withholding tax) they will have to pay corre-
spondingly more for their funds. If a lender can obtain 9 per cent, tax free, from
a bank in one country he will want 9.47 per cent gross (leaving him 9 per cent
net) from a borrower in a country imposing a 5 per cent withholding tax. The
intermediate bank therefore must lend at 9.47 per cent just to break even before
expenses : if the break-even point for other banks is 9 per cent it will simply not
be able to compete. The bank would only borrow on the international market if
domestic interest rates were sufficiently higher to justify the payment of the extra
tax.

Withholding taxes on interest are, as many governments have discovered, really
a tax on the domestic borrower rather than on the foreign lender. In the example
just given, the 5 per cent withholding tax means that internal interest rates must
be significantly higher than international rates before money is attracted into the
country, and a country imposing withholding taxes on international interest can
never hope to have its banks operate successfully in the international market.
The Hong Kong interest tax at 15 per cent would totally rule out the possibility
of Hong Kong banks borrowing outside the colony to re-lend outside Hong Kong,
if it were not for the "memorandum account" procedure explained in Chapter 4.
Singapore came to terms with this problem more specifically and rather earlier
by its special concessions to "Asia Currency Units" (ACU's). The development of
Beirut as an offshore centre has been inhibited by the 10 per cent withholding
tax imposed there. This is being abolished for banks operating in the 'free bank-
ing zone' (see Chapter 6) .

Reserve Ratios

An important factor affecting offshore banking business are reserve ratios
imposed by central banks or other monetary authorities. In a domestic market,
some form of reserve control, possibly a voluntary one, is usually regarded as
necessary. Domestic banks make their profit by borrowing short and lending
long — they accept demand or short-term deposits from the public and, relying
on the fact that only a proportion of the deposit is likely to be withdrawn at
any one time (one man's withdrawal is likely to be another man's deposit), tie
up a great deal of depositors' funds in less readily realisable investments such
as overdrafts.

It is usually necessary for a proportion of funds to be held in cash and a rather
larger proportion to be held in readily realisable assets such as government
securities. Sometimes these ratios are merely a reflection of bankers' prudence or
are maintained for traditional reasons. In other cases, they are enforced either
by law or by the sanctions open to a powerful central bank such as the Bank of
England. In some cases banks may be required to deposit a part of the deposits
they receive with a central bank either at no interest or at a below market rate
of interest. Alternatively, they may be required to hold otherwise unattractive
government securities against a proportion of their deposits. These regulations
are imposed and the requirements changed both to protect depositors by imposing
minimum standards of bank prudence, as well as to control the effective money
supply.

Applied to international interbank business, these ratios can have a dramatic
impact. Assume that a bank can borrow in the interbank market at 9 per cent.
If it has to put 10 per cent of this deposit with the central bank interest free,
for every $100 borrowed at an interest cost of 9 per cent only $90 is available for
lending to cover the interest cost. This means that the bank must lend on at
10 i>er cent just to break even.

If the bank had to hold 20 per cent of the deposits in a security in which it
earned interest of only 7 per cent, it would need to lend at 9% per cent :

Cost of borrowing $100 at 9%

Return on $20 at 7%

Return on $80 at 9y 2 %

Like the withholding tax, this is a tax on intermediation. A relatively small
penalty that might be acceptable in a domestic banking system will be sufficient
to rule out any oj>erations in the competitive low margin interbank market. Coun-
tries seeking to encourage offshore banking usually make special concessions that
are designed to operate in such a way that control over domestic money supply is-

$9. 00
1. 40

7. <;o

293

maintained. This may actually be easier for a country imposing exchange control.

Other apparenty small penalties, such as deposit insurance premiums (Leba-
non) and stamp duties (which forces the international bond business '"off shore"
from Switzerland ) , can be sufficient to make international operations uncompe-
titive. These penalties may have to be removed if international operations are to
be encouraged.

Banking Regulations

The extent and degree of banking regulations may be an important factor in
determining the success of an offshore financial centre. A country which imposes
rigid regulations on its banks and prevents them from adapting rapidly to a
changing situation will make it difficult for a domestic bank to develop any ef-
fective or pioneering role in the international markets. It will also effectively
inhibit foreign banking groups from setting up operations in the country, except
to handle purely domestic business or to look after the local interests of their
multinational commercial and industrial customers.

On the other hand an under-regulated banking system will encourage the un-
sound, the imprudent and the plain crooked, and by lowering the general tone
of the place will discourage the growth of genuine business. An intelligent and
flexible central bank, banking commissioner or monetary authority that reacts
quickly to the requirements of genuine business, but leans hard on those which
overtrade or whose business practices get out of line, can exercise effective control
without inhibiting international business.

The published statistics of the Hong Kong banking system show what seem
to be alarming fluctuations in the ratios between aggregate bank assets and
deposit liabilities. In fact the figures of individual banks are closely watched,
although not of course published. The domestic banks are expected to maintain
their ratios. The statistics are distorted by the activities of the big international
banks. The fact that, at any one point in time, Hong Kong overdrafts of a bank
may represent 300 per cent of their Hong Kong deposits is totally irrelevant to
the bank's overall soundness and is rightly ignored by the Banking Commissioner.

Restrictions On Foreign Owned Banks

A country may be tempted to create all the conditions described above, for
successful international operations and then try to ensure that only domestic
banks should benefit. They may restrict the entry of foreign owned banks, or
foreign participation in domestic banks. Such a policy would enable local banks
to join in the market perhaps without the expense of foreign offices, but it would
not attract genuine international business.

Other Factois

Other factors that are important for the development of an offshore centre
are good communications and the availability of skilled staff. The inefficiency
of telecommunications has. to some extent, inhibited the growth of business
in Beirut. Banks in the Bahamas have difficulty in getting work permits for ex-
patriate staff, thereby limiting the growth of international activities. Language
is also an important factor. In practice, much international banking business is
done in English — the availability of English speaking staff, therefore, tends
to be important.

In what is largely a telex market, physical proximity may be relatively un-
important : a geographically remote centre may be successful. However, being
in a different time zone from the rest of the market can pose certain problems.

Finally there is the general climate of opinion. The government policies of a
country must appear to be generally favourable towards business, and must
not interfere unduly with the banking and financial sector.

PANAMA *

Introduction

Between North and South America lies probably the most important bank-
ing centre of Latin America, the Republic of Panama, with an estimated popu-
lation of 1.5 million.

Panama has developed over the past few years into an important interna-
tional banking centre. The causes of development have been diverse. Some have
been in existence for several decades, while the more recent ones are attractive

1 Section from Chapter V, "Offshore Investment Centres.

294

incentives offered to foreign banks by the Government. The Government has
realised that there is no possibility of fully exploiting the country's potential
without the close cooperation of financiers and an active domestic private sector.

Panama's telephone, telegraph and mail services network are the best in
Latin America (in 1968 international telephone communication system through
satellite was installed.) There are excellent transport facilities available by air.
sea or through the Inter-American Highway. The international airport, located
about !."> miles from the city of Panama, is served by 14 foreign and 4 Pana-
manian airlines. The country has modern port facilities for ocean going ships
and the internal highway system is adequate, with many new motorways under
construction.

There is no central bank in Panama and a total absence of controls on capital.
The U.S. dollar circulates freely as legal tender. Taxation is strictly territorial.
All these factors, together with the fact that unnumbered or coded accounts
exist and secrecy and protection is afforded to depositors, make Panama an
attractive centre for offshore operations.

Offshore companies are not subject to any governmental supervision or tax.
Nor are they required to file any documents once they have been set up, therefore
no statistics are available as to the number of corporations organised for off-
shore business. It has been estimated that some 40,000 companies have been
registered in Panama. Corporations and other legal entities may be set up in
about 5-10 days and immigration for investors and employees is almost un-
restricted.

Panama has locally and internationally trained lawyers, who provide fast and
competent service. Most of the large international auditing firms are locally
established. Offices of international fund sales organizations as well as several
international stock broking firms are also established in Panama.

A number of management companies offer specialized services to foreign based
corporations, including trust, consulting, administrative, accounting and clerical
services.

The banking boom in Panama has helped to import advanced administrative
technology. Panamanians who have been trained in Panama and abroad by for-
eign banks have subsequently joined and reinforced the government's economic
team. On a per capita basis, Panama has the largest banking facilities in Latin
America.

In the face of the task of finding funds to develop the potential of the country.
Panama has been able to attract large international banking and financial in-
stitutions to provide credits for that purpose. The advantages that both foreign
bankers and Panamanians reap out of the present arrangement provide the best
guarantee that Panama will continue to develop as a financial centre and a mar-
ket place for Latin America.

There has been some controversy of late as to whether Panama's recent in-
flation is attributable to the easy availability of credit. Credit in Panama has
not been as tight as in many parts of the world and because of the country's de-
pendence on international trade, most analysts agree that the major blame for
inflation must be apportioned to external factors. Any increase in the internal
supply of money tends to be reflected in an increase in imports, which in turn
stimulates inflation. The government, however, appears to have no intention of
limiting imports or of restricting credit by more than what market conditions
determine : in other words it fears recession more than inflation.

Control and Supervision of the Banking System

Attempts by the Government, to curb the freedom of offshore banks have now
been abandoned and the architects of Panama's economic policy agree that the
banking boom is a good thing.

Hanking freedom, however, does not involve a free for all between established
banks and the pirate institutions. The growth of banking has taken place pre-
cisely because the Banking Reform Law eliminated the "pirate" or "paper" banks
and for the first time gave respectability to financing in Panama.

The Banco Nationale de Panama, established in 1904, now with a capital of
Balboa 14m, acts as a financial agent of the Government of Panama.

The banking system in Panama is principally governed by Cabinet Decree No.
238 Of July 2. 1070 (the Banking Law), "whereby the Banking System is Re-
formed and the National Banking Commission is created."

295

The National Banking Commission was set up by Article 3 and is attached to
the Ministry of Finance and Treasury.

The main objectives of the Commission are : to maintain the solidity and
efficiency of the banking system, to promote monetary and credit conditions for
the stability and sustained growth of the national economy and to strengthen and
promote conditions proper for the development of Panama as an international
financial centre (Article 4).

The National Banking Commission is comprised of seven members : the
Minister of Finance and Treasury, the ex-officio President, The General Manager
of the National Bank of Panama, the General Director of Planning and Ad-
ministration of the Presidency ex-officio, three representatives of the banks who
must be Panamanian citizens domiciled in the Republic nominated by the Pan-
ama Banking Association and accepted by the Executive Organ ; and a member
named by the Executive Organ who must not be a bank officer. The Head of the
Economic Advisory Office of the Ministry of Finance and Treasury acts as Sec-
retary of the Commission and attends meetings. The Commissioners, together
with their respective alternates, are named for a period of 3 years with an ad-
honorem character. Decisions of the Commission will be adopted by absolute
majority, except in those cases which are specially covered by the above or other
Cabinet Decree.

The Commission is empowered to issue and to withdraw bank licenses.

The Commission regulates the credit system by setting the statutory reserve
and liquidity requirements.

All banks in Panama have to maintain assets equivalent to a percentage of its
local deposits which has been set at 85 percent. The definition of the Capital
Reserve is that the paid-in capital or assigned capital of a bank shall at no time
be less than 5 percent of its productive assets (Article 31). This Article was
amended earlier this year in order to improve the domestic liquidity situation.
The Capital Reserve requirement relating to local loans is now 5 percent for up
to $30m. Between $30m and $45m it is 4y 2 percent, and for above $45m it is 4
percent.

The non-mortgage banks which operate in the country and receive savings de-
posits are obliged to invest a minimum of 50 per cent of such deposit* in mortgage
loans on real estate located in Panama for terms of not less than 5 years; or in
notes, certificates or bonds which pay interest issued by mortgage banks, which
operate in Panama. Banks are prohibited from investing their savings deposits in
their own notes, certificates or bonds.

Every bank, in order to maintain its licence, must be beneficiary to a conHngi nt
credit conceded by a foreign bank, or by its own head office in the case of branches
of foreign banks. The contingent credit should be in U.S. dollars and not less
than 10 per cent of the total of its productive assets. The terms and conditions
of this credit are established by the Commission and when, for any reason, a bank
cannot obtain or renew the contingent credit the Commission is empowered to
negotiate with and on behalf of that bank and arrange for a special facility. The
Commission is also authorized to help out banks of the "National Banking Sys-
tem" in problems of liquidity created by sudden withdrawals of deposits by
granting special short-term credits drawn on the contingent reserves of the Na-
tional Banking System. Before being entitled to receive such special credit the
affected bank should exhaust its own contingent credit.

The legal reserve requirement, consisting of cash, must be between 5 and 25
per cent of the total sum of the bank's local deposits (Article 36). This legal re-
serve requirement was set at 12 per cent for sight deposits and 6 per cent for
term deposits, and the minimum percentage of such reserve should consist of 30
per cent of money of legal tender in Panama. The excess may consist of sight de-
posits in the National Bank of Panama or National Treasury Notes, which do
not earn interest greater than 3 per cent annually with maturity dates not longer
than 90 days. The legal reserve requirement is uniform for all banks but the Com-
mission may fix different reserve requirements for different classes of deposits.
Banks must furnish the Commission with reports in a form and with a frequency
which indicates the proper compliance with the above provisions.

The liquidity requirement, i.e. the minimum balance of liquid assets to the
gross total of the deposits of a bank, is set at 10 per cent for mortgage banks and
30 per cent for all other banks. Credits or deposits received from bead office,
branch, subsidiary or affiliate from abroad is excluded from the computation of
total gross deposits for the purpose of calculating the liquidity ratio.

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The Commission is authorised to set the maximum rate of interest which,
directly or indirectly, may be collected by the banks on loans or local credit fa-
cilities which they grant. Banks may pay interest freely on foreign deposits and
on local time deposits, however, a minimum of 1 per cent differential must always
be maintained between these deposits and the rate that mortgage hanks may pay
on local savings accounts. Interest may not be paid on local sight deposits.

The Commission is authorised to set the maximum rate of interest which,
will be published and circulated in the local press.

Banks must file full audited financial statements with the Commission which
will be published and circulated in the local press.

Banks are prohibited from granting, to any individual or entity, loans or credit
facilities or guarantees in excess of 5 per cent of their deposits, capital or re-
serves unless it is fully backed by acceptable collateral or guarantee, or if the
Commission specially authorises it, or if it represents loans to the State or to
National entities.

Banks are prohibited from granting or obtaining loans or credit facilities with
the guarantee of their own shares. They are also prohibited from granting loans
or credit facilities, without guarantee, which exceed 15 percent of their capital
or capital reserve, in favour of their directors, or to any juridical entry, when
the loan is guaranteed by the directors or to any entity or association of persons
in which the bank or any of its directors or officers possess, individually or jointly,
a majority interest. Banks are not allowed to acquire or to possess shares or par-
ticipations on their own account in any other kind of enterprises, except in trusts,
to the extent of more than 25 per cent of their capital reserve.

Banks are prohibited from buying, acquiring or renting real estate for their
account, except for their own purposes, or for special housing or development
projects or with prior authorisation from the Commission.

Participations, shares or real estate, which the bank acquires while collecting
debts must be liquidated at the first opportunity consistent with the economic
interest of the bank in the judgment of the Commission, which may establish
terms for this purpose.

All banks are required to submit the following statements to the Commission :
(a) Before the 20th of each month, the assets and liabilities of its estab-
lishment in Panama at the close of its operations on the last working day
of the previous month.

(6) An analysis of the credit facilities and other assets in the possession
of its establishments in Panama at the close of operations of each quarter.

These reports are confidential and the Commission may only publish consoli-
dated data with overall figures. According to Article 64 "at least every 2 years
the Commission should make one or more inspections of each bank, to determine
that its financial position is solvent and within the course of its operations it has
complied with the provisions of this Cabinet Decree. Such inspections will cover
establishments and enterprises in Panama in which the banks may have majority
participation or actual control. The total cost of the inspection and its incidental
expenses will be paid by the bank."

The Banldng Sector

Banking business, according to Cabinet Decree No. 238 of July 1970. is defined
as "principally the operation of attracting financial resources from the public by
means of accepting deposits of money payable on demand, or on time, or by any
Other means authorised by law in effect; and the utilisation, for account and risk
of the bank, of such resources for loans, investments or any other operation au-
thorised by law or banking practice." Banks are defined as all juridical entities
Which transact banking business, except savings and loan associations.

With the exception of official banks, no one may transact banking business
without having first obtained authorisation from the National Banking Commis-
sion t hrough the issuance of a licence.

Under the 1070 law banks can be granted three different licences: a general
licence enable banks to operate inside Panama and abroad with a minimum
paid-up capital requirement of $lm ; the international licence is exclusively for
offshore operations requiring only $250,000 capital ; and the representation licence
is simply for banks with representative offices in Panma.

The licence to exercise banking business must be requested from the Commis-
sion, which must receive a copy of the Articles of Incorporation and byelaws
(accompanied with their legally authorised translations if they were drawn in a
foreign language) ; a copy of a current financial statement certified by a firm of
public accountants; a fee of $500 if the bank is established under Panamanian
law and $1,000 if the bank is established abroad. Considering the application the

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Commission may request for further information, which it deems necessary con-
cerning the institution and/or its officers.

The Commission usually issues a temporary licence valid for 90 days for the
purpose of starting operations after which the bank's name is inscribed into the
Public Registry to remain there pending the outcome of the licence application.

Banks established abroad must designate at least two Attornies-in-Fact, both
of whom should be residents of Panama, and one of whom at least must be a
Panamanian citizen.

The Commission will cancel the licence of any bank which ceases to exercise
banking business, or does not initiate operation within six months following the
granting of the licence. It may also, by resolution adopted by a majority vote of
5 of the Commissioners, cancel the licence of any bank when it does not fulfil any
of the provisions of the Cabinet Decree Xo. 238 of 1970.

No bank may open a new establishment without prior notification to the Com-
mission. Xo bank which exercises banking business in Panama may merge or con -
solidate, nor sell all or part of the assets which it possesses in Panama, when this
would be tantamount to a merger or consolidation, without prior authorisation of
the Commission.

All banks which are set up under Panamanian Law. and in which at least 75
per cent of the shares are owned by Panamanians or foreigners with more than
5 years of continuous residence in Panama, may initiate operations with a paid-up
capital of $250,000. This capital must be increased periodically to reach the mini-
mum capital (i.e. $lm) within a maximum period of 10 years, the increases being
840,000 per annum during the first 5 years and $75,000 per annum during the last.
5 years with the balance payable before the expiry of the term stipulated above.

Before the implementation of the Banking Law of 1970 there were 247 banks
registered in Panama. After the law, only 20 banks were left. Since then, of
course, different types of banks have come to Panama and the number of official
licence holders has now risen to nearly 70.

In March 1975, there were 44 banks holding general licences, including the two
government-owned banks, the Banco Xationale de Panama and the Caja de Ahor-
rcs ; 19 banks had international licences and 4 had representation licences while
3 banks were issued with temporary licences. There has been a rapid growth in
the establishment of banks during 1974; 12 new general licences were granted.
There are at present 15 banks from the U.S.A.. 8 local banks, 7 from Switzerland
and 6 from Colombia. Japan is exclusively represented by the Bank of Tokyo and
there is only one British bank with a general licence, the Bank of London and
South America, a subsidiary of Lloyds Bank International. Brazil is represented
by the Banco do Brasil and the Banco Real. There is a tendency for banks from
a certain country to establish in succession : when the Bank of Nova Scotia set up
a branch in November 1974 three other Canadian banks immediately applied for
licences and now have temporary permits. The top three Venezuelan banks opened
offices almost simultaneously last year.

Banks assets increased from $853. 6m in 1970 to $5.5bn in 1974. Deposits during
the same period rose from $752.1m to $5.1bn and, as offshore activities expanded,
the proportion of internal deposits fell from 45 per cent to 30.8 per cent, during
the same period. Loans have reflected a similar trend, growing from $665.2m to
$3.8bn with the share of internal loans falling from 83 per cent to 33.8 per cent.

In spite of this rapid development, Panama is still a small banking centre by
international standards and there is still much scope for growth.

Although Panama aspires to be a "Latin" dollar centre, until now it has largely
been a Latin American branch of the Eurodollar market, channelling money that
flows in and out of the continent. This dependence on Europe is diminishing,
however, and should be further reduced by a recent change in banking regulations
which allows inter-bank deposits to take place without a legal deposit being made
with the government. In other words, exclusively offshore banks can now deposit
funds with banks with general licenses at no cost to either. The fact that offshore
banks can now open subsidiaries is also encouraging new institutions to come to
Panama.

Profits have been doubling for most banks, each year. This together with the
total freedom of operations and the fact that only domestic profits are taxed, is
likely to attract many more international banking institutions to Panama.

With the presence of so many large foreign banks and offshore institutions it is
difficult to separate domestic from international banking. The majority of the
banks have both domestic and international operations and foreign banks were
initially drawn to Panama by the prospect of lending domestically.

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Domestic deposits have increased from $41.2m in 1970 to $706.7m in 1974 while

domestic loans have risen from $419.Sm to $1.3hn during: the same time.

Over the years the government has made numerous attempts to press the
hanking sector into investing in agriculture and industry. With the aid of the
Agricultural Development Bank the government is now more willing to step
in as direct guarantor of credit for agricultural development. Industry is less well
off as the government has been reluctant to grant new industries protection from
outside competition.

At the beginning of 1975, the government decided to impose a 7.5 percent sur-
charge on all commercial and personal loans in order to subsidise loans to local
industry and to agriculture. Through the National Banking Commission's Interest
Equalisation Fund loans are now made to industry and agriculture with a 3 per
cent and 4 percent discount, respectively.

The Wholesale Markets

Wholesale market operations, relative to the size of the capital market itself,
are quite considerable. There is an active primary and secondary market in
Eurobonds with a limited amount of trading in domestic, government and
treasury bonds. The main participants in the market are the international in-
stitutions represented in Panama. Since the new regulations, (mentioned above)
the inter-bank market has become more active and deposit broking quite sub-
stantial. Trading on the security market is still somewhat limited. Article
of the Banking Law of 1970 implicitly expresses the government's intention of
promoting the development of money and security markets in Panama.

Currency and Exchange Control

The official currency of Panama is the Balboa which under the Monetary Treaty
of 1904 with the U.S.A. is at par with the U.S. dollar and is freely convertible.
There is no Panamanian paper currency and the local currency is represented
only by limited amounts of silver Balboas and subsidiary coins and the com-
memorative 20 Balboa silver coin. The U.S. dollar is also legal tender in Panama
and it circulates freely as the accepted medium of exchange. Official payments
to the government are expressed in terms of Balboas although in effect are
paid in dollars. Exchange transactions by commercial banks are based mainly on
New York quotations.

There is no exchange control of any kind in Panama. Consequently, funds of
any denomination and in any amounts may move freely in and out of the coun-
try at any time and may be held by any domestic or foreign natural or legal
person.

Most import and export licenses are issued by the Price Regulation Office, a
semi-autonomous institution of the Panamanian Government. The Price Regu-
lations Office is responsible for the implementation of restrictions on import and
exports set by the appropriate Ministries according to the prevailing trade
agreements.

Cold

Residents may freely hold gold in any form at home and abroad and may
freely negotiate gold in any form with residents or non-residents at home and
abroad. Imports and exports of gold in any form other than jewellery carried a<
persona] effects are subject to license if made by residents other than the Mone-
tary Authorities. Import licenses are issued freely by the Ministry of Commer
and Industry and export licenses by the Ministry of Finance and Treasury. Ex-
ports of unmarked gold produced in Panama are subiect to an export duty of
1 percent ad valorem and exports of gold coins (other than U.S. coins which are
exempt ) to a duty of VL* percent.

Companies Law

The organisation and management of corporations is governed by Law Xo. 32
of 20th February 1927, which was based on the corporation law of the State of
Delaware of the U.S.A.

Corporations are the most popular form of business in Panama, and for off-
shore operations they are almost the exclusive choice of a legal entity.

Any two persons of any nationality or domicile may execute the Articles of
Incorporation before a Notary Public and then have it recorded at the Public
Registry Office. In the case of offshore companies the incorporation may l>e done
by nominees.

299

Members of the Board of Directors must be at least three, regardless of their
nationality or place of residence. Meetings of the share holders or of the Board
of Directors may be held anywhere and the shareholders and directors may be
represented by proxy issued in a private or public document. The corporation
must however, keep a resident or statutory agent in Panama who must be either
an Attorney at Law or a lawyer. The records of the corporation can be kept
wherever the corporation decides and in any language, but a Spanish trans-
lation is required whenever any document is to be notarised. It is only neces-
sary to record any amendments to the Articles of Incorporation and changes in
the Board of Directors. A corporation is not required to adopt by laws nor to
record them in Panama if any are in fact adopted.

A corporation must have an authorised capital but there is no minimum or
maximum authorised, issued or paid-in capital required, nor is there any obliga-
tion to have the whole or part of the authorised capital actually paid in by any
particular time or deposited in Panama or anywhere else. Shares may be issued
in bearer or nominative forms and bearer shares must be fully paid up when
issued. The authorised capital may be stated in terms of a sum of money of any
denomination divided into a stated number of shares with a certain par value
each or a certain number of shares without par value or a combination of both.
Public subscription requirements need to be complied with only if the offering
is made in Panama and there is no requirement that the issuance of shares be
registered in Panama. The shareholders rights and the classes of shares are
laid down in the Articles of Incorporation and the shareholders may be of any
nationality.

There are no disclosure requirements and directors of record may be nom-
inees. There is no legal requirement for a corporation to have a registered
office and corporations not doing business in Panama are not required to follow
any particular accounting procedure.

The only notice which must be published is in the case of the dissolution of
the corporation, when a notice of dissolution must be published in a newspaper
in Panama. Otherwise if the corporation does not do any business in Panama
it is not required to file any financial statements, annual returns or any other
information with any public or private authority in Panama.

The cost of setting up a corporation in Panama is made up of $75 for the
stamped paper on which the Articles of Incorporation must be written, notarial
fees of $50, $25 for translation costs when the Articles of Incorporation are
executed in a language other than Spanish, registration duty based on the
authorised capital — $20 (minimum) on the first $10,000, $0.75 per $1,000 on
the next $90,000, $0.5 per $1,000 on the next $900,000 and $0.1 per $1,000 on
excess over $lm. This duty is payable once only on registration and on any
increase in the authorised capital. For the purpose of computing the registra-
tion duty, shares without par value are assessed at $20 each. The maximum
capital which carries the minimum registration duty therefore, is either $10,000
or 500 shares without par value.

Legal fees are approximately $450, and a lawyer or a firm of lawyers acting as
the resident agent of the corporation would normally charge $200 per annum.

Foreign Companies

Under Panamanian Law, a foreign company is governed by the Law of its
place of incorporation. A foreign company is required to register its Articles
of Incorporation, the resolution authorising its registration in Panama, copies
of the last financial statements, certification of the validity of its organisation
and the portion of the capital assigned to the Panama branch. Foreign corpora-
tions may transfer their corporate seat to Panama however, they will continue
to be governed by the Laws of their place of incorporation. The cost of register-
ing a foreign corporation in Panama or of changing its corporate seat to Panama
is approximately the same as setting up a corporation.

Other legal entities possible under Panamanian Law are: limited partner-
ship, commandite companies, individual limited proprietorship, civil partner-
ship, and, more rarely, participatory accounts.

Under Panamanian Law, a trust is a mandate whereby one person transfers
property to another for the benefit of another person or of himself. In order to
constitute a valid trust it is necessary that the beneficiaries be alive at the
time of the constitution. The trust must come into effect within 20 vears from
the time of its constitution and terminate on the death of the last beneficiary.
Discretionary trusts are not possible because the purpose of the trust must be

300

specified. The activities of the trust are restricted only by the instrument
creating it.

Taxation

Income tax in Panama is levied only upon net income derived from opera-
tions within the territorial boundaries of the Republic.

The income tax law of Panama (Law No. 9 of December 1964, Article 694)
clearly defines the activities which are not subject to Panamanian tax : invoic-
ing and directing operations which are completed or effected abroad and the
distribution of dividends from income not produced within the territory of the
Republic of Panama.

Royalties, interest, dividends, commissions, profits from trading and other
income received from foreign sources and interest on time deposits placed with
local banks in Panama are not subject to Panamanian taxes. There is no with-
holding tax payable on the distribution of such income.

Panama has no double tax treaty with any other country ; therefore there is
no exchange of information. Where no tax is payable there is no obligation to
file returns or other information.

Corporations engaged in business within and outside Panama are subject to
income tax only on that proportion of their net income derived from business
carried on within the territory.

Individuals receiving remuneration from a Panama company are liable to
Panamanian tax only if they reside in Panama.

Corporate income tax rates are between 10 and 50 per cent and individual
income tax rates are between 2.5 and 56 per cent.

Real estate in Panama is subject to an annual property tax at a progressive
rate of 0.75-1.5 per cent. Profits obtained from the sale of Real estate are sub-
ject to capital gains tax. The taxable gain less the cost of improvements plus
an allowance of 7 per cent on the accumulative costs divided by the number of
years the property has been held, is added to the taxable income to determine
the applicable rate of tax. The rate is then applied to the full taxable gain to
determine the capital gains tax due on the sale of the property.

Inheritance tax is based on a progressive scale starting from 4 per cent with
a maximum of 33.75 per cent payable within one year from the death of the de-
ceased. Tax effects of inter vivos donation of properties is computed on the
basis of the scale applicable to inheritance tax.

A social security contribution of 5 per cent is paid by the employee and 7
per cent is paid by the employer. An education tax of 1.75 per cent is paid by
the employee and 0.25 per cent by the employer, and in both cases the employer
must withhold this tax.

A flat rate tax of 10 per cent is applicable on distributions made from income
arising within Panama. The company making the distribution must withhold
and pay this tax on behalf of the shareholder, who then does not include the
dividend as part of his taxable income. This tax does not apply to distribution
of income of foreign origin.

I! a company operating in Panama distributes, in a given year, less than
40 per cent of its profits arising in Panama, it must nevertheless pay a tax at the
flat rate of 10 per cent of 40 per cent of the profits for that year. If these profits
arc subsequently distributed :i credit will be allowed for the tax already paid.

Stamp duties are levied on contracts executed and performed in Panama and
on cheques and bills of exchange issued and payable in Panama, at an ad
valorem rate depending on the type of document or transaction. Contracts exe-
cuted in Panama to be performed elsewhere are exempted.

The distribution of retained earnings arising from operations in Panama pur-
suanl to liquidation is subject to capital gains tax according to the procedure
outlined above.

There is a business tax payable yearly at the flat rate of 0.5 per cent on the
net worth of the business with a maximum of $10,000. This tax does not apply
to companies operating in the Free Zone or to companies conducting offshore
operations.

The Colon Free Trade Zone

The Free Trade Zone was created by Law Xo. 18. 17th June 1018. located in
the city of Colon at the Atlantic entrance of the Pnnama Canal.

At present there are more than 800 companies established there, handling more
than $500m of shipment annually.

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Merchandise is received in bulk, duty free, subsequently being repacked,
labelled, assembled, manufactured and reshipped in smaller quantities to cus-
tomers in a wide area. Companies operating the Colon Free Zone do not require
a commercial licence.

Operations in the Colon Free Zone may be conducted through leasing land
from the Free Zone and constructing buildings. The user may lease warehouse
space owned by the Free Zone, or a service company can provide all the services
required, using public warehouse space.

Companies established in the Free Zone might have three types of income
subject to different income tax; (1) Income derived from triangular indent
sales when merchandise does not physically come into the Free Zone and only
the documentation is done by the Free Zone company, in which case the profit
is not subject to taxes. (2) Net income derived through re-exporting of the mer-
chandise to foreign countries is subject to Panama income taxes minus a 90
per cent discount. (3) Net income derived from sales to the Republic of Panama
is subject to full current Panama income tax. In all cases companies are pro-
hibited from retailing.

Companies carrying out both internal and external operations are required to
maintain separate accounting for both kinds of operation, like any other com-
pany in Panama.

The Canal Zone

The Canal Zone is a strip of land across the country connecting the Pacific with
the Atlantic oecan, use of which was granted in perpetuity to the U.S.A. under
a treaty which is now being re-negotiated. There are no commercial establish-
ments in the Canal Zone and residence in the area is restricted to members or
employees of the Armed Forces or to other employees of the Panama Canal
Company and services. The Canal Zone is regarded as U.S. territory and income
arising there is now liable to U.S. taxation.

Shipping

Ship Registration under the Panama Flag is widely used by international
shipping companies. This is due primarily to the very low registration taxes
as compared with other countries throughout the world. Registration tax is $1 per
net ton ; Government fee for registration of Bill of Sale is 204 per net ton which
is payable once only. The annual tax is 10^ per net ton. It is possible to have pro-
visional registration, permanent registration and registration of ships under
charter. Mortgages of vessels registered in Panama may be recorded after the
Bill of Sale or other evidence of the title has been recorded and they may be
executed anywhere. The Labour Laws concerning Panama Flag vessels are
liberal and income earned on international shipping activities are specifically and
expressly exempted from Panama income taxes.