\ 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) IV 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 V 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) 4 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? 5 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) s 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. (c) Estimate under treaty: Panama Canal Commission. __ 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 350 350 Tolls credits (thousands): $994 6 $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 8 645 185 1 8 Total: Panama Canal net tonnage Displacement tonnage. 646 193 646 193 10 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. I 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 12 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). 13 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 14 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. II 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. 15 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- 1G 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 0) 99 68 46 (') 250 259 216 $228 219 257 309 322 133 139 155 178 7 9 83 97 121 122 130 157 206 184 822 928 1.007 1,034 47 62 101 129 319 542 1,036 1,165 5 7 10 14 371 611 1.147 1,308 84 129 47 183 1,937 4, 508 5,839 6, 327 113 18 61 2, 134 4, 637 5, 904 6, 571 72 77 96 566 162 121 110 113 2, 739 5, 446 7,257 8,558 1,025 1,352 1,525 1,628 14 23 26 29 44 69 79 91 58 79 102 83 1,141 1,523 1,732 1,831 17 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 57 68 54 90 197 446 452 626 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 18 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. 19 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 82 2 66 13 912 19 34 14 53 18 2,015 301 29 24 20 44 5,919 7, 688 1,292 444 1, 829 3, 506 140 396 2,411 4, 036 1, 639 1.08O 55 3 63 100 391 174 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 20 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. 21 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. ! I I I i IN 1 p PI I « IP i » i 1 I a i J I IP j 22 2222SS52S assess ililll 22£;2222S 25522338 222**22* »2222S22 : : m iiilill 22222223 2222=222 ■ 111 I Is! I 1 ill I If I ; o.e II n .it !l ! 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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 34 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 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 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 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. 30 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 9 2, 726 18, 453 1,925 42 3 41 93 7 1 6 62 1 2 354 85 40 416 111 ,745 9 59 1 18 5 541 7 16 368 53 2 81 31 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 1 812 389 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 36 3 54 415 2,643 4, 479 1,862 1, 334 56 1 62 119 450 208 150 223 1,699 2, 367 AQ 14 8, 423 9, 654 70 9 2,865 3,091 1,099 88 1,618 71 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. 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Itf I f 1 1 1 1 111 1 1 1 1 1 ^ 1 1 1 HI H £ 38 II III! coo" ^.-JJe>iVJc>jVsiV»e^ sslsllllls ills ^§a§§§§§§g§SS§SSS^SSS§§§§§§§iB jJAUJitiJ its! jjijiJilliiwijiiijijil&'iitiiiiijiffiii i i i JJiiiiiiililtJiliiiJJJJi i f II Hid iJiiii iii 1 1 1 i i iiyiiiiwijyiyiiJi ist|?l!ilHUIiii!P!! ?{: I 2. r )-(]05— 78 4 I! 44 cnT cnT cnT i-« cnT csT oJ" •— 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 47 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. (c) The General Manager of the National Bank of Panama (Banco Nacional de Panama). (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 ; (c) They are condemned for crime against property or public faith or; (d) They no longer meet the requirements which were established for their appointment. In case of removal of any of the appointed Commissioners, the 48 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 ; (c) To issue the resolutions referred to by this Cabinet Decree ; (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 49 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. 50 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. 51 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 52 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 ; 53 (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 54 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 : 55 (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 ; (c) Under exceptional circumstances and with the prior authorization from the Commission. 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 56 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 ; (c) If it can not continue its operations soundly ; (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. 58 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 ; (c) Execute any document on behalf of the bank ; (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. 59 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 60 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, 61 (c) Local banking regulations, including control, inspection and reporting, reserve requirements, and the like, (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. 62 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 >. . 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 . 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 r> Oct 17 k-c r i r 1 * ?' r4 uL 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. 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 «3 • ~ V 3 OC JOH < or Z »- a 2 O O O - co o — tr z Q < O < - a z d -i < Z ML Z z < o < < a o q (j t- X >- — >- O -i z jo; < < O < ui 1 CO > 1C CD 2C S Z -I * z z < < — O < -I < 2 CD t- CD < CO Z Z at Uuju. - er X -» ui < U CO »- z — < z •-• > u. ac < < -t Z < > ac i ui ac -i < e» z - o t- OC < ui < I CO z • • a I " ui < z3 z »- — ac 3 o o Z u. z > o « »- ~ 3 z -» a 3 -» Ui O — 2 2 <* < (/» Z 3 > ~ l/> *- ac 3 ac -OhO -» < < Z t- d < m z O ac «-»ui ~3 .5 • o z o ec — < < ui O -J as oa, 2 ac 3UU.lt. Z 3 O O O Z ac ui ui < ct a. a. o o >- >- -i < z o — >- ~i < t- z a s M z •< Ui < < Q ui z z Ui 1 < ac i Ml z O a U < l/l a. z ac u. >- u. Z o < o u o o u. u u z a O ui u ui Ui ►- ac o <« o -> ac a n a at 3 ui « !j — 3 33 M n co Z a. a o 3 Ui Ui ac — z as 0L <0 u ac 3 OJ C T3 -H w > - O W * * 3 = J-5 < o E 2 ■ O ts> II if ^a>f^tj>ir5ir>or»— «o^— «cviooor^csi ITXNI CNI CNI CM CO CvJ — S S S £ . lD r<«> - ^C''<»r^t£)toa5£ | U3l^r^MX| — oo O o II o ' o eg )3~t;i.n^.ilS>o-'' c o_i .□C03$00li.Lf>«*ocoooir>r-. o> •-• co to I LD CO i .— > i— • 0(0 cor»T oo o o ICSK-f- lC001«3-C\J0»CVJt0O i en o 10 co*i-*i-ir5i— < ooooooooooooo i co r-» ■— i o cni E £ ego' O Cl C t ^ !.b.E o © o E 0.75 otp-oEc S a: cd 00 Q t- _i as ■5 £ £E~^£ co 7 S 5 < W I r- ■ - O) : © - 1 i_ CT ,5 c: CT ! " >*E fc — b = i_ c 3 c co 3 t ro •B H £ = o-S.E .E >>"SJ2 " *- E 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 79 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) 80 4B 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* 47 conducting investigations. CNB can also arra short and medium term export rtnanc provide foroign t nllfy cut Na 81 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 82 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 We s. 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. 83 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 to 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 60 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- 84 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 85 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, 86 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) 87 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 88 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) 89 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. 90 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«> 91 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 92 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) 93 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. I 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) 94 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 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.] IX 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. (c) The same for Lehman Brothers. 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. X 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. XI 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? (c) Estimate the annual dollar inflow to Panama from drug traffic since 1968. (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. 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 countries lost significant proportions of their reserves and the severity of other losses was 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 .9 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 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 4 541 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 79 425 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 27 Real estate investment trusts 533 Consumer 1,918 1,342 654 444 453 Other 97 671 2 23 2 In overseas offices (313) 808 130 9 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 M* •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. 12 180 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 13 181 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 IS 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% 8% 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 20 188 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%) 21 189 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%) 22 190 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. 24 191 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. 25 192 The Chase Manhattan Corporation Consolidated Statement of Condition MM 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 L 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 Value Par Value Value Value Investment Securities: VS. Treasury Securities: Maturing Within 1 Year $ 550 $ 542 S 541 $ 29 $ 28 $ 29 Maturing After 1 Year but Within 5 Years 659 663 663 179 179 177 Maturing After 5 Years but Within 10 Years 24 24 23 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 S 3 $ 3 S 3 $ 35 $ 35 $ 35 Maturing After 1 Year but Within 5 Years 121 121 120 154 159 157 Maturing After 5 Years but Within 10 Years 10 10 10 Maturing After 10 Years 178 176 164 182 179 164 Total $ 3o: $ 300 s 287 S 381 $ 383 S 366 State and Municipal Securities: Maturing Within 1 Year $ 55 $ 56 1 52 $ 327 $ 330 $ 327 Maturing After 1 Year but Within 5 Years 106 106 85 54 55 53 Maturing After 5 Years but Within 10 Years 208 209 144 47 47 44 Maturing After 10 Years 878 861 537 960 942 685 Total $1,247 $1,232 s 818 $1,388 $1,374 $1,109 Other Bonds, Notes and Debentures: Maturing Within 1 Year $ 134 $ 131 s 134 $ 92 $ 91 $ 93 Maturing After 1 Year but Within 5 Years 69 69 72 92 91 93 Maturing After 5 Years but Within 10 Years 38 38 36 39 39 39 Maturing After 10 Years 136 136 120 139 136 111 Total $ 377 $ 374 s 362 S 362 5 357 $ 336 Federal Reserve Bank and Other Stock Investments: Federal Reserve Bank $ 33 s 33 $ 33 $ 33 Other 29 30 67 60 Total $ 62 f 63 $ 100 $ 93 Total Iniestment Securities $3,360 s:.9o- $2,659 S 2.335 Trading Account Securities $ 205 $ 197 s 197 $ 401 $ 383 $ 383 43 194 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 6 36 113 155 New York State and Financially Related Agencies 26 2 225 253 Revenue Obligations of Independent Authorities 5 66 71 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 111 111 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 45 196 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 47 5 10 5 3 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 82 72 55 52 54 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 $ 1,254 123 101 101 91 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 82 242 26,823 8.82* 56 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 Average Average Balance 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 72 55 210 203 24,653 10.96 3 47 7.82 40 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 53 202 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 2.20 2.00 2.00 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 M 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 ) . 55 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 60 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. I 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. f 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. II 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. IV 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. V 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. VI 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 (c) will not do it in the future? 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 (c) all communications from Mr. Rockefeller or Mr. Carlino, or from other persons regarding the mission to State. (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 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 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, 200, 000. 00 3, 100, 000. 00 1990 5, 000, 000. 00 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 r 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 de diciembre Detalle taje) tacion miento autorizada de 1976 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 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. 00 140, 672. 00 6.0 1971 1981 16, 600, 000. 00 16, 600, 000. 00 6.0 1972 1982 14, 400, 000. 00 14, 400, 000. 00 6.0 1974 1976 1, 312, 889. 36 1, 312, 889. 36 6.0 1975 1985 810, 000. 00 810, 000. 00 7.0 1975 1985 13, 404, 567. 07 13, 404, 567. 07 8.0 1975 1977 2, 644, 175. 92 2, 644, 175.92 8.0 1975 1977 2,817, 163.82 2,817, 163.82 8.0 1975 1977 840, 810. 56 840, 810. 56 8.0 1975 1977 1, 340, 061. 79 1, 340, 061. 79 6.0 1975 1994 28, 970, 000. 00 28, 970, 000. 00 6.0 1975 1987 3, 592, 172. 21 3, 592, 172. 21 8.0 1975 1985 13, 400, 000. 00 13, 400, 000. 00 6.0 1975 1996 17, 400, 000. 00 17, 400, 000. 00 8.0 1975 1987 3, 942, 307. 06 3, 942, 307. 06 8.0 1975 1978 2, 337, 414. 44 2, 337, 414. 44 8.0 1975 1978 576, 759. 12 576, 759. 12 9.0 1976 1983 21,900,000. 00 21, 900, 000. 00 6.0 1976 1997 22, 743, 964. 07 22, 743, 964. 07 8.0 1976 1986 4, 853, 475. 00 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.. m 1.0 Variable 9175 1974 1990 1984 9, 000, 000. 00 6, 570, 000. 00 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. IX 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. ) X 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. XI 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 xv 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 ; (c) the Inter- American Development 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? (c) or in any Panama-U.S.S.R. or Panama-Mainland China negotiations or discussions? 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- Sop Appendix I, B (Exhibit 4). (254) 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? (c) In either case (i) what would be the estimated cost? (ii) who would pay for it if done before 2000? 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 ; (c) the total cost of such briefings ; (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 (c) the media. 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. 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DO <£ CD 00 Q 0J TO o £ TO.<2 TO O 3 CD Q_ CD S,h= CO TO ™ W i E ■- 2- s << TO £5 J -j; o co 2 to E £££ — TO £ C _ to : <8 c/i «2 £ 2: t TO CD CD oo co'od oo "0 ! E I TO TO = E<£ CD .9 — ; TO — CD . . to : p: 8 = CD — ' CC CD o o o o OO CD o I CO CO CO ' i TO TO i % to ra re g Q. 0_ 0_ < 2 £< t: "2 • o 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 I 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 .7 SSE 100 E 7 E 2.5 E 5 E SSE 25 SE 43.3 SE 7.7 SE 100 E 10.5 B 13 E . 8 E .8 E E 100 E 22.4 SE 100 SSE 12.7 SE 12.7 SE 1.7 E 11. 1 E 12.7 E 20 E 20 E 8.3 SE 100 SE 50 SE 4 E 25 SE •Pp. 971, 972. 291 in 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. IV 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. 296 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 297 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. 298 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. 301 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. o t I