By James L Srodes
The most immediate job is a rescue operation on Chase's declining fortunes. The Bank's earnings have declined 36% between 1974 and 1976, plagued by real estate loan losses that have turned into foreclosure management losses this year. Then there is the task of trying to recapture its pre-eminence in overseas banking.
Euromoney correspondent James L. Srodes interviewed Rockefeller in his seventeenth floor office at Chase Manhattan Plaza, in a session which concentrated, ahead of the IMF/World Bank meeting later this month, on the questions that trouble both Rockefeller, and the international banking community, for which he is both a symbol and a spokesman.
Do you feel, as some of your colleagues do, that the International Monetary Fund should take on the function of being a credit manager for the private banks with LDCs?
A lot of external debt went into the hands of commercial banking systems, into straight balance-of-payments loans. That has rather phased out, but the banking systems have continued to make loans for regular commercial purposes, trade finance, and project loans. Now some of the countries have recognized that they had to watch the growth of that debt and make sure that their capacity to service it remained sound. Some, I think, were a little bit slow and a little bit lax in this regard, and those are the ones we are basically concerned about today. This is where the IMF comes in, because they, much more effectively than the commercial banking system, can analyze the problems of a given country, and make suggestions and carry weight with those suggestions and persuade the country involved to take the measures necessary to reduce its imports – to bring its balance of payments and domestic financing into balance, reduce its inflation, and hence to put its house in order.
Why more effectively than banks who are actually experienced in lending there and who are supposed to be dispassionate, hard-nosed businessmen?
Because governments don't like to be told by individual banks what to do and what not to do.
Given the riots in Egypt and Zaire's obstinacy, they don't seem to like the IMF doing it either.
Egypt is a good example. The riots were unfortunate, the product of the government having handled the implementation of the IMF's recommendations a little clumsily. They tried to do it all at once, and they didn't really explain to the people what was being done. But despite the riots, they have not abandoned the programme and are still going forward with it. I feel quite certain that a commercial bank that tried to impose conditions on a sovereign nation would soon be in a lot of trouble. It's appropriate that international organizations like the IMF, which was set up for this very purpose, should be the body that gives nations advice on international monetary questions. It's equally important that the commercial banks be aware of what they're doing and not pursue loan policies which fly in the face of the prudence. I'm very much in favour of close cooperation between the commercial banks and the IMF.
Do you see any danger that this bank-IMF relationship might lead to the sort of resource transfer that many Third World leaders are demanding from the West?
That's not the role of the IMF. I am concerned at the pressures that some of the developing nations have sought to bear on the IMF to use, for example, the SDR as a means of transferring resources. That's not what SDRs should be used for. They should be an independent source of reserves. And the minute you try to combine the reserve function with a lending function for resource transfer purposes, it immediately threatens and weakens the SDR. I feel rather strongly that that is not the role of the IMF.
Should the United States and its other major trading partners support the recent UNCTAD and Third World proposals for commodity stabilization funds?
Frankly, commodity agreements are very, very dangerous because they do tend to interfere with and negate the market mechanism. I can't help feeling that the market mechanism is an important one to preserve internationally as well as domestically. I recognize that violent movements in commodity prices can be destabilizing, and therefore I don't say that, as a pragmatic question, one can rule out some kind of accommodation that tends to dampen the swings. I feel very much the same thing with foreign exchange controls. It seems to me that it's important that the market mechanism be allowed to work in setting exchange rates now that we have a free exchange rate. But, on the other hand, I can see that some central bank intervention to slow down the extreme swings may be at times necessary. The commodity price question is a little bit of the same thing.
But would you go so far as to favour proposals that not only see commodity funds as price stabilizers, but resource transfer mechanisms?
No. I can understand why the developing nations would like to see this, but I'm not at all sure that this is the right way to do it. I'm not at all sure that the industrial nations are going to be prepared to accept that kind of procedure.
Do you worry about a continuation of the kind of price swings we've seen in the last two or three years?
There's no question that they create serious problems for the industries which suffer from them. It's like so many things – you have to strike a balance between the overwhelming desirability of preserving the market mechanism as much as possible, and, on the other hand, of avoiding disastrous swings to certain countries that are dependent on one or two commodities.
How unstable does that make the world economy?
The outlook is not that bright. The economy of Europe is quite weak. The economy of the many developing countries is not very strong. One of the problems has been the high price of energy, which has had a distorting effect on the productivity of many countries and has resulted in the transfer of resources on a very large scale to the oil-producing nations. Therefore, maybe the more significant thing to be concerned about – and try to figure ways to deal with – is how those huge surpluses in the hands of a relatively small number of oil-producing nations can be put to more extensive and more productive use for the world at large.
Do you have any suggestions?
Given the fact that countries such as Saudi Arabia which are newly endowed with this great wealth have a very small population, and considering they don't have many people who have had experience in this kind of thing, they've done remarkably well and have acted responsibly. They've not taken actions which have been disruptive to the money markets of the world. But more can be done, and one of the things that has been proposed – of which I am in favour – is the new Witteveen fund in the IMF which they hopefully will set up. I would like to see both it and the fund that Kissinger proposed for Europe.
The safety net?
The safety net. I believe both are really needed in this process of doing a more effective job of recycling those surpluses. It is true that the oil-producing nations have learned to spend a good deal faster than most people thought they could, and this is a form of recycling. On the whole they are making progress in direct investments around the world, and to a limited degree they have participated especially with their Arab monetary funds in providing assistance to Egypt, Jordan, Yemen, and the Sudan. But they have not yet reached the point where they are participating on a large scale, either through the Fund or the World Bank. I hope their role in those two institutions will grow. They are the two institutions today which are playing the most significant role, both in terms of prescribing monetary stability in the world, and with the World Bank making the kind of resource transfer and development of economic systems that are so desperately needed.
Are the surpluses that have built up in the OPEC countries the ones that need to be shipped, at least in part, back to the LDCs as opposed to the shift of massive Western industrial obligation – distinct and apart from OPEC – directly to the LDCs?
Probably there has to be some of both. My own feeling is that our country has gone much too far in pulling back on its overall aid programme. We should still as a nation continue to provide both direct aid and, in some cases, concession loans. This should be done primarily through IDA, but we haven't even done our share in that. This is a shocking thing, which perhaps reflects the pulling back of our country following Vietnam. My feeling is that we are a major world power and we ought to act as one. We have responsibilities to the world as well as to our own country.
Perhaps more than any American businessman, you're identified as a humanist, a human rights advocate. How do you view the recent development where Congress seems to have taken President Carter's human rights stance as an excuse to put restrictions on funds for the World Bank and even the amendments to tie up certain commodity aid?
I'm very much opposed to that kind of restriction. I completely sympathize with Mr McNamara saying that he simply cannot accept funds on a restricted basis. Once you start that kind of thing, anyone can put restrictions of any kind and turn the Bank into purely a political organization. That doesn't mean that we shouldn't be concerned with human rights, but I don't think that the way to exercise influence on human rights is through trying to starve people, or prevent international agencies from doing their proper job and giving assistance. It's the wrong way of going about it.
In the time remaining to you as Chase's chief executive officer, what goals do you have, especially for Chase overseas and in Chase's competition with the other large US banks?
My main goal is to make the bank bigger and more profitable.
But do you feel you can reverse the rather formidable advantage that Citibank has over Chase, particularly in the overseas struggle for markets?
We have already gotten some of our more publicized problems under control – the real estate losses and so on. You should remember that some of our more recent problems were structural in nature, going back a long time. Fifty years or more ago, when both Citibank and Chase went overseas, we opted for correspondent bank relationships while Citibank established branches. Until recently that distinction made no real difference in terms of our competitiveness. Now, apparently, businessmen want to feel they are dealing with a branch of a New York bank. And we are making adjustments. I think that is the kind of tactical shift you are talking about.
One of the areas where Chase has been active traditionally has been in the foreign field. Having said what you said about resource transfers, have you decided that Chase is going to become even more active than it has become in the Middle East? Is that where the action is?
It's certainly the area where our business is expanding most rapidly in the last two or three years – partly because we are starting from a relatively low base. But we have opened branches and joint venture facilities – quite a number of them in eastern countries in the past three or four years.
Are they profitable?
Yes, they are.
Are they profitable enough?
Over time, I think that they will be of growing importance. But that isn't the only part of the world that we are interested in. For example, in the early 1970s the area where we grew fastest was in South-east Asia. Our business there grew ten times in five years. Business in the Middle East is showing comparable signs of growth in the last three or four years.
Do you still see Asia as a major theatre of operations?
Yes.
Do you have any new goals for Asia we should know about?
There are no dramatic plans for new facilities, but we see lots of opportunities for doing more in most of the places where we are operating.
Any shift in lending emphasis, say to energy exploration?
No. I think the main thing is that we started saying back in 1974 that we felt that the normal role of commercial banks should be to assist the private sector in countries where we are making loans or, if it's in Socialist countries where the resources are owned by the state, at least they should be for trade purposes and project lending, rather than balance of payments. While we do not have a firm policy that under no conditions do we make a balance-of-payments loan, we are cutting back on them and pushing more in trade finance and project money.
In Asia, at least, that rather restricts your horizons.
We do an awful lot of trade financing and project lending.
But to a handful of countries – Japan, South Korea, Taiwan.
Also Indonesia, Singapore, Hong Kong, Malaysia.
Do you worry about political problems in Taiwan and South Korea, particularly Taiwan, given your relationship with the People's Republic of China?
We're concerned about political problems everywhere we operate, even in this country. That's one reason why we felt very fortunate to be able to get as knowledgeable a person in that area as Henry Kissinger, who serves as the head of our international advisory committee and consultant on country risk. He has been helping us with it because there is no doubt that the political futures of these countries can change very rapidly and this can affect a loan risk in a very short space of time. We're constantly evaluating not only the direct economic but the political risk in all these countries. We review this at least once a month world-wide, and so far we've been fairly fortunate in that we have really rather few loan losses overseas, many less than we have domestically.
As a region, how do you view Asia?
We still are extending a large number of loans there, but we feel that selectivity – not only by country but by type and quality of loan – is the key.
Has there been any concern about those specific industries – whether they are in the Far East or elsewhere – that seem to be coming under trade pressure here in the United States?
We've obviously watched that kind of thing. If we are making a loan to a company that is selling heavily in the US market, and it looks as though it's to be cut down, that's certainly a factor we would take into account. But, on the overall question of loans to developing nations, I think that there has been an exaggerated concern because people have tended to aggregate loans to all the LDCs – pick a global figure and then assume that most of the risk was in countries where there has been serious exposure. Everyone immediately mentions Zaire. The fact is that the loan total exposure to private banks to Zaire is relatively very small compared to loans in general. In our own case, it's minuscule. Most of our loans to developing nations are to the so-called wealthier ones – the Brazils and Mexicos and Taiwans – countries of that sort which, we think, may have temporarily gone a little far in extending themselves. But they are better off now and we have great confidence in them.
Do you see Chase policy heading in that direction in the Middle East?
Yes. Of course, a lot of what we've been doing in the Middle East is related to a variety of other things. For instance, in Saudi Arabia we have a management contract for the Saudi Industrial Development Fund where we are not lending money, but where we have a substantial number of people who are using the Saudis' money and are investing it for them for a fee. In Kuwait we have a management contract to run a commercial bank because they don't allow foreign banks to go in.
Do you recommend Chase shares to these clients?
We are very careful about recommending Chase shares, although I'll say if they'd bought some nine months ago they wouldn't have done badly.
What are you most concerned about in Europe?
They have seen, after a very rapid period of expansion in the 1950s and 1960s, a very substantial slowdown which may be in part due to political problems as well as economic ones.
Is Socialism a key concern?
Yes. That and the implications of it. Europe certainly is not attracting the amount of foreign investment that it did. I think there are political uncertainties in Europe today that are clearly having an influence on the rate of growth of their economies.
How do you view the pressures on the dollar in that context?
We can certainly agree with Mr Blumenthal that some balance of payments deficit on the part of the major industrial countries probably is beneficial at a time when there are such huge surpluses accruing to the oil-producing nations. But it can go too far. I would suspect that in recent weeks that it has gone too far. We have a bigger deficit in our balance of trade than we can sustain wisely over the length of time, and I think the weakness of the dollar reflects concern about that. We are going to have to take measures to deal with that. Up to now we've been saying that this was a good thing. We weren't worried about it. But I'm not sure that we can continue to feel that. On the other hand, the US economy is certainly stronger today than that of any other nation of the world and the value of a currency basically depends on the strength of the country.