Donald Trump’s debt to Deutsche Bank
As others shied away, the German bank lent money for several projects. But the president and lender face increased scrutiny over their ties
by: Ben McLannahan, Kara Scannell and Gary Silverman in New York
When Donald Trump sued Deutsche Bank in late 2008, it was “classic Trump”, according to the German bank, which sued him back.
The New York property developer was trying to wriggle out of $40m of personal guarantees he had supplied on a $640m loan to build Trump International Hotel & Tower in downtown Chicago. The Lehman Brothers crisis was an unimaginable event that should get him off the hook, he argued. The future US president sought damages of $3bn — because the Deutsche-led consortium of lenders had just played a part in wrecking the world economy.
The two sides sparred for a while before settling out of court. And within a couple of years Deutsche was back as Mr Trump’s go-to lender, continuing a relationship that has endured for decades, even as other big banks have deserted the litigation-prone developer.
In June, Mr Trump disclosed outstanding loans from Deutsche of at least $130m, secured against properties in Miami and Washington in addition to the condominium-hotel in Chicago. The total is likely to be about $300m, according to people familiar with his borrowings.
“Deutsche seem to come through for him on a pretty regular basis,” says a person involved in the refinancing of the General Motors Building in Manhattan, one of the bank’s breakthrough US deals with Mr Trump, in the late 1990s.
“They stepped into a void,” says another restructuring expert.
But the elevation of the Queens-born developer to the presidency has cast a new complexion on the relationship. Deutsche faces various legal proceedings in the US, including an investigation by the Department of Justice into a Russian money-laundering scheme for which the bank paid about $600m of fines to other regulators in January. It is also facing a probe by the DoJ into whether Deutsche’s traders, and those of other banks, manipulated the prices of US Treasuries.
Separately some Democrat lawmakers are seeking records from Deutsche to see whether there are any financial links between Russia and Mr Trump.
The guarantees that Mr Trump provided over a portion of the outstanding loans, which do not mature for another six or seven years, could add a further complication to relations with Deutsche. If the loans default, the Frankfurt-based bank could in theory go after Mr Trump’s other assets. In December Alan Garten, general counsel of the Trump Organization, told Bloomberg that the guarantees were not a long-term problem, because the loans were structured to ultimately become standard debt backed by property.
Deutsche declined to comment on legal matters, the structuring of its loans, the nature of the guarantees or its relationship with Mr Trump. Spokespeople for the Trump Organization did not respond to emails.
The entanglements raise serious questions over conflicts of interest, says Norman Eisen, ethics chief in the Obama White House, and chairman of Citizens for Responsibility and Ethics in Washington. In January the bipartisan pressure group sued Mr Trump over alleged violations of the constitution’s foreign emoluments clause; oral arguments are set for October.
“Whether it’s the investigation, the regulatory climate and a hundred other ways that Deutsche Bank is affected by the federal government, if they have this leverage over Donald Trump now, having seen how he operates, I think it’s entirely legitimate to question whether he’ll be even-handed,” says Mr Eisen. “It is a source for concern.”
When Mr Trump was looking for capital in the mid-1990s, he found a good match in Deutsche. The German bank, dominant in its domestic market, was desperate to grow in the US. In particular, the bank saw a niche in serving rich developers who had hit a few bumps along the way, such as Harry Macklowe and Ian Bruce Eichner, both celebrated owners and losers of New York real estate.
Such clients were a “perfect fit”, says one former Deutsche banker. The field was relatively clear, as many US and Japanese banks burnt by losses from the early 1990s downturn gave them a wide berth. In addition, the bank could sell them extra services through its private-client business, which was bolstered by the 1999 acquisition of Bankers Trust.
“Sometimes a business will look at a client who can’t do business elsewhere,” says another former Deutsche managing director. “It makes the overall picture economic.”
A client like Mr Trump would be offered a choice of terms, according to a person familiar with the deals: an interest rate of, say, Libor plus 500 basis points with a guarantee, or Libor plus 800 without.
Deutsche’s key recruit was Jon Vaccaro from Citibank, who arrived as global head of commercial real estate in 1997. Other important figures for Mr Trump, over the years, were Mike Offit and Steve Stuart, a duo who joined from Goldman Sachs, and Eric Schwartz, a recruit from Moody’s who became the developer’s primary point of contact.
Some of the appointments gave Deutsche more clout in boardrooms and on the party circuit.
Tobin “Toby” Cobb, formerly of Donaldson, Lufkin & Jenrette, is the son of two US ambassadors. Justin Kennedy, a trader who arrived from Goldman to become one of Mr Trump’s most trusted associates over a 12-year spell at Deutsche, is the son of a Supreme Court justice. Mr Cobb, Mr Kennedy, Mr Stuart and Mr Offit could not be reached for comment.
Through a spokesperson, Mr Schwartz and Mr Vaccaro declined to comment.
Deutsche’s big real estate push came against the backdrop of rapid growth in the commercial mortgage-backed securities (CMBS) market, which allowed the bank to lay off much of the default risk to outside investors.
The market had got going in the early 1990s, as banks blanched at lending without personal guarantees. But developers did not generally want to give them. The solution was often a non-recourse loan that the banks could package into CMBS for a fee. Deutsche became a keen underwriter.
CMBS issuance exploded between 1997, when the total US market was worth about $37bn, and 2007, when it peaked at $229bn.
Former executives in Deutsche’s commercial real estate business say they were given the freedom to develop their business. Neither Josef Ackermann, a Swiss banker who became the bank’s first non-German chief executive in September 2002, or Anshu Jain, who succeeded him as co-chief executive in 2012, tightened the reins, says one former employee. “The organisation was very fractured.” Mr Ackermann and Mr Jain declined to comment.
“Deutsche’s culture in New York and London is more of a conglomeration of outsiders versus homegrown talent, and sometimes they’re at odds with each other,” says David Hendler, an ex-Wall Street bank analyst who now runs Viola Risk Advisors.
A couple of decades earlier, before Deutsche began its expansion and while Mr Trump was still making a name for himself in New York real estate, plenty more banks were willing to deal with Mr Trump. Citibank, for example, led deals including the Trump Plaza, the largest casino in Atlantic City at the time, and Trump Shuttle, an east coast airline the developer launched in 1989. Manufacturers Hanover, bought by Chemical Bank in 1991, and Chemical, which bought Chase Manhattan in 1996 and took the name, also took part in several deals, along with Bankers Trust.
“He put out good product,” remembers one ex-Deutsche banker. “His buildings were high-quality, he got good rents from retail and he sold condos for high prices.”
Steve Witkoff, chairman and chief executive of the Witkoff Group, a luxury condo developer who considers himself a friend of Mr Trump, adds: “I think he is one of the best out there.”
But things changed in 1990, when Mr Trump overextended himself in Atlantic City through bank loans and junk bonds, while suffering with the rest of the industry in a New York property downturn. One warning sign was a $100m working-capital loan from Bankers Trust: Mr Trump was using it to service mortgages and pay debt, rather than fund day-to-day operations, according to a person familiar with discussions. Before long, the four lead banks — Citi, Chemical, ManiHani and Bankers Trust — sat down on behalf of 68 other lenders to thrash out a restructuring of $4bn of debt, including $800m of guarantees.
Mr Trump lost control of wide swaths of his empire and the banks took “significant” hits on their investments, according to the person familiar with the talks.
The experience convinced a lot of banks that lending to Mr Trump was more trouble than it was worth. Neither Citi nor Chase, for example, has lent to Mr Trump since the big debt restructuring of the early 1990s, according to syndicated loan data tracked by Dealogic. Both banks declined to comment on their relationships with Mr Trump.
After Mr Vaccaro left in 2010 for Cantor Fitzgerald, via a brief stint at Ranieri Partners, Deutsche’s commercial real estate business was taken over by Jonathan Pollack, now at Blackstone, then Matt Borstein in 2015. But by then, the primary point of contact for Mr Trump was Rosemary Vrablic, his long-time wealth manager who had joined Deutsche’s private banking unit in 2006 from Merrill Lynch.
In 2013, when Mr Trump was bidding for a 60-year lease to redevelop the Old Post Office building in Washington, he turned to his friend Tom Barrack, a real estate mogul who spoke at the Republican National Convention last year on behalf of candidate Trump, to provide the initial financing.
A year later, when the financing was coming due, the Trump Organization swapped out Mr Barrack’s part of the deal and turned again to Deutsche. The bank supplied a $170m loan via its private banking unit, which houses Ms Vrablic’s business, according to filings made with Washington DC’s Office of Tax and Revenue.
Loans for the Old Post Office building and Chicago hotel tower are not due until 2024, when Mr Trump would be in the final year of a second term in the White House, if re-elected. The $50m-plus mortgage on the Doral golf course resort in Miami, comes due in 2023.
John Cryan, Deutsche’s chief executive since 2015, has been trying to put an end to the bank’s slew of legal and regulatory troubles in the US. Last December the bank struck a $7.2bn settlement with the DoJ for mis-selling residential mortgage-backed securities in the run-up to the crisis; in April it became the first big bank to be penalised for violations of the Volcker ban on proprietary trading.
The chief executive assured investors last month that Deutsche had made “significant progress” on its remaining slate of investigations.
Maxine Waters, however, a Democratic congresswoman representing Los Angeles, is determined to keep the bank in regulators’ crosshairs. As the ranking member of the House financial services committee, she is demanding a broad range of financial records from Deutsche, to look for links between Moscow and Mr Trump, his close family members, business associates and others he has dealt with in the past. Deutsche has refused to supply the materials requested, saying it must respect “laws and internal policies designed to protect confidential customer information”.
In July, after two failed attempts to obtain records from Deutsche, Ms Waters and three Democratic colleagues brought a resolution to the floor of the Capitol building to compel the Treasury Department’s financial crimes enforcement network to turn over documents.
The Democrats are seeking documents, records and any suspicious activity reports referencing loans the bank extended involving Bayrock, a developer in several real estate deals including the Trump SoHo hotel, and several Russian banks, including Sberbank, Vnesheconombank Group and VTB Group.
The resolution was voted down on party lines. But Ms Waters’ face is one of a dozen images that flash across the screen showing the “enemies” of the president in an ad released this month by a campaign for his re-election.
The congresswoman is right to keep up the pressure, says Mr Eisen. “The pending investigation, the regulatory issues . . . the potential leverage as these loans come due, all of these issues demonstrate why a president should not maintain his active business interests when he steps into the White House.”
0 comments:
Publicar un comentario