Deutsche Bank

Risky Trump Business

  • Why it matters

    Why it matters

    Deutsche Bank is already struggling to restore its international reputation after a series of major legal scandals. Its ties to Donald Trump aren’t making that any easier.

  • Facts

    Facts

    • Mr. Trump is estimated to have borrowed $2.5 billion from Deutsche Bank over two decades. His current debt to the bank is estimated at $130 million.
    • Deutsche Bank has faced numerous legal investigations over the past few years. The U.S. Justice Department is still investigating possible criminal wrongdoing over a money-laundering scandal in Russia.
    • Democratic lawmakers are demanding information about the ties and have given the impression of a connection between Mr. Trump and the money-laundering affair. Bank sources said the Democrats have no solid information on which to base their suspicions.
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    Audio

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President Trump holds hand over heart for National Anthem at U.S. Coast Guard commencement in New London
Donald Trump is becoming a bigger problem for Germany's largest bank. Source: Reuters

Deutsche Bank’s name is once again on everyone’s lips in Washington, and not for reasons it would like. Germany’s largest bank has long had a close  business relationship with US President Donald Trump – and those ties are now becoming the subject of increasing political scrutiny.

Democratic lawmakers in the United States, hoping to shed light on Mr. Trump’s business dealings at home and abroad, have on several occasions formally demanded information from Deutsche Bank about its dealings with the US president. The latest request was over potential business ties to Russia. The bank has refused to provide details, citing client privacy. And yet, senior management know they have a problem: The ties to Mr. Trump are increasingly seen as highly dangerous for the bank’s good name and even its legal standing.

Deutsche’s ties with Mr. Trump go back a long way. It is estimated the former real-estate mogul has done $2.5 billion of business with the bank over the last two decades and still has more than $100 million in outstanding loans. Many of his closest family members have also regularly turned to the bank. A high-ranking manager told Handelsblatt that these ongoing ties come with an “enormous reputational risk.” The bank “has been led round the political arena by the nose, in broad daylight, and there was nothing we could do to defend ourselves,” he said.

The scrutiny comes at a sensitive time. It’s not like Deutsche Bank has a lot of goodwill among policymakers at the moment, after suffering nearly $15 billion in fines and legal settlements around the world these past few years, including a $7.2-billion fine for its dealings in shady U.S. mortgage products ahead of the financial crisis. The bank is still facing numerous lawsuits in the Unites States, while the U.S. Justice Department is still investigating possible criminal wrongdoing over a money-laundering scandal in Russia.

Given Mr. Trump’s own questionable relationship with Russia, it is the money-laundering scandal that has peaked the Democrats’ interest.

Democrats gave the impression of a connection between Mr. Trump and the money-laundering affair. But bank sources said the Democrats have no solid information.

In a letter made public last week, Deutsche gave a polite but clear refusal to the latest Democrat request for information: “We respectfully disagree with the suggestion that Deutsche Bank freely may reveal confidential financial information in response to requests from individual members of Congress,” was the response from the bank’s New York lawyers, from the firm Akin Gump Strauss Hauer & Feld. “In short, we reiterate that while Deutsche Bank seeks to cooperate, it must obey the law,” they added, making reference to its legal obligation to protect its clients’ data.

The bank’s latest refusal did not please Democratic representatives in Congress any more than its last one. Maxine Waters, the ranking Democrat in the Finance Committee of the House of Representatives, said the bank had failed to answer the most basic questions. Ms. Waters, who represents a California district, is one of Mr. Trump’s most vocal critics in Washington and makes no secret of her determination to force him out of office.

Ms. Waters and four other Democratic representatives on the committee first demanded information on Mr. Trump from Deutsche at the end of May, hoping it could shed light on the president’s much-rumored talked about business ties to Russia. That is a particularly tricky subject for the bank, which has already paid around $630 million in fines over the role that its traders in Moscow and London played in a Russian money-laundering scheme. The separate investigation into the scandal by the US Justice Department, which could file criminal charges, is ongoing.

The wording of the Democrats’ letter gave the impression of a connection between Mr. Trump and the money-laundering affair. But bank sources said the Democrats have no solid information on which to base their suspicions, and merely cite media rumors making vague links between the president, Russia and the bank. An internal bank investigation into Mr. Trump’s business ties have so far not revealed any evidence of problematic dealings in Russia, according to sources.

At least the bank’s Trump problem is getting smaller. Mr. Trump’s debt to the bank had been estimated at around $340 million, but the president’s long-awaited financial disclosure on June 16 revealed this now to be only $130 million, after considerable restructuring. That still leaves the rest of the  Trump clan: the president’s wife Melania and his daughter Ivanka are both important clients, as is Ivanka’s son Jared Kushner and his mother Seryl Stadtmauer. In October 2016, shortly before Mr. Trump’s election victory, Mr. Kushner was loaned $285 million by the bank to finance a New York real-estate deal.

What puzzles many observers is that Deutsche Bank could easily have avoided its difficult relations with the president.

Such deals have long put Deutsche Bank in an awkward position. At the time of its loan to Mr. Kushner, the bank was deep in negotiations with the Justice Department over improper mortgage lending at the time of the financial crisis a decade ago. In the end, the bank settled for a payment of $7.2 billion, about half the amount that had initially been floated. The main prosecutor in the case, Preet Bharara, has since been fired by Mr. Trump.

What puzzles many observers is that the Frankfurt-based bank could easily have avoided its difficult relations with the president. During the financial crisis and for some time afterwards, the bank’s association with Mr. Trump was suspended after their relations grew strained over a Trump-directed property deal. As the property market crashed, Mr. Trump fell into arrears on a loan of $640 million. Sued by Deutsche Bank , Mr. Trump countersued with the daring claim that the German bank had largely caused the financial crisis and thus owed him money. In 2010, the two sides settled.

Yet the bank soon repaired relations with this difficult, litigious customer, who owned them hundreds of millions of dollars. The person largely responsible was a private wealth banker, Rosemary Vrablic, who in 2006 moved from Bank of America to Deutsche Bank, bringing the Trump business with her. This is why the president’s business is these days handled by Deutsche’s private client specialists, not its corporate banking division. Decisions on Mr. Trump’s loans, say finance-world insiders, doesn’t need the approval of the bank’s Frankfurt-based senior management. In addition, Mr. Trump’s lawsuit, while it may seem outrageous to outsiders, is seen as relatively normal within the rough-and-tumble property business.

As Mr. Trump becomes an ever more polarizing figure, Deutsche Bank’s ties with him will continue to be a focus of attention the bank could do without.

 

Michael Maisch is the deputy chief of Handelsblatt’s finance desk and based in Frankfurt, Germany’s financial capital. Frank Wiebe is a New York correspondent for Handelsblatt, covering finance policy. To contact the authors: maisch@handelsblatt.com, wiebe@handelsblatt.com

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