Politics

The Money Behind Trump’s Money

By David Enrich

The inside story of the president and Deutsche Bank, his lender of last resort

One Day in early 2017, Mike Offit went to the Yale Club in Manhattan for a lunch hosted by a group called Business Executives for National Security. Offit, who has a craggy face and shoulder-­length hair, had spent much of his career in banking, but that had ended nearly two decades earlier. Since then, he had puttered around the outskirts of finance, dabbled in journalism and even published a novel about a pair of murders at a fictional German-­owned Wall Street bank that bore a striking resemblance to the one that he worked for until 1998: ­Deutsche Bank.

These days, Offit had time on his hands, which is how he found himself at the Yale Club that afternoon. Slanting winter sunlight illuminated the white-­columned walls of the club’s dining room. Offit was chatting with an American military officer about weaponry when his iPhone buzzed. He saw an email from the White House Executive Office of the President. How strange, Offit thought.

The message contained a PDF file: a scanned printout of an email he had sent Donald Trump several months earlier, in the waning days of the presidential campaign. Offit had known Trump for decades. At ­Deutsche Bank, he had lined up huge loans to finance Trump’s construction and renovation of landmark Manhattan skyscrapers, at a time when the default-­prone real estate developer and casino magnate was no longer able to get loans from most mainstream financial institutions. The two men stayed in touch afterward. Offit’s 2014 book, “Nothing Personal,” even featured a blurb from Trump: “Michael Offit offers a colorful insight into how the big money is made — and/or taken — on Wall Street.”

In October 2016, Offit tried to return the favor. Democrats were pillorying Trump’s shaky — not to mention murky — personal finances, including his companies’ chronic bankruptcies. Offit thought he might dispense a little advice to his erstwhile client. On a Friday evening, he emailed Trump a lengthy message, explaining that the defense Trump was offering at the time — that he was simply using the bankruptcy law in an advantageous way — wasn’t resonating with voters. “I believe there is a much better answer, that may help defuse this issue, and am just arrogant enough to suggest it,” Offit wrote.

He advised Trump to claim that his companies had been forced to declare bankruptcy, the victims of greedy hedge funds so obsessed with wringing every last dollar out of him that they refused to let him renegotiate his crushing debts. Was this true? Not really. But it sounded good, and the line of attack meshed with Trump’s populist rhetoric on the campaign trail.

Offit got no response. He wasn’t even sure that Trump had read the email. But here, months later, was Trump’s unmistakable black Sharpie scrawl across the top of the message he had sent: “Mike — Such a cool letter. Best wishes, Donald.”

“Look at this!” Offit exclaimed to the officer. “I just got a note from the president!”

“What do you mean, you got a note from the president?”

The officer asked what Offit’s connection was to the president. Offit replied, “I loaned him half a billion dollars.”

The roughly $425 million that Offit helped arrange for Trump back in 1998 was the start of a very long, very complicated relationship between ­Deutsche Bank and the future president. Over the course of two decades, the bank lent him more than $2 billion — so much that by the time he was elected, ­Deutsche Bank was by far his biggest creditor. Against all odds, Trump paid back most of what he owed the bank. But the relationship cemented ­Deutsche Bank’s reputation as a reckless institution willing to do business with clients nobody else would touch. And it has made the company a magnet for prosecutors, regulators and lawmakers hoping to penetrate the president’s opaque financial affairs.

Last April, congressional Democrats subpoenaed ­Deutsche Bank for its records on Trump, his family members and his businesses. The Trump family sued to block the bank from complying; after two federal courts ruled against the Trumps, the Supreme Court has agreed to hear the case, with oral arguments expected in the spring. State prosecutors, meanwhile, are investigating the bank’s ties with Trump, too. The F.B.I. has been conducting its own wide-­ranging investigation of ­Deutsche Bank, and people connected to the bank told me they have been interviewed by special agents about aspects of the Trump relationship.

If they ever become public, the bank’s Trump records could serve as a Rosetta Stone to decode the president’s finances. Executives told me that the bank has, or at one point had, portions of Trump’s personal federal income tax returns going back to around 2011. (Deutsche Bank lawyers told a federal court last year that the bank does not have those returns; it is unclear what happened to them. The Trump Organization did not respond to multiple requests for comment.) The bank has documents detailing the finances and operations of his businesses. And it has records about internal deliberations over whether and how to do business with Trump — a paper trail that most likely reflects some bank employees’ concerns about potentially suspicious transactions that they detected in the family’s accounts.

One reason all these files could be so illuminating is that the bank’s relationship with Trump extended well beyond making simple loans. ­Deutsche Bank managed tens of millions of dollars of Trump’s personal assets. The bank also furnished him with other services that have not previously been reported: providing sophisticated financial instruments that shielded him from risks and outside scrutiny, and making introductions to wealthy Russians who were interested in investing in Western real estate. If Trump cheated on his taxes, ­Deutsche Bank would probably know. If his net worth is measured in millions, not billions, ­Deutsche Bank would probably know. If he secretly got money from the Kremlin, ­Deutsche Bank would probably know.

Until the 1990s, ­Deutsche Bank was a provincial German company with a limited presence outside Europe. Today it is a $1.5 trillion colossus, one of the world’s largest banks, with offices in 59 countries — and, thanks to its well-­documented pattern of violating laws, an international symbol of greed, recklessness and hubris. Its rap sheet includes manipulating international currency markets; playing a central role in rigging a crucial benchmark interest rate known as Libor; whisking billions of dollars in and out of Iran, Syria, Myanmar and other countries in violation of sanctions; laundering billions of dollars on behalf of Russian oligarchs, among many others; and misleading customers, investors and American, German and British regulators.

Deutsche Bank’s envelope-­pushing helped it become the global power player it is today, but it also left the company dangerously frail. Its books remain stuffed with trillions of dollars of risky derivatives — the sort of instruments that many other banks have disposed of since the 2008 financial crisis but that persist as a kind of unexploded ordnance in ­Deutsche Bank’s accounts, threatening to inflict severe damage on the bank and the broader financial system if something were to cause them to detonate. Its financial cushions to absorb future shocks are threadbare. Its core businesses are not performing well; the bank lost $5.8 billion last year. Because of Deutsche Bank’s size and its connections with hundreds of other major banks around the world, serious problems could spread, virus­like, to other financial institutions. The International Monetary Fund a few years ago branded ­Deutsche Bank “the most important net contributor to systemic risks” in the global banking system.

­Deutsche Bank’s relationship with Trump, rather than being an odd outlier, is a kind of object lesson in how the bank lost its way. The company was hungry for growth, especially in the United States, and it was happy to cozy up to clients that better-­established players viewed as too damaged or dangerous. Along the way, it missed one opportunity after another to extricate itself from the Trump relationship or at least slow its expansion. With hindsight, the procession of miscues and bad decisions appears almost comical.

I have spent the past two years interviewing dozens of ­Deutsche Bank executives about the Trump relationship, among other subjects. Quite a few look back at the relationship with a mixture of anger and regret. They blame a small group of bad bankers for blundering into a trap that would further damage ­Deutsche Bank’s name and guarantee years of political and prosecutorial scrutiny. But that isn’t quite right; in fact, the Trump relationship was repeatedly blessed by executives up and down the bank’s organizational ladder. The cumulative effect of those decisions is that a German company — one that most Americans have probably never heard of — played a large role in positioning a strapped businessman to become president of the United States.

 
40 Wall Street, New York: $125 million loan (1998).
Credit…Raymond Boyd/Getty Images

Founded in 1870, ­Deutsche Bank spent most of its first 12 decades helping mighty German companies like Siemens expand internationally, as well as bankrolling infrastructure projects — primarily railroads — in Europe, Asia and North America. (Before and during World War II, the bank was a leading financier of the Nazis, helping to pay for projects including the construction of Auschwitz.) As the Iron Curtain fell, ­Deutsche Bank executives saw an opportunity to surf the tide of globalization and become a truly global institution.

The modern multinational corporation — operating in dozens of countries; buying and selling products and raw materials in a slew of different currencies; seeking to protect itself from volatile prices, fluctuating foreign-­exchange rates and sundry unforeseeable risks — needed banks that would provide much more than run-of-the-mill loans. Now financial institutions were expected to underwrite stock and bond offerings, enable seamless transactions across international borders and in multiple currencies and create financial instruments known as derivatives that customers could use to insulate themselves from big swings in interest rates, dairy prices, the weather and the like. Top Wall Street banks were beginning to offer these services to German companies and even the German government. To defend its turf, ­Deutsche Bank needed to learn to compete with the Americans.

In 1989, the bank took its first small step into this new financial world by acquiring a venerable British investment bank, Morgan Grenfell. Then, in 1995, ­Deutsche Bank hired a small crew of traders from Merrill Lynch — at the time one of Wall Street’s leading firms — led by a charismatic and impulsive salesman named Edson Mitchell. The American and British governments were rolling back regulations on the banking industry, and the giants of Wall Street were getting bigger, fast. ­Deutsche Bank needed to act quickly to have any chance of catching up. Over the next couple of years, Mitchell’s team spent billions of dollars hiring thousands of bankers and traders from just about every major investment bank — perhaps the greatest mass migration in Wall Street’s history. One recruit was Mike Offit; another was Justin Kennedy, a son of the Supreme Court justice Anthony Kennedy.

Read the rest of the article first published in New York Times here https://nyti.ms/3bm04nP

 

 

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