Charles Laffiteau's Bigger Picture

Last time out, I said I couldn’t see the humour in Deutsche Bank lending US President Donald Trump over $300m between 2010 and 2015 when no other bank would loan him a dime. Deutsche Bank has also pled guilty to laundering Russian money with ;mirror trades’ between 2011 and 2015 among its Moscow, London and New York offices. Since it looks like President Trump is now getting ready to fire Robert Mueller for investigating his dealings with DB, one has to wonder what he has to hide.

Like many large banks, DB has more than one lending division. For example, its overall banking business is split between two corporate groups: the corporate and investment bank, or CIB, and private clients and asset management, or PCAM. The CIB group has a markets division that buys and sells stocks and securities, a corporate finance division that handles mergers and acquisitions as well as debt and equity issuances, and a global transactions division that handles cross border payments and provides commercial banking products.

The PCAM side also has three divisions. The private wealth management division is a private bank that serves wealthy families and has a large presence in places like Switzerland, Dubai, Luxembourg, the Channel Islands and the Cayman Islands. The private and business clients division handles DB’s retail banking in Germany and seven other countries, while its asset management division manages $700bn in real estate and other assets.

Trump’s dealings with DB began in 1998, after all the major American banks and investment firms had refused to front any more money on the heels of his disastrous Atlantic City casino and Trump Shuttle airline ventures. But a year earlier, DB had started a commercial real estate business led by Mike Offit, who wanted to make it big and profitable in a short period of time. Offit decided to take a risk on Trump and lend him $125m for renovations of the Trump Building on 40 Wall Street in New York City.

Offit then helped Trump arrange financing for a $300m construction loan to begin building the Trump World Tower, across the street from the United Nations building. But because DB didn’t have the right kind of loan personnel to manage a construction loan of this size, Offit persuaded another German bank with the appropriate staff to make the loan, with a commitment from DB that it would take over the loan once the building was constructed.

DB’s willingness to make risky loans to Trump didn’t end when Offit retired at the end of 1999. In 2005, the bank gave Trump another construction loan of $640m so that he could build the Trump International Hotel and Tower in Chicago. But when the financial crisis hit in 2008, just as the project was being completed, Trump fell behind on his payments. Because he had personally guaranteed $40m of the $640m loan, and wanted to avoid that hefty payout, Trump sued DB, claiming that it helped cause the crisis and owed him a whopping $3bn in damages.

Deutsche Bank countersued, but then a couple of years later suits were settled and Trump was given a repayment extension. This is the point where things get interesting, because the way the suits were settled was through a loan engineered by Rosemary Vrablic from DB’s private wealth management division. Vrablic also facilitated over $300m in new loans from her division, including two mortgages for $125m for the Trump National Doral golf course, $170m for the Old Post Office Hotel in Washington, DC, and another $69m for the Chicago tower.

Meanwhile, the CIB markets division has a commercial mortgage-backed securities (CMBS) group that originates term and revolving loans to real estate developers and investment trusts. The CMBS group is the one that gave Trump the $125m for the Trump Building, $300m for construction of the Trump World Tower and $640m for the Chicago tower. The PCAM’s private wealth management division repaid those CMBS loans and floated new loans. In other words, Deutsche Bank used loans from one side to repay loans made by the other.

While there is no direct evidence that DB used Russian money to make the private wealth management division loans to Trump, there are concerns that the bank may have sold some of Trump’s debt to the Russian development bank, VEB, or to other Russian banks like VTB, whose investment banking division, VTB Capital, hired numerous bankers from DB’s Moscow office.

All that aside, let’s take a look at Trump’s properties themselves. The 72-storey Trump Building is Trump’s single most valuable asset and is built on land owned by Germany’s Hindenburg family. In 1995, Trump purchased its lease for $8m and announced plans to spend $100m converting the upper floors into residential space while leasing the lower floors for commercial use. But the cost of conversion was too high, so he spent $35m on renovations and kept the building 100 per cent commercial. Trump currently pays $1.65m a year in ground rent to the landowners and refinanced $160m of debt against the building with Ladder Capital Corp in 2016.

But the Trump Building also has a reputation as the cheapest place to rent space on Wall Street, as well as for being the home of most of New York’s unregistered brokerages. Trump World Tower has quite the reputation, too, and I’ll have more to say on that next time.

Charles Laffiteau is a US Republican from Dallas, Texas pursuing a career in public service. He previously lectured on Contemporary US Business & Society at DCU from 2009-2011 and pursued a PhD in Public Policy and Political Economy.