ACTS of GODS
How Donald Trump became Deutsche Bank’s biggest headache
by Luke Harding and Nick Hopkins / 16 February 2017
“The language was scathing, the tone sarcastic. “Trump proclaims himself the archetypal businessman, a deal-maker without peer,” the memo said. It mentioned Trump’s boast that he was worth “billions of dollars”. And it listed his interests in “numerous extraordinary properties” across the world, from New York to Panama, not to mention his latest golf course in Scotland. Another document noted: “Trump is no stranger to overdue debt.” The angry memos were written by lawyers acting on behalf of Deutsche Bank, Germany’s biggest lender, which was suing the billionaire.
It was November 2008. Three-and-a-half years earlier the bank had loaned Trump the cash to build one of his grandest projects yet: a hotel and mega-tower in Chicago. Trump had given his personal guarantee he would repay the $640m. As per agreement, he was now due to hand over a large chunk, $40m. There was only one problem: the future 45th president of the United States was refusing to pay up. Deutsche initiated legal action. Trump responded with a blistering, scarcely credible writ of his own, a 10-count complaint in New York’s supreme court, in the county of Queens. In it, Trump adopted a highly unusual defence, known as “force majeure”. He claimed that the 2008 economic crisis was a “once-in-a-century credit tsunami”, an “act of God” that was equivalent to an earthquake.
Since it couldn’t have been anticipated, and it wasn’t his fault, he wasn’t obliged to pay Deutsche anything. It wouldn’t get the $40m or the outstanding $330m, his writ said. He went further. Trump claimed Deutsche Bank had actually helped cause the crunch. Therefore it owed him. Trump demanded $3bn from Deutsche in compensation. Its New York property division first loaned money to him in 1998 at a time when the bank was attempting to expand its commercial real estate portfolio. By that stage, other major banks were becoming cautious about Trump, in part, the Wall Street Journal has said, because of frustration with his business practices. A decade later, Deutsche was to find out for itself quite how capricious and unpredictable he could be.
In the 2008 suit the bank’s unhappy lawyers quote from Trump’s book Think Big and Kick Ass in Business and in Life. On his struggle with banks in the 1990s, Trump writes: “I figured it was the banks’ problem, not mine. What the hell did I care? I actually told one bank, ‘I told you you shouldn’t have loaned me that money’.” At the same moment Trump was suing Deutsche he was telling the Scotsman newspaper he was a very rich individual, with a “billion in cash”. He was willing to spend it on his latest project: a golf course and hotel near Balmedie in Aberdeenshire. Controversially approved by then first minister Alex Salmond and the Scottish government, it would be the “world’s greatest golf course”, Trump said. It was what happened next that strikes many in the banking world as unusual – bizarre, even. In 2005 Trump had borrowed money from Deutsche’s commercial real estate division. In 2010 the parties settled their legal differences.
But rather than walking away, the bank’s private wealth division then resumed lending to Trump, the troublesome four-times bankrupt client who had defaulted on a major loan. Why? It’s unclear what assurances Trump offered. He had given his word before, only to break it. Deutsche has refused to discuss its lending arrangements to the first family. Its clients also include Trump’s daughter Ivanka, her husband, Jared Kushner, and Kushner’s mother, Seryl Stadtmauer. Kushner is a senior White House adviser. Just before the US election Deutsche refinanced $370m he owes against commercial property in Manhattan belonging to Kushner’s company.
Sources inside Deutsche say the investment banking side of the business is entirely separate from the private bank that handles the Trumps. Personal relationships also play an important role in private banking. Even so, banking experts have told the Guardian it is unusual for a private bank to take on such loans, and unbelievable that a bank would continue to deal with a man who had refused to pay his debt, and then countersued using force majeure. One former Deutsche employee, based in New York, said: “Real estate refused to deal with him [Trump]. Only the private bank is willing to accept personal guarantees.”
In the years since then, Deutsche Bank has been hit by scandal after scandal. It was fined more than $630m for failing to prevent $10bn of Russian money laundering – and has paid $7.2bn to settle a decade-old bond mis-selling scandal. No wonder, then, that the bank that likes to say yes to Donald Trump thought it best to have a proper review of its arrangements with him following his unexpected win in the US presidential election.
Deutsche has carried out a close internal examination into its lending to the president. The aim: to see if there were suspicious and potentially embarrassing connections to Vladimir Putin’s Russia. The review began last year, when Trump became a politically exposed person (PEP). In recent weeks Deutsche has fielded numerous calls from the media on a possible financial trail to Moscow. The examination failed to find any evidence of this, according to a person familiar with the matter. Deutsche’s links to Russia have been under the spotlight since a money laundering scheme was exposed last summer by the New Yorker magazine.
The “mirror trades” scandal saw Deutsche brokers in Moscow buy stocks in roubles on behalf of a Russian company. Simultaneously another firm, registered offshore, would sell the same amount of stock in dollars, pounds or euros. The scam allowed the bank’s Russian clients to turn money in roubles, much of it dubious, into dollars abroad. The scheme’s alleged mastermind was Tim Wiswell, an American trader subsequently fired by Deutsche. According to an FCA report Wiswell, who was head of the Russian equities desk in Moscow, received about $3.8m in bribes via his girlfriend. These were paid into offshore accounts in Cyprus and the British Virgin Islands. Deutsche has not identified the Russian customers who used the scheme. Wiswell’s lawyer, Ekaterina Dukhina, refused to comment.
“In his wrongful-dismissal hearing, Wiswell said at least 20 of his bosses and colleagues, including two supervisors in London, knew about the trades because they were carried out so routinely and openly. So far, only Wiswell and two junior members of the equities business have been dismissed.”
Under its former CEO, Josef Ackermann, Deutsche Bank developed close connections with the Russian state. In 2006 Deutsche’s Moscow branch hired Andrei Kostyn, the son of Andrey Kostyn, the head of VTB, Russia’s state bank. Kostyn Jr generated much of the bank’s Moscow profits until his death in 2011 in a snowmobile crash. Deutsche carried out an internal investigation into the “mirror trades” scandal codenamed Project Square. The bank scaled down its Moscow activities and transferred some clients to VTB. To what extent – if any – was Deutsche’s Moscow operation compromised? Did the clients have Kremlin connections? We don’t know.
Meanwhile, Democrats are piling on the pressure. Joe Crowley, chair of the House Democratic Caucus, said: “President Trump’s web of global financial entanglements are of serious concern. When a foreign-owned bank that is under investigation by the Department of Justice holds hundreds of millions in personally-guaranteed debt for the president, that is problematic for ethical, diplomatic, and judicial reasons. This is why we must know more about all of Donald Trump’s business ties.” Crowley also said he wanted the president to release his elusive tax returns.
Deutsche has not explained why it continued to bankroll Trump and his real estate deals. Even before the 2008 legal dispute, Trump’s chequered business record was infamous. Other financial houses in New York refused to give him credit, following a string of failed ventures including an airline and a casino empire in Atlantic City. Bloomberg reported that Deutsche was now trying to restructure Trump’s $300m debt, which is guaranteed by four of his properties. The difficulty is obvious: conflict of interest. The president owes the bank money. At the same time the Trump administration and its Department of Justice is investigating Deutsche over its Russian money laundering scheme. Trump remains the bank’s most high-profile client. He is also, increasingly, its biggest PR headache.”
DEMONSTRATIONS of CONFIDENCE
Bundesbank Has Completed Gold Repatriation From New York Fed, Three Years Ahead Of Schedule
by Tyler Durden / Feb 9, 2017
“In January of 2016, the Bundesbank announced that three years after commencing the transfer of some of its offshore-held gold from vaults located at the Banque de France in Paris and the NY Fed in New York, it had repatriated a total of 366.3 tonnes, bringing the German central bank’s gold reserves held in Frankfurt to 1,402 tonnes, or 41.5% of Germany’s total gold of 3,381 tonnes, for the first time greater than the 1.347 thousand tonnes located at the New York Fed, which as of January 27, 2016 held 39.9% of Germany’s official gold. “With approximately 1,403 tonnes of gold, Frankfurt has been our largest storage location, ahead of New York, since the end of last year,” said Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank. “The transfers are proceeding smoothly. We have succeeded in once again significantly increasing the transport volume compared with 2014. This means that operations are running very much according to schedule,” added Thiele last January.
As a reminder, according to its gold storage plan, unveiled in January 2013, the Bundesbank would store half of Germany’s gold reserves in its own vaults in Frankfurt am Main by 2020 which would necessitate a transfer to Frankfurt of 300 tonnes of gold from New York and all 374 tonnes of gold from Paris. It also meant that as of January, another 111 tonnes of gold from the NY Fed and 196.4 tonnes of gold from Paris remained to be transfered. The “politically correct” motives for the transfer, as well as the logistics and the mechanics behind it were explained in a March 2015 video released by the Bundesbank.
The real reasons, however, is that following several reports on this website which cast doubts on Germany’s gold holdings, in late 2012 the German Court of Auditors demanded that the Bundesbank undertake an audit of its gold reserves. Specifically, the court wanted to ensure that the nearly 3400 tons of gold, of which more than 2,000 tonnes held offshore, is in fact in existence – ‘because stocks have never been checked for authenticity and weight’. The move to repatriate was only accelerate following rumors that much of the offshore-held gold might have been “rehypothecated“, and not be there anymore, that it might have been melted down, leased, or sold. Ironically, at the time, Bundesbank Board member Carl-Ludwig Thiele told the Handelsblatt that these moves were a “trust-building” measure, and he tried vigorously to put the rumors about the missing gold to rest. Of course, repatriating your gold from foreign central banks is precisely the opposite of a “demonstration of confidence.”
What made matters worse is that at the end of 2013, the Bundesbank announced it had managed to repatriate only 37 tonnes of the total 700 scheduled for redemption, further spooking the local population and suggesting that conspiracy theories that the gold was missing were in fact accurate. As a result, following blowback from both the media and the public, the Bundesbank accelerated its activity, and repatriated 120 tonnes in 2014 and another 210 in 2015, implying that the Bundesbank’s faith in its foreign central bank peers had declined in inverse proportion to the following accelerated redemption schedule as of January 2016.
Then, in an update last December, Germany’s Bild reported that in 2016 the Bundesbank has repatriated “more of its gold than planned“, as it moves toward relocating half of the world’s second-largest reserve at home. “We brought back significantly more gold to Germany in 2016 again than initially planned. By now, almost half of the gold reserves are in Germany,” Buba president Jens Weidmann told the German publication. According to Bild, around 1,600 tonnes of Germany’s gold reserves are now in the country, a figure set to rise to 1,700 tonnes by 2020. This, according to our recent calculations, meant that the Bundesbank repatriated roughly 200 tonnes of gold in 2016, comparable to the 210 tonnes its brought back to Frankfurt in 2015, and the total held domestically amounts to 1,600 tonnes at the end of 2016.
Fast forward to today, in a press release, the Bundesbank provided an official update of its gold holdings, and our analysis was accurate: the German central bank said it had “successfully continued its transfers of gold last year”, and in 2016, more than 216 tonnes of gold were transferred to Frankfurt am Main from storage locations abroad: 111 tonnes from New York and 105 tonnes from Paris. This would make 2016 the year of fastest gold repatriation, with the 216 tons of gold transfered, higher than the previous record of 210 in 2015. Altogether, the Bundesbank, has now transfered a total of 583 tonnes, or 86% of the 674 tonnes planned in total.
Most importantly, as of December 31, the Bundesbank has now completed all of its scheduled gold withdrawals from the NY Fed, having repatriated a total of 300 tonnes, some 3 years ahead of schedule. “The transfer of gold from New York was completed successfully last year,” said Carl-Ludwig Thiele, Member of the Bundesbank’s Executive Board. “The transfers were carried out without any disruptions or irregularities. The gold storage plan for New York, which envisaged the transfer of 300 tonnes of gold from New York to Frankfurt, was fully realised in 2016,” Mr Thiele stated.
The Bundesbank also said the repatriation of gold reserves back home was “considerably ahead of the original schedule” and as Thiele added “We will be able to complete the transfer of gold from Paris this year too.” Which considering there is only 91t of gold left in Paris, or less than Germany withdrew in 2015 and 2016, should be relatively easy.
In summary, as of the end of 2016, the Bundesbank had 47.9% of its gold in Frankfurt – just 2.1% shy of the the planned 50% – 36.6% at the Federal Reserve Bank of New York, 12.8% at the Bank of England in London, and 2.7% at the Banque de France in Paris. Why this unexpected scramble to repatriate so much gold 3 years ahead of the 2020 stated schedule, remains a mystery.”