By Vish Gain for AMLi
WITH THE US ELECTIONS vote counting still and the result uncertain, Deutsche Bank is looking to sever all ties with Donald Trump, three senior bank officials told a major news agency.
The German multinational bank that has significant investments in the US market is said to be ‘tired’ of the negative publicity stemming from its financial association with the US president.
With about $340Million (€290Million) in loans outstanding to the Trump Organisation, Trump’s umbrella group overseen by his two sons, the bank’s management committee has in recent months discussed ways in which it could ‘rid’ the bank of these last vestiges of their relationship. It’s a relationship which began in the 1990s when they first started to lend money to the Trump Organisation and which has led to the view that Deutsche is Trump’s favourite banker.
Spread over three loans, the $340M is believed to start coming due in two years. One official who spoke to the Reuters news agency estimated that the total loans given to Trump over the years amount to more than $2Billion.
The loans are against Trump’s golf course in Miami and hotels in Washington and Chicago. Until now, the Trump Organisation has only had to pay interest — with the entire principal amount outstanding.
To complicate matters, the businesses that the loans have been used to invest in are under threat due to the covid-19 pandemic and its slowing effects on the travel and hotel industry. Last month, Reuters reported that Trump’s plan to make money by developing houses and hotels on his golf courses, including the one involving the Deutsche Bank loan, had not panned out so far.
So how can the bank ‘rid’ itself of this financial relationship with the US president? It depends on the results of the election.
If Trump loses the election, Deutsche Bank executives feel that it would be easier for them to demand repayment, foreclose if he is not able to pay it off or try to sell the loans. Since Trump has personally guaranteed all the loans, the bank could also seize his assets if he doesn’t repay, the officials said. However such a scenario is even more difficult now given how tight the election turned out and the fact that if Trump does lose, it is not by the wide margin polls predicted. The result will be tight.
If Trump, as is still a possibility at the time of writing, ends up winning the elections, the officials say the bank will have very few options to demand repayment of the loans. Seizing assets from a sitting US president would lead to unwanted negative publicity, and they would likely have to extend the loans until he is out of office.
With most polls suggesting a win for Biden, chances are the bank will be able to demand repayment and follow through with its plans if Trump does not repay. However, the officials say that the bank is not unduly concerned about Trump’s ability to repay the loans given his personal guarantee and the time left before they are due.
One idea that has been floated in the bank’s executive meetings: to sell the loans in the secondary market. But one of the officials said that it is not clear who would want to buy the loans and the problems that come with it.
Furthermore, the bank’s relationship with the president has sent ripples across the Senate’s banking committee.
Elizabeth Warren, Democrat member of the committee and former runner in the presidential race, has previously called for investigations into Deutsche Bank’s money-laundering controls and has questioned its connections with the Trump family.
Promising to keep pushing for a probe after the elections, she said:
“You bet I’m going to continue to fight for accountability and strong enforcement of our banking laws, especially for giant institutions like Deutsche Bank.”
The bank’s next steps precariously pivot on the election results.
On the one hand, if Biden wins the Democrats take the Congress, investigations into the relationship between the bank and Trump will be rejuvenated by Warren and others in the Senate’s banking committee.
On the other hand, if Trump stays on for another four years, the bank will find it hard to demand repayment of the substantial amounts of loan due to them.
The real cost, however, is not the monetary value of the loans themselves but the continued association of the bank with the Trump Organisation.
While it remains to be seen who wins the election, there seems to be no clear win scenario for the bank as it grapples with the double-edged sword that its three-decade relationship with Trump has turned out to be.
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