(Bloomberg Opinion) -- Deutsche Bank AG, the sprawling German financial giant, is in trouble again. And, to a certain extent, Deutsche's troubles are going to be President Donald Trump's troubles.
German police raided Deutsche's Frankfurt headquarters on Thursday as part of a money-laundering probe related to the Panama Papers scandal. Investigations tied to the 2016 disclosure of previously private bank and legal records linked to shell companies created by a Panama-based law firm, Mossack Fonseca & Co., revealed that Deutsche had used that network to help its clients create offshore accounts and avoid taxes.
German officials said Thursday's raid was unrelated to another problem currently hanging over Deutsche: its role in helping Danske Bank A/S launder billions of dollars for the Denmark bank's clients.
Authorities identified two bank employees by their ages only as primary targets in the new Deutsche investigation and said they are focused on a unit of the bank based in the British Virgin Islands. The raid adds to a long list of management and legal problems that have eroded the bank's standing and reputation in recent years. German regulators have appointed a monitor to oversee Deutsche's money-laundering and terrorism-financing controls, and it has been forced to cough up more than $18 billion to settle lawsuits and pay fines since 2008. That includes a $7 billion settlement with the U.S. Justice Department last year related to its trading and sales practices in the mortgage market during the financial crisis of the mid-2000s.
Other activities by its employees and bankers that have sullied Deutsche include market manipulation in commodities and debt, rigging Libor rates, and the suspicious departure of about $10 billion from Russia via Deutsche's Moscow branch. U.S. and U.K. regulators fined Deutsche about $700 million last year for compliance failures that a New York regulator said could have allowed for money laundering.
All of which brings us to the president of the United States.
When Trump nearly went personally bankrupt in the early 1990s, he left a handful of major U.S. banks on the hook for about $3.4 billion in loans he couldn't repay (and about $900 million of which he had personally guaranteed). Hotels, casinos, real estate, an airline and other parts of his debt-ridden portfolio went into bankruptcy protection. In the wake of that collapse, Trump became a pariah among major U.S. banks, and he had to find unique ways of lining up money for the infrequent and small-boredeals he pursued thereafter. That left him borrowing money from labor unions and small, local lenders. Deutsche, keen at the time to make a name for itself in U.S. investment banking and commercial lending, was less hesitant to do business with Trump.
Deutsche's first transaction with Trump involved a modest renovation loan for 40 Wall Street, a Manhattan skyscraper Trump controls, in 1998. Trump did little to merit Deutsche's involvement after that until the early 2000s, when it agreed to loan him as much as $640 million for a Chicago project — the Trump International Hotel and Tower.
I was working on a biography of Trump at the time, and he told me that one of things he learned from his financial collapse in the early '90s was that he had ignored valuable business advice from his father, Fred: Never personally guarantee a loan. Yet he still went ahead and guaranteed $40 million of the Deutsche loan for the Chicago project. (Trump sued me for libel in 2006, claiming the biography, "TrumpNation," had misrepresented his business history and finances; he lost the suit in 2011.)
Deutsche had a relatively intimate understanding of Trump's finances. Although Trump told me in 2004 and 2005 that his net worth was anywhere from $1.7 billion to $6 billion (and suggested it might even be $9.5 billion), my sources at the time told me his wealth was closer to $150 million to $250 million. When Trump litigated the point with me, my lawyers produced a Deutsche assessment of his finances that pegged his wealth at $788 million in 2005.
Trump's relationship with Deutsche briefly soured in a dispute over the Chicago project. When the financial crisis landed in 2008 and imperiled that development, Trump sued Deutsche to avoid paying the $40 million he had guaranteed (claiming, in part, that Deutsche was responsible for the global economic distress unleashed by the crisis). A clash like that can permanently unwind a real estate partnership, but Deutsche and Trump agreed to settle, with the bank extending a loan from its private banking division to allow Trump to pay back its real estate lending unit, according to the New York Times.
Deutsche's private banking arm has hung in there ever since, with Rosemary Vrablic as the Deutsche banker serving as Trump's primary liaison there. She also has helped Jared Kushner, Trump's son-in-law and a White House adviser, as well as his mother, arrange multimillion-dollar loans and lines of credit at Deutsche. In recent years, Deutsche's private banking unit has loaned Trump money — about $300 million, according to Bloomberg News and Trump's government financial disclosure forms — for such projects as his Washington hotel and the Trump National Doral golf course.
The Trump SoHo Hotel, which stripped Trump's name from the property last year, was financed in the mid-2000s in part with loans channeled through Icelandic banks that collapsed during the financial crisis. I've written extensively about Trump's involvement with the firm originally behind that project, Bayrock Group LLC, and about the murky funds from Europe used to build it. While Deutsche was closely involved with Icelandic banks at the time of the collapse, no information has surfaced that it played a direct role in the Trump SoHo.
What's likely now, however, is that Trump's dealings with Deutsche — which have represented, at a minimum, a serious and long-standing financial conflict for him given the influence he wields over law enforcement and financial regulation as president — are about to draw greater scrutiny.
The House Financial Services Committee, which Democrats will take control of in January, has the power to subpoena Deutsche for banking records and other information regarding its relationship with the president, the Trump Organization and the Kushner family. It seems almost certain that the committee will deploy that power — especially given the news that Deutsche has landed in the middle of yet another money-laundering probe.
To contact the author of this story: Timothy L. O'Brien at firstname.lastname@example.org
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Timothy L. O’Brien is the executive editor of Bloomberg Opinion. He has been an editor and writer for the New York Times, the Wall Street Journal, HuffPost and Talk magazine. His books include “TrumpNation: The Art of Being The Donald.”
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