Donald Trump’s relationship with Deutsche Bank has lasted longer than any of his marriages and is cloaked in more secrecy.
Now the US Supreme Court is considering whether to shed light on the links between the American president and Germany’s largest bank. Manhattan prosecutors and Washington lawmakers want tax and financial records related to Mr Trump, his family and businesses. Mr Trump has sued to block them.
When the justices rule in the next few weeks, there will be understandable interest in the window this might provide into Mr Trump’s finances. Americans are still waiting to see the president’s tax returns, years after he promised to make them public. In the absence of hard data, speculation swirls: is Mr Trump really a billionaire? Are his business dealings above board?
But if the Supreme Court orders Deutsche to produce the vast array of documents demanded by Congress — spanning records of the bank’s credit and reputational risk committees, to files on Mr Trump “related to any domestic or international transfer of funds in the amount of $10,000 or more” — it would also provide more insight into Deutsche itself. What risks did it take on? And after years in which there was reckless trading, allegations of false accounting and inept management, has it really changed?
Most global banks are preparing for a credit crash to follow the coronavirus pandemic. In its quarterly results last month, JPMorgan Chase took a whopping $8bn provision for future losses on bad loans, six times higher than in the same period last year and higher than any other quarter in the bank’s history.
At Deutsche, however, the equivalent figure was just €506m with no sort of record: only the bank’s eighth highest provision since Lehman Brothers collapsed. To justify this thin cushion, Deutsche had to change the way it estimated future losses — switching from a short-term view focused on the current economic disaster to a three-year forecast incorporating a V-shaped recovery.
It is not just the rosy forecast. Deutsche says it will fare better than rivals thanks to its relatively conservative balance sheet, with fewer credit-card customers and plenty of solid German companies. Any time Deutsche takes small provisions, remember that the bank paid $55m to settle US allegations that it issued false accounts during the last crisis by underestimating potential losses. And any time it boasts of responsible lending, remember Donald Trump. Deutsche backed Mr Trump in 1998 despite his history of defaults, and continued to finance his companies even after 2008 when he refused to pay back a loan and sued the bank.
Today, Mr Trump’s empire is reeling from the impact of coronavirus. His golf courses in Scotland remain closed by government order. The Trump Hotel in Hawaii is deprived of tourists after the state imposed a 14-day quarantine on arrivals. Even resorts that have reopened, such as in Los Angeles and Miami, face a hard slog to tempt back customers. This has only compounded festering problems.
While Mr Trump’s election brought a new stream of income from sympathetic trade associations, Republican lobby groups and secret service accommodation, the net effect has been negative. Pleading for relief on local taxes, Trump representatives have noted that occupancy rates are lower than those of nearby competitors, such is the “negative connotation that is associated with the brand”. The Trump Organization went cap in hand to Deutsche asking for forbearance on some loan payments. Nonetheless, people close to Deutsche say they have not lost money on loans to Mr Trump.
Past squabbles forgotten, Mr Trump defends his biggest creditor as “badly written about and maligned”. “That was the Rolls-Royce bank! That was Germany you were dealing with! That was the strongest, the biggest, that was one of the great banks of the world! They were the AAA standard!” he said last year.
We do not know how this tempestuous relationship affects Deutsche Bank’s standing in the US. On a day-to-day basis, it continues to be regarded by the Federal Reserve as a badly managed lender with weak money-laundering controls. But somehow the bank has escaped serious sanctions over offences that it has admitted.
Three years ago it accepted guilt over a “mirror trading” scheme, which allowed clients to move $10bn from Russia while circumventing anti-money laundering rules. It seemed an open-and-shut case for the US Department of Justice, which has levied swingeing fines on other foreign banks for illegal cross-border transactions. Investigators interviewed Deutsche staff in a criminal probe. Then: nothing.
One theory is that the justice department is busy bundling together charges, including over Deutsche’s role in the €200bn Danske Bank money-laundering scandal, into one mega-settlement. If so, that augurs ill for the bank’s beleaguered shareholders, who might face another large fine.
A more convincing scenario is that a department where the president has steadily increased his grip is unlikely to punish his main creditor, especially over any Russian offences. In that view, Deutsche Bank’s unfathomable loyalty to Mr Trump is finally paying off.