In 1905, a German immigrant living in the Bronx set up a small barbershop on the ground floor of a newly constructed building at 60 Wall Street, in the heart of Manhattan’s booming financial district. In an era before skyscrapers, the twenty-five-story, L-shaped tower was a landmark, its gargoyle-guarded roof visible from the nearby waterfront. The barbershop thrived, offering shaves and trims to a procession of bankers, stock exchange traders, lawyers, and office workers. The barber’s name was Friedrich Trump. The same year that he opened the shop, his wife gave birth to a boy named Fred.
Many years passed, the barbershop closed, and the old 60 Wall Street gave way in 1989 to a new 60 Wall Street, a forty-seven-story tower topped with a distinctive pyramid roof. For a time, it was home to J.P. Morgan & Co. Then that bank left, and in 2005, Deutsche Bank started relocating its American staff—displaced ever since 9/11—to its new home at 60 Wall Street. And so Friedrich Trump’s grandson—born to Fred’s wife in 1946—became an occasional visitor to the site of his grandfather’s old barbershop.
Deutsche’s relationship with Donald Trump had only deepened since Mike Offit left. Justin Kennedy, now a managing director, had become a key point of contact for Trump and helped chaperone large real estate loans for him through the bank. Kennedy’s role was to find customers to buy portions of loans after Deutsche dispensed the money, a process that allowed Deutsche to make larger loans than it otherwise could have. Kennedy sometimes sat with Trump in his luxury box at the US Open tennis tournament or at Manhattan nightclubs, where Trump would park himself at a table in the corner, facing outward, holding court like a Mafia don. Now, with Kennedy’s encouragement, Deutsche hurried along a Henry Villard–like path.
In 2000, the bank had plunked down another $150 million to be used for the renovations of Trump’s building at 40 Wall Street. The next year, Deutsche agreed to extend Trump a mortgage worth more than $900 million—at the time, the largest ever on a single property—so he could buy the General Motors Building on the southeastern corner of New York’s Central Park. (Trump already owned half of the fifty-story building; he wanted the rest.) And in 2002, Deutsche agreed to refinance about $70 million that he owed on some of his Atlantic City casinos. Those loans came out of Deutsche’s commercial real estate division, which Kennedy was helping to run.
Not everyone was enamored with Trump. Seth Waugh, one of Edson’s many Merrill Lynch recruits and the head of Deutsche’s American operations, learned around 2001 that the bank was planning to lend Trump about $500 million to use as he wished—basically an unrestricted cash infusion to stabilize the developer’s flagging finances. Waugh had previously witnessed up close the carnage that Trump could inflict on imprudent financial institutions. At Merrill, Edson had assigned him the task of mopping up after Trump defaulted on nearly $700 million of bonds that Merrill had helped sell for his Taj Mahal casino in Atlantic City. Waugh was in no hurry to repeat the experience at Deutsche. He voiced strong objections to the proposed new loan, in which Trump would not have had to put up any hard assets as collateral, and the deal soon died.
Yet Deutsche’s broader Trump relationship rumbled on. In 2003, another arm of Deutsche, focused on helping companies raise money by selling stocks and bonds to investors, agreed to work with Trump. The point man on this part of the relationship was Richard Byrne—another Merrill veteran who had been involved in the Taj Mahal debacle. (Byrne had helped sell the ill-fated Taj bonds to investors.) Now Trump hired Byrne’s group at Deutsche to issue bonds for his troubled Trump Hotels & Casino Resorts. Byrne knew this would be an uphill battle; not only had Trump defaulted in the past, but he also had recently been taunting investors that he might stop paying back other outstanding bonds. Waugh didn’t warn Byrne about the recently rejected $500 million loan, and Byrne organized a “road show” for Trump to meet with and try to win over big institutional investors. He escorted Trump to meetings all over New York and Boston. At every stop, boardrooms and auditoriums were jammed with traders, fund managers, senior executives, and secretaries curious to see The Donald Show, and Trump didn’t disappoint. He rocked, he rolled, and he delivered wildly optimistic and inconsistent financial projections.
Afterward, Trump called Byrne to ask how much money they had raised. The answer, alas, was virtually zero. Byrne braced for an explosion as he explained to Trump that even though he’d been treated like a celebrity, nobody trusted him with their money. Trump took the rejection in stride. “Let me talk to your salespeople,” he requested. Byrne agreed, and Trump came to deliver a pep talk. “Fellas, I know this isn’t the easiest thing you’ve had to sell,” he acknowledged. “But if you get this done, you’ll all be my guests at Mar-a-Lago.” Trump was always good at pushing an audience’s buttons—a weekend with Trump at Mar-a-Lago: bragging rights that not even money could buy—and this new incentive did the trick. The salesmen worked the phones, cast a wider net for more clients, and managed to sell an impressive $485 million of junk bonds (albeit at a high interest rate that reflected investors’ fears that Trump might default).
When the sale was complete, Byrne delivered the good news to Trump, who was pumped. “Don’t forget what you promised our guys,” Byrne nudged his happy client.
“What’s that?” Trump asked. Byrne reminded him about the Mar-a-Lago trip. “No way they’ll remember that,” Trump weaseled.
“That’s all they’ve talked about the past week,” Byrne responded. Trump ultimately dispatched his private Boeing 727 to fly fifteen salesmen down to Palm Beach, Florida. During the day, they golfed. Trump, decked out in white polyester, impressed the bankers with his brazen cheating. At night, they dined at Mar-a-Lago, and Trump regaled them with story after preposterous story about his hijinks with casinos, real estate, Wall Street, and women.
The following year, with his casinos on the rocks, Trump’s company stopped paying interest on the bonds and filed for bankruptcy protection. (“I don’t think it’s a failure; it’s a success,” Trump spun.) Deutsche’s clients, the ones who had recently bought the junk bonds, suffered painful losses. Going forward, Trump would be off-limits for Byrne’s division.
The excommunication, however, didn’t apply to the whole bank. Trump soon went back to Justin Kennedy’s commercial real estate group, seeking another enormous loan. This one was to build a ninety-two-story skyscraper in Chicago, which Trump planned to name the Trump International Hotel & Tower. It was going to be one of the tallest buildings in America, a glittering riverfront high-rise that included a hotel, a spa, restaurants, and nearly 500 condominium units. Trump seduced the Deutsche bankers with flights on the same 727 that had recently brought Byrne’s team to Florida. He invited Kennedy to Trump Tower, six blocks away from Henry Villard’s garish Madison Avenue mansion. Trump lavished him and his colleagues with praise and explained that his daughter, Ivanka, would be in charge of the proposed Chicago development—that’s how important this project was to the Trump Organization, as his company was called.
Just as Waugh hadn’t warned Byrne about the rejected Trump loan, now Byrne didn’t warn Kennedy’s crew about the bank’s recent bad Trump experience. (“We just looked the other way,” explains an executive in Byrne’s division. “That was the Deutsche Bank culture.”) Even so, the Chicago loan had all the hallmarks of trouble. Not only had Trump defaulted over and over again, but before extending another loan, Deutsche conducted an informal audit of Trump’s finances. He had declared to the bank that he was worth roughly $3 billion. But when Deutsche crunched the numbers that his accountants had compiled, they concluded that the real number was about $788 million. In other words, Trump had been saying his net worth was almost four times larger than it really was. For most banks, this would have been the final straw; how could you trust a guy to repay a huge loan if he was lying about how much money he had?
Deutsche, though, was undeterred. Executives were so eager for growth and big deals, so convinced of their own intelligence, that they managed to look past the obvious red flags. (Plus, Trump hadn’t defaulted on the loans that the commercial real estate group had made dating back to the Mike Offit era.) In February 2005, Deutsche agreed to lend him $640 million for the Chicago project. The actual recipients were limited liability companies that the Trump Organization had created specifically for this occasion to shield its owner if the project went bust. But Trump also agreed to provide an “unconditional payment guaranty” of $40 million—that was what Trump personally would owe if his LLCs defaulted. (Trump also paid Deutsche a $12.5 million fee in connection with the loan.) Deutsche sold off pieces of the loan to other banks and investors, but it kept plenty of it on its own books, too. It was a fateful transaction, one that would shape Deutsche’s relationship with Trump for years into the future.
Around this time, and out of public view, Deutsche provided a series of other services to Trump. For starters, it created numerous “special purpose vehicles” to make it easier for him quietly to buy properties internationally. Thanks to the magic of derivatives, the vehicles—with obscure names that hid their connection to Trump—enabled Trump to do real estate deals in places like Eastern Europe and South America without putting any of his own money on the line; not only was he taking out loans to finance the deals, but he was also using other people’s money to cover the small “equity” portion of the purchases. For a fee, Deutsche and investors bore the risk, over many years, that the projects would fail. This sort of structure was not unheard-of for major real estate developers. “It’s a well-seasoned financing technique,” explains Mark Ritter, a Deutsche executive who worked on the transactions at the time. But it added to the bank’s already deep exposure to Trump—and helped the mogul strike under-the-radar deals in far-flung locales, including those that were popular destinations for people looking to hide assets.
At the same time, Deutsche also helped Trump find people to buy condos in his properties. When he partnered in 2006 with a Los Angeles developer to build a Trump-branded resort in Hawaii, Deutsche organized get-togethers in London and elsewhere to connect Trump and his partners with wealthy clients who used anonymous shell companies to buy blocks of units in the sprawling Waikiki hotel complex. The bank played the same behind-the-scenes matchmaking role when Trump sought to drum up interest in a planned resort in Baja, Mexico. (That project collapsed.) In both cases, Deutsche steered very rich Russians into the Trump ventures, according to people who were involved in the deals—just a couple of years after American regulators had punished the bank for whisking Russian money into the U.S. financial system via Latvia.
Some members of Jain’s inner circle had discussed the potential pitfalls of the Trump relationship, and they were worried. It wasn’t only the not-insignificant risk that Trump would default on loans. The bankers also knew how filthy the New York real estate industry could be. They talked about Trump’s well-documented ties to the organized crime world, and the possibility that Trump’s real estate projects were Laundromats for illicit funds from countries like Russia, where oligarchs were trying to get money out of the country. “Everyone in the real estate business was involved in ‘flight capital,’ ” one of Anshu’s lieutenants would explain years later.
There was more to Trump’s relationship with Deutsche than money. The bank was still trying to establish its brand in the United States, and despite his financial woes, Trump—whose hit TV show The Apprentice had debuted in 2004 on NBC—provided splashy publicity for the bank. With this in mind, executives cozied up to him and his family. They threw client parties at Mar-a-Lago. They invited him to high-profile events. Every Labor Day weekend, for example, Deutsche hosted a pro-am golf event at the Tournament Players Club of Boston, featuring the best professional golfers and a smattering of celebrities and business leaders. Trump was a regular, working the crowds and autographing the $100 bills that fans thrust at him. On the golf course, Deutsche sometimes paired Trump with a senior bank executive like Seth Waugh, who would woo Trump over eighteen holes.
The year after Byrne’s team sold the junk bonds for Trump’s casino company, Deutsche dispatched its public relations staff to the course’s clubhouse to conduct video interviews with some of the marquee participants. Trump, never one to shy away from a TV camera, sat down for a promotional shoot. What’s your experience with Deutsche been? asked the public relations staffer charged with conducting the interviews.
“It’s great!” bellowed Trump, whose company would file for bankruptcy protection two months later. “They’re really fast!” He meant the bank was fast at approving his loans. The staffer asking the questions grimaced; she wasn’t sure this reflected very well on her employer.
Lo and behold, Deutsche achieved Ackermann’s goal of a 25 percent return on equity in 2005. “Credit for this success goes to more than 63,000 highly motivated staff,” he cheered, adding that the new goal was to keep profits growing at a double-digit clip going forward. “Deutsche Bank,” he said, “is exceptionally well equipped to face the future.”
You wouldn’t have known it by looking at Deutsche’s financial statements, practically glowing with the heat of profits and light-speed growth, but this was a dangerous period for the bank. Ackermann was shooting for the moon. Consultants were hired to study whether having the word Deutsche in the bank’s name impeded its global ambitions. In early 2004, Ackermann entertained merger discussions with a variety of giant banks, including Citigroup—the logical next step after his stillborn talks with JPMorgan a few years earlier. It was an act of extraordinary hubris. Deutsche and Citigroup were vying for the distinction of being the world’s largest bank—Citigroup was ahead, with about $1.5 trillion in assets compared to Deutsche’s roughly $1.2 trillion. Merging them would have spawned a behemoth of unimaginable size.
By now Ackermann had become a deeply polarizing figure to the German public, maligned as the embodiment of Anglo-American corporate excess. In 2005, he stood criminal trial for violating securities laws by approving huge bonus payments as the chairman of a German industrial and telecommunications conglomerate, Mannesmann. The case had nothing to do with Deutsche, and Ackermann was eventually acquitted, but a photographer had captured the grinning defendant flashing the “V for victory” sign in the middle of the trial. The image became a symbol in Germany of Ackermann’s arrogance. Only 5 percent of respondents in a German poll said they believed Ackermann was committed to the country’s social welfare. A member of Deutsche’s supervisory board took the extraordinary step of resigning in protest—and publicly blasting Ackermann for jeopardizing the bank’s stability, for becoming too dependent on investment banking, for selling out the institution’s German identity.
It was all a backlash against Ackermann’s—and Deutsche’s—unparalleled power. And yet even as the public outcry intensified, Ackermann was welcomed into the German establishment. He and Chancellor Gerhard Schröder regularly got together for a glass of Bordeaux. Ackermann appeared before TV studio audiences for interviews with Germany’s leading journalists. When one asked him if he cared who was chancellor, Schröder or his rival, Angela Merkel, Ackermann shrugged and said that he got along well with both. “I’m a little bit of a politician.” He smiled. When Merkel became chancellor, she hosted a dinner in his honor.
This go-go period was precisely when the bank most needed someone to step on the brakes, maybe gently, maybe firmly, but definitely to apply some pressure to slow down this vehicle that was losing its capacity to steer. The bank needed someone who wasn’t worried about being unpopular, who wasn’t afraid to deliver unwanted news to his superiors, who was willing to say no.
Bill Broeksmit was a phone call away. No one rang.