As the financial crisis reached full throttle in the fall of 2008, Donald Trump owed $334 million on Deutsche’s 2005 loan for his Chicago skyscraper. The hotel, restaurants, and spas were open, but the condos were still under construction. (“I built a great monument to the city,” Trump declared.) With the economy sinking, nobody was buying his luxury apartments.
The Trump loan had been diced into mortgage-backed bonds that Deutsche had sold to investors, while also keeping a portion for itself. The loan had been due in May 2008, but Deutsche, acting on behalf of itself and the bondholders, agreed to grant Trump a six-month extension. With the November due date approaching, Trump sought another extension. This time the bank said no.
Trump, however, had no intention of repaying the loan on time. He asked his lawyers to figure out a work-around. One of them dissected each of the loan documents and, on a conference call with his colleagues to brainstorm how their client could wriggle out of his obligations, mentioned the existence of a so-called force majeure—act of God—provision in the loan agreement. That meant that in the event of an unanticipatable catastrophe, like a natural disaster, the contract wasn’t enforceable. A lawyer on the call piped up that Alan Greenspan had just called the financial crisis a “credit tsunami”—and what was a tsunami if not a natural disaster, an act of God? One lawyer, Steve Schlesinger, presented the idea to Trump. “It’s brilliant!” he declared, and Schlesinger and his colleagues basked in the warmth of Trump’s pleasure. He instructed his lawyers to execute the plan.
Three days before the loan was due, the lawyers wrote to Deutsche that Trump considered the financial crisis to represent a force majeure that allowed him to stop paying back his loan. Days later, Trump filed a lawsuit citing the provision and accusing Deutsche of engaging in “predatory lending practices”—toward him!—and of helping ignite the financial crisis. “Deutsche Bank is one of the banks primarily responsible for the economic dysfunction we are currently facing,” Trump asserted. In an extraordinary act of chutzpah, he sought damages of $3 billion.
Deutsche filed its own suit, seeking the $40 million Trump had personally guaranteed back in 2005. The bank pointed out that the same day Trump had notified Deutsche that the financial crisis constituted a contract-voiding act of godly devastation, he was quoted in two newspapers boasting about how he was unscathed by that very crisis. One of his deputies was quoted bragging that Trump’s company had nearly $2 billion, ready to be deployed on a moment’s notice.
In trying to get Trump to pay back the money he owed, the bank made a persuasive argument for why it should never have loaned him that money in the first place. Deutsche’s lawsuit quoted from Trump’s book, Think Big and Kick Ass in Business and Life, in which the future president explained how he had handled banks during a real estate downturn in the 1990s. “I turned it back on the banks and let them accept some of the blame,” Trump wrote. “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. I told you that goddamn deal was no good.’ ” Deutsche argued in the suit: “The fact that he is now resorting to the same tactics he has consistently employed throughout his career as a real estate magnate should surprise no one.” Indeed.
Shortly after the suit was filed, Trump bumped into Justin Kennedy. “Nothing personal,” Trump said. Kennedy replied that there were no hard feelings: Business was business. But when senior Deutsche executives learned about Trump’s litigation, they were irate. “What the hell are we doing lending money to a guy like this?” Dick Walker, the bank’s general counsel, asked his colleagues. “It’s a bullshit claim, but we have to deal with it.”
More than four years had passed since Trump’s casino company had burned Deutsche and its clients by defaulting on the junk bonds. That had spelled the end of the Trump relationship for one wing of Deutsche’s investment banking unit, but the alarm bells hadn’t saved another wing from stumbling into its own bad deal. Now the time had come for the rest of the investment bank to wash its hands of Donald Trump. Going forward, he wouldn’t even be permitted at the bank’s golf tournament. “This guy is a danger, and we’re done with him,” one of Anshu’s lieutenants said.
Kennedy, having made a killing off the financial crisis and now seeing an important client fall by the wayside, decided to leave the bank at the end of 2009.