“What the hell are we doing loaning a guy like that money?” “

Deutsche Bank, Donald Trump and an epic tale of destruction
By David Enrich

Every era seems to have an emblematic bank of its excesses – in the 1980s it was Drexel Burnham Lambert, the king of junk bond; in the 2000s, it was Lehman Brothers.

The 2010s were different. No massive financial collapse has marred the landscape; no Madoff or Enron spoiled the business page. Yet never have the good times been so bad. In these first months of the next decade, America was prosperous but dissatisfied, solvent but anxious.

David Enrich, a former Wall Street Journal reporter and now financial editor for the New York Times, may have found the perfect vehicle for this murky and inconspicuous moment. Name a banking scandal and Deutsche Bank was at the heart of it – interest rate manipulation, Russian money laundering, money transactions with rogue states, the collapse of Italy’s (and world’s) oldest bank , hidden derivative losses, high-level suicide.

It would have been perfect if Deutsche had funded a shunned real estate mogul and made him king – and of course they did too, the only bank that loaned Donald Trump long after he had the reputation for stiffening its peers and for stiffening Deutsche itself.

No common thread connects these countless scandals, but “Dark Towers” offers a compelling, albeit familiar, thesis: this unchecked ambition turned a pillar of German finance into a reckless casino and fostered a culture in which amorality and ultimately , crime flourished.

[ This book was one of our most anticipated titles of February. See the full list. ]

Deutsche intrigues not only because its leaders chased growth at all costs – resulting in mountains of losses, as it always does – but because it was once the emblem of European institutional lending, the near-opposite of Short-termism of Wall Street. Founded in Berlin in 1870, just before German unification, Deutsche saw its mission as not only to advance profits, but also German trade in Europe and America. And over the next century – with the exception of a rough patch under the Nazis, when it pressured corporate clients to get rid of Jewish directors – Deutsche did well. Until the 1980s, when Wall Street preached the glories of debt, Deutsche championed stability, both social and financial. There was no CEO excess because there was no CEO He was led, consensually, by a vorstand (consultancy), an arrangement designed to promote harmony with unions and industrial partners.

However, as the West deregulated markets, profits from trade soared. Wanting to participate in the game in 1995, Deutsche recruited Edson Mitchell of Merrill Lynch to expand its markets office. Mitchell was a gunslinger who would bet $ 10,000 on a golf putt – arguably, not much riskier than the merchandise Merrill peddled customers. Merrill was so good at peddling these bets in the unprotected market that a leading institutional client, Orange County, Calif., Bought enough of them to go bankrupt.

Seeking that kind of expertise at Deutsche, Mitchell embarked on a hiring frenzy, nabbing 2,500 traders and others from his old company and others, which Enrich calls “one of the biggest migrations of Wall Street history “.

In no time, Deutsche’s center of gravity (and 85% of its profits) shifted to investment banking and commerce. The once cautious style of the bank came to seem as dated as the dark oil portraits that lined its hallways.

The problem with risk is that until it stops working, it performs pretty well. As profits soared, Deutsche wanted more risk. He blithely quadrupled his balance sheet, swallowing Bankers Trust (which Enrich generously calls a third-rate company) and buying a risky mortgage store at the top of the bubble.

A telling moment in Deutsche’s evolution came when an executive bragged about no longer needing “customers.” Why bother taking out loans when you can trade derivatives? Another was when Josef Ackermann was appointed CEO. The Swiss Ackermann understood Wall Street all too well. He ran the bank for short-term profit and set a target of 25% equity, the bank equivalent of driving 80 miles an hour on an icy road.

The troops got the message: internal controls were taped or ignored. It was only one step between taking disproportionate risks to steal from customers, but when whistleblowers raised concerns, they were cast aside. Enrich tells many examples. A trader named Christian Bittar was waiting for a bonus of $ 100 million; when this (unsurprisingly) sparked internal scrutiny, Deutsche staged a laundering and Bittar received his check. Enrich says traders have been “tricked into engaging in fraud.” Bittar later pleaded guilty to attempting to rig a key interest rate.

One of the bank’s most troubling activities was laundering billions of Russian rubles (via fictitious transactions known as “mirror transactions”) into US dollars. Then there was the client Trump. Enrich’s portrayal is nothing new, but it is painful to read: slick persuasions, obsequious flattery, lies about his net worth to garner loans for office buildings, resorts, casinos.

When Deutsche’s real estate team shut off Trump, the private bank turned on the tap. When a loan came due, Trump had “no intention” to repay, as if the rules were different for him. Deutsche coppers were so in the grip of Trump’s celebrity and so eager to grow in America, a division loaned $ 48 million to write off the debt of a Chicago skyscraper – a debt on which Trump had defaulted with another wing of the same bank. They bought his land as voters would. In what could serve as a requiem for the country’s lost innocence, the attorney general said, “What do you do by lending money to a guy like that?

Enrich hooks his tale to the story of William Broeksmit, a derivatives trader and Mitchell’s pal and aspiring protector. Broeksmit played the role of the ‘superego’ in increasingly finicky banking, questioning risky transactions and asking odd questions such as “How does this help the customer?” But he drank too much and suffered from episodes of darkness. He got stuck in the legal and regulatory quagmire in which the bank was sinking. Eventually Broeksmit hanged himself.

Broeksmit’s suicide increased her usefulness as a narrative prop, perhaps more than her role at Deutsche warranted. Enrich stubbornly prowls the psychological shadows looking for clues as to what might have motivated him. He tracks down Broeksmit’s son, Val, who was not close to his father but who, after his death, sets out on a quest to find “answers” and make his father’s employer feel guilty. Val accesses her father’s email (and hacks her mother’s credit cards) and shares the wares with reporters and investigators across Europe and America, often demanding money that he then spends on heroin and Oxy. This soap opera says a lot about the Broeksmit, less about Deutsche. For Enrich, history shows that Wall Street draws good people “away from their moral and ethical principles.” However, he presents no evidence that Broeksmit acted immorally. Rather, he was a decent but imperfect banker who, as Enrich puts it, internalizes his employer’s problems.

“Dark Towers” ​​suffers from some unfortunate tropes of business journalism: Val is “fueled” by Ritalin, traders are “fueled” by testosterone and “crazy” by adrenaline; the bank is “fueled” by greed. Maybe “fuel” should be reserved for energy writers.

Enrich’s most enticing nugget is that in the summer of 2016, Jared Kushner’s real estate company (which received lavish funding from Deutsche) was transferring money to various Russians. A bank compliance officer filed a “suspicious activity report”, but the report was canceled and she was fired. The suggestion that the money may have been reimbursement for meddling in the Russian countryside is not one that Enrich can prove. Likewise, we’ll have to wait and see if Deutsche can recover from years of bank embezzlement that destroyed its capital and wiped out 95% of its share price. In the meantime, Enrich has given us a detailed, clearly written and generally balanced account of a bank that has gone astray.

Troy M. Hoffman