In fact, it must have happened to David Enrich, an entrepreneurial business reporter for the Wall Street Journal and the New York Times, who could not have invented a story more intriguing than the story he discovered at Deutsche Bank. The result, “Dark Towers,” is a real-life account that will confirm any suspicion you have about greed and incompetence at the heart of modern finance.
Enrich traces the history of Deutsche Bank, from its business roots in the 19th century through its years of Nazi collaboration to the post-war decades when it was in the nexus of political and economic relations known as Germany, Inc. But in the In the 1990s, with its By buying investment banks in London (Morgan Grenfell) and New York (Bankers Trust), Deutsche Bank began to shed its conservative culture and rush into the most risky and lucrative areas of Anglo-American finance: derivatives, securities asset backed, junk bond subscription and proprietary negotiation
In a short time, commercial and fee-based services companies would outperform traditional corporate loans and represent the majority of Deutsche Bank’s revenues and profits. In addition to becoming the largest bank in the world, with $ 2 billion in assets, Deutsche Bank also became one of the most indebted in the world. And with a decentralized management model and few controls, the appeal of even greater profits and bonuses quickly led to legal and financial disasters:
A new Russian subsidiary washed tens of billions of dollar rubles for Russian oligarchs and cronies of President Vladimir Putin. His London merchants helped organize a conspiracy to set interest rates. Its New York investment bankers were leading the package selling collateralized debt obligations (CDO) and mortgage-backed securities that they knew would go wrong. Its bankers conspired with corporate clients to evade economic sanctions against Iran and Syria, and helped giant hedge funds avoid taxes in the United States. His enormous stash of risky derivatives was included in his books at prices well above their market value. And their top executives repeatedly lied about all these things to investors, regulators and even their own directors.
The consequences of all this risk taking, bad management and fraud are now clear. Between 2015 and 2017, the bank was forced to record losses of more than $ 10 billion, and barely returned to profitability in 2018. Since 2007, the price of its shares has fallen by 95 percent. And as Enrich reports, the bank’s financial position was so precarious that even corporate clients have long since abandoned it. The International Monetary Fund recently highlighted Deutsche Bank as the institution that presents the greatest risk to the global banking system.
Emblematic of the bank’s problems has been his relationship with Donald Trump, who in the mid-1990s had hardened so many lenders over the years as a real estate developer that no other bank would have anything to do with him. An initial loan of $ 125 million in 1998 to rehabilitate an office building on 40 Wall Street was followed by an additional $ 900 million for the GM Building on Fifth Avenue and a tower in front of the United Nations. And when Trump was about to default on loans used to buy his hotels and casinos bankrupt in Atlantic City, Deutsche Bank came to the rescue selling $ 484 million in junk bonds to investors, bonds that Trump defaulted in a year.
Normally, such default would have been enough to scare away even the most risk-tolerant lenders. But in a matter of months, the Deutsche Bank real estate division once again granted Trump a $ 640 million loan to build a new hotel in Chicago, while his team in Moscow led Russian investors to Trump projects in Hawaii and Mexico. The relationship reached a low point in 2009 when Trump announced that he did not intend to pay his loan at the Chicago hotel, claiming that the financial crisis that developed was an act of God that freed him from his obligation. When Deutsche Bank sued to recover its money, Trump responded, absurdly accusing the bank of abusive lending practices. The matter was finally resolved with a two-year extension on the loan, and a vote from the bank’s real estate lenders to never do business with Trump again. But two years later, Trump somehow made his way into Deutsche’s private banking division, which in the next few years provided $ 350 million in personal loans to cover projects in Chicago, Miami and Washington.
“The fact that one arm of Deutsche refused to do business with Trump and another arm considered him a marquee client was a perfect illustration of the bank’s dysfunction,” writes Enrich.
However, whatever the financial risk the bank might have assumed with its main client, it would pale soon compared to the regulatory and reputational risks it assumed when Trump won the 2016 elections. Even now, the Supreme Court is considering whether The bank must deliver the records of its Trump files to the House of Representatives. Trump sued to prevent the bank from complying with the citation of the House.
All this undoubtedly provides material for a book with popular and professional appeal, but in the end Enrich cannot achieve it. Part of the problem is that the demands to build a compelling and dramatic narrative lead him to ignore too much about the bank’s operations, its financial performance and what else was happening in the industry to put these dramatic events in context and turn it into a credible business story. .
Enrich organizes the book around the career of a banker, Bill Broeksmit, and a handful of colleagues who were involved in some, but not all, of the bank’s risky and unpleasant activities. Broeksmit’s suicide provides the dramatic opening scene of the book, and the search by his troublesome stepson in the story behind the act occupies the last third, leading to an unresolved end. We are destined to conclude that Broeksmit took his own life because his repeated efforts to avoid the excesses of Deutsche Bank had failed. But in the end, the stories of the bank and the banker do not track each other in a way that is true and compelling.
Enrich certainly made a tremendous amount of reports, relying on internal documents, public records and dozens of mostly unofficial interviews that are only occasionally mentioned. And in the end, the reader is left with the clear impression that the people who run the largest bank in the world were all dumb and rascals. Some official conversation with them would have confirmed this conclusion or would have given the author and the readers a more complete and nuanced image.
However, the biggest shortcoming of “Dark Towers” is that, although it raises provocative questions about Deutsche Bank and Trump, it never answers them. Was it incompetence or corruption that caused US and European regulators to do nothing about excessive leverage and asset pricing? Trump’s relationship with Justin Kennedy, head of the Deutsche Bank real estate loan division, was a factor in Kennedy’s father Judge Anthony Kennedy’s decision to withdraw from the Supreme Court and Trump’s decision to appoint one of his former employees, Brett Kavanaugh, to replace him? Did Deutsche Bank help Russian oligarchs launder money through Trump’s projects? Why did the US criminal investigation into the Russian money laundering of the bank suddenly calmed down after Trump’s election?
Although it could have taken months of additional reports to get the answers to these questions, “Dark Towers” would have been better for it. Instead, we must assume that where there is smoke, there must also be fire.
Deutsche Bank, Donald Trump and an Epic Trail of Destruction
Customs. 402 pp. $ 29.99