The Money Behind Trump’s Money

Merrill Lynch learned this lesson the hard way when it helped Trump sell $675 million of bonds to pay for work on his Taj Mahal casino on the Atlantic City boardwalk in 1988. The gaudy casino — the world’s largest — opened its doors two years later, bedecked with bright-­colored onion domes and laden with debt. Within months, it defaulted on the bonds. The unpleasant task of mopping up this mess fell to a Merrill executive named Seth Waugh. Trump threatened to tie his lenders up in years of bankruptcy-­court litigation if they didn’t agree to let him largely off the hook for what he owed. Nobody doubted Trump’s litigiousness, and Waugh and his Merrill colleagues ultimately accepted what amounted to deep losses on the bonds.

[Read more about Trump’s rise from the ashes of his Atlantic City mess.]

In 2000, Waugh joined ­Deutsche Bank. Perma-­tanned and with long, floppy hair, Waugh developed a reputation among some ­Deutsche Bank colleagues for being a bit of a lightweight. They derided him for spending more time on the golf course than he did in the office. (Today Waugh is the chief executive of the Professional Golfers’ Association of America.) But he enjoyed the confidence of one of ­Deutsche Bank’s highest-­ranking executives, Josef Ackermann, who helped recruit him from Merrill Lynch. In 2001, Waugh learned that ­Deutsche Bank was planning to lend Trump about $500 million to use as he wished — basically an unrestricted cash infusion to stabilize his flagging finances. Having witnessed up close the carnage that Trump could inflict on imprudent financial institutions, Waugh was in no hurry to repeat the experience.

The loan that was being offered now wouldn’t have required Trump to put up any hard assets as collateral; he was requesting to borrow $500 million against the $1 billion of “good will” that Trump claimed was associated with his name. That made the transaction even riskier: If Trump stopped repaying, ­Deutsche Bank would have no easy way to get its money back. Waugh voiced strong objections to the loan, and the deal died.

Waugh would soon be named the head of Deutsche Bank’s American businesses, and he had the power to put a stop to the bank’s broader Trump relationship. He didn’t. And in 2003, yet another division of ­Deutsche Bank, one that focused on helping companies raise money by selling stocks and bonds to investors, agreed to work with Trump. The point man on this venture was Richard Byrne — another Merrill veteran who had also been involved in the Taj Mahal debacle. (Byrne helped sell the ill-­fated Taj bonds to investors.) Now Trump hired Byrne’s group at ­Deutsche Bank to issue bonds for his Trump Hotels & Casino Resorts company.

It would have been reasonable to expect that Waugh would have warned Byrne about the recently rejected $500 million loan, but that never happened. So Byrne pressed on, organizing a “road show” for Trump to meet with and try to win over big institutional investors. When that didn’t drum up the desired money, Byrne’s salesmen worked the phones, casting a wider net for more clients and managing to sell more than $400 million of junk bonds (albeit at a high interest rate that reflected investors’ fears that Trump might default). Trump repaid the ­Deutsche Bank team with a weekend trip to his Mar-­a-­Lago resort in Palm Beach, Fla.

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,” Trump said. “It’s a success.”) ­Deutsche Bank’s clients, the ones who had recently bought the junk bonds, suffered painful losses. In the future, Trump would effectively be off-­limits for Byrne’s division.

But that still didn’t render Trump persona non grata for the entire bank. This was a product, at least in part, of ­Deutsche Bank’s internal dysfunction. Many big companies are compartmentalized, but ­Deutsche Bank took it to an extreme. It wasn’t just that rival divisions of the bank didn’t communicate well; they often battled against one another to win clients and amass power for their leaders within the organization — a poisonous atmosphere that Trump, perhaps inadvertently, managed to exploit.

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