Trump has been the beneficiary of double standards all his life.
The New York Times
Hillary Clinton and Donald Trump at the first presidential debate at Hofstra University September … [+]
Everyone should have listened a lot more closely to former presidential Hillary Clinton at the first presidential debate, “Maybe he doesn’t want the American people, all of you watching tonight, to know that he’s paid nothing in federal taxes … So if he’s paid zero, that means zero for troops, zero for vets, zero for schools or health.”
Double Standards in Credit Underwriting
Trump’s tax avoidance scandal also showcases how banks apply credit standards differently to wealthy and powerful borrowers. According to records included in Forbes’ Dan Alexander’s recent article, Trump may finally be the greatest at something, being one of America’s most leveraged individuals. His multiple limited liability corporate entities and he have outstanding debt possibly of over $1 billion. Trump entered the presidency with outstanding debt with Amboy Bank, Bank of New York Mellon, Chevy Chase Trust Holdings, Deutsche Bank, Investors Savings Bank, Ladder Capital, Merrill Lynch, and Royal Bank of Pennsylvania. According to the New York Times’ records, he has personally guaranteed over $420 million in loans which come due by 2022-2023.
Irrespective of a person’s perceived income or net worth, bank loan underwriters and credit officers are required to ask for the same documentation of all perspective borrowers. Bank risk managers have no excuse to lend to individuals who cannot produce tax returns or who pay so little in taxes in comparison to their level of stated income. Moreover, bankers should have done even just a little due diligence when they saw Trump’s earnings were from countries like Azerbaijan, which ranks at 126 out of 198 countries in the Global Corruption Index.
Bank credit officers also cannot claim that they do not know what underwriting standards to apply. For decades, the Federal Reserve and the Office of the Comptroller have had a number of comprehensive compliance manuals for bank examiners to follow when examining domestic and foreign banks of every size. Those manuals are publicly available so that all banking professionals know exactly what off-and on-site bank examiners expect of banks in terms of their due diligence processes in approving and underwriting loans of every type of borrower.
Deutsche Bank in the U.S. is Trumps largest lender.
Deutsche Bank has been Trump’s largest lender, lending him over $2 billion. Last year in April, I wrote about all the questions that regulators and legislators should have been and should be asking Deutsche Bank about its credit due diligence standards and risk management policies and procedures around loan underwriting. If Trump lied in order to obtain a loan and more favorable credit terms, that is called bank fraud.
While still owing Deutsche Bank millions of dollars, in 2018, during Trump’s second year in office, Trump was able to borrow $11.2 million from a Florida based community bank, Professional Bank. How is it possible that after Deutsche Bank, one of the world’s largest systemically important banks finally cut off Trump from gorging himself at the debt trough, a small community bank of $730 million assets thought it was a good idea to lend scandal-ridden Trump a single cent? The loan only represents 2% of the bank’s assets, but the numerous fraud and Russia connection investigations should have been more than a red flag about the reputational risk that Trump represented and represents to Professional Bank. Additionally, the IRS should at the very least look to see if Trump paid taxes on the $50,000-100,000 interest that he earned from the money market account of $5-25 million he has at Professional Bank.
Florida community bank, Professional Bank, lent over $11 million to President Trump in 2018.
In 2012, Trump borrowed $211 million from the U.S. banking entity of state-owned Bank of China; Bank of China USA has since sold the loan into a commercial mortgage securitization vehicle, where Wells Fargo
Bank Compliance Manuals
The OCC has bank examination standards for community banks as well as for large banks under its supervisory mandate. The Federal Reserve, which is responsible for foreign bank organization in the United States such as Bank of China and Deutsche has a very detailed Examination Manual for U.S. Branches and Agencies of Foreign Banking Organizations; this manual has detailed guidance that Bank of China and Deutsche Bank should have been and should be following when it comes to their risk management practices in credit risk, loan sampling, and underwriting standards. The manual also includes guidance for red flags surrounding internal controls and fraud. Private banking, which is the area through which Trump acquired most of his loans, has an entire section, 3430.1, dedicated to it. The Federal Reserve is Deutsche Bank’s federal regulator and risk managers, compliance officers and auditors at Deutsch Bank should be very familiar with this examination manual.
This scandal also calls into question why bank regulators have not required tighter credit due diligence standards at U.S. banks of every size when it comes to how they lend to wealthy individuals with missing or questionable tax returns and who derive significant income from multiple countries. No doubt, as more information comes out in the coming days, we may well finally get the tally as to what exactly Trump owes to different banks and in what countries.