By Pam Martens and Russ Martens: June 1, 2018 ~
Yesterday the Wall Street Journal dropped a bombshell into financial markets with a report that “about a year ago” the U.S. Federal Reserve had “designated Deutsche Bank AG’s sprawling U.S. business as being in a ‘troubled condition.’ ” The Financial Times added to market angst by also reporting yesterday that the FDIC, which provides Federal deposit insurance to U.S. banks, has designated Deutsche Bank as a “problem bank” sometime within the past year. Until yesterday, both of these actions by Federal regulators were secret and unknown to Deutsche Bank’s shareholders, to the markets and to the New York Stock Exchange where Deutsche Bank’s stock trades in the U.S. Over the past year, Deutsche Bank’s stock has lost more than 40 percent of its value as a result of a lack of positive earnings for three years and serial regulatory lapses and settlements.
More bad news arrived today with credit ratings agency Standard & Poor’s slashing Deutsche Bank’s credit rating to BBB+ from A-. That will mean margin calls to Deutsche Bank along with demands for more collateral on their sprawling derivative exposure.
U.S. President Donald Trump has a lot on his mind right now, not the least of which is the revelation that during the FBI’s April 9 raid on his personal attorney, Michael Cohen, it had seized secret tape recordings made by Cohen. On MSNBC this week, attorney Michael Avenatti said he is aware that at least one of those tapes is a conversation with Donald Trump.
The Cohen trove of thousands of yet-to-be released documents and recordings are currently considered the biggest threat to the presidency of Donald Trump. Deutsche Bank, however, could prove to be a far larger problem.
Deutsche Bank is the largest lender to Trump and his businesses. Late last year, Special Counsel Robert Mueller, who is investigating the Trump campaign’s ties to Russia, subpoenaed records from Deutsche Bank. As Cohen’s lawyers were making their first court appearance in the FBI raid case, Cohen was having a cigar party outside his hotel. One of his entourage was Jerry Rotonda, a former Deutsche Bank executive.
Deutsche Bank has had a troubled history with shady Russian dealings. The draft report released by Democrats on the House Permanent Select Committee on Intelligence on March 13 contained this paragraph:
“Donald Trump’s finances historically have been opaque, but there have long been credible allegations as to the use of Trump properties to launder money by Russian oligarchs, criminals, and regime cronies. There also remain critical unanswered questions about the source of President Trump’s personal and corporate financing. For example, Deutsche Bank, which was fined $630 million in 2017 over its involvement in a $10 billion Russian money-laundering scheme, consistently has been the source of financing for President Trump, his businesses, and his family. We have only begun to explore the relationship between President Trump and Deutsche Bank, and between the bank and Russia.”
Deutsche Bank’s “$10 billion Russian money-laundering scheme” which became known as “mirror trades,” was the subject of a May 23, 2017 letter sent by Maxine Waters, the ranking member of the House Financial Services Committee and other House Democrats to John Cryan, then the CEO of Deutsche Bank. The letter began:
“We write seeking information relating to two internal reviews reportedly conducted by Deutsche Bank (“Bank”): one regarding its 2011 Russian mirror trading scandal and the other regarding its review of the personal accounts of President Donald Trump and his family members held at the Bank. What is troubling is that the Bank to our knowledge has thus far refused to disclose or publicly comment on the results of either of its internal reviews. As a result, there is no transparency regarding who participated in, or benefited from, the Russian mirror trading scheme that allowed $10 billion to flow out of Russia. Likewise, Congress remains in the dark on whether loans Deutsche Bank made to President Trump were guaranteed by the Russian Government or were in any way connected to Russia. It is critical that you provide this Committee with the information necessary to assess the scope, findings and conclusions of your internal reviews.
“Deutsche Bank’s failure to put adequate anti-money laundering controls in place to prevent a group of traders from improperly and secretly transferring more than $10 billion out of Russia is concerning. According to press reports, this scheme was carried out by traders in Russia who converted rubles into dollars through security trades that lacked any legitimate economic rationale. The settlement agreements reached between the Bank and the New York Department of Financial Services as well as the U.K. Financial Conduct Authority raise questions about the particular Russian individuals involved in the scheme, where their money went, and who may have benefited from the vast sums transferred out of Russia. Moreover, around the same time, Deutsche Bank was involved in an elaborate scheme known as ‘The Russian Laundromat,’ ‘The Global Laundromat,’ or ‘The Moldovan Scheme,’ in which $20 billion in funds of criminal origin from Russia were processed through dozens of financial institutions.”
But it’s not just Donald Trump that may feel the fallout from Deutsche Bank’s woes and the Fed’s secret downgrade of its U.S. operations. According to Deutsche Bank’s 2017 Annual Report, its credit exposure to the United States stands at €242 billion — almost half of the total it holds for all of Europe, which stands at €509.8 billion.