Reputational Risk Deutsche Bank caught in Trump-Bannon crossfire

The latest US fracas exposes Germany’s largest bank to further damage to its battered reputation. Adding insult to injury, Trump's tax reform bill will cost the bank its 2017 profits.
Latest barrage from Stephen Bannon hits Deutsche Bank as well.

The dramatic break between US President Donald Trump and his erstwhile guru Stephen Bannon has unleashed what the former White House advisor, using one of his favorite words, would no doubt label a s***storm. Germany’s largest bank, Deutsche Bank, is caught in the middle of it and covered with what that kind of storm covers you with.

As the bank struggles to recover from years of bad business strategies and misdeeds that resulted in billions in losses and fines, it is yet another lesson in how careful a financial institution needs to be in choosing what kind of business it gets involved in.

Deutsche has not been charged with any wrongdoing in connection with its business dealings with the Trump family. Nor, for that matter, has anyone in the family or current entourage. But Special Counsel Robert Mueller has already leveled charges of money laundering against former Trump campaign manager Paul Manafort and Mr. Bannon is quoted in a new book as saying that others, including Mr. Trump’s son-in-law Jared Kushner, may also be implicated. (Mr. Manafort has insisted he is innocent and has sued Mr. Mueller and the Department of Justice for exceeding the authority of its mandate to investigate the 2016 campaign.)

It is highly dangerous when we are led by the nose through the political arena in the US. Anonymous Deutsche Bank source

As Handelsblatt reported last month, the special counsel has subpoenaed Deutsche Bank records for dealings with some of the Trump businesses and associates. The paper has also learned that federal investigators in Brooklyn are seeking information from the bank about Mr. Kushner in connection with a refinancing he did with Deutsche for a real estate deal in New York. Deutsche Bank loaned Mr. Kushner’s firm $285 million in 2016, at the height of the presidential campaign.

As if that weren't enough, it now appears Donald Trump is to blame for the bank's latest quarterly loss. On Friday, Deutsche Bank said it will take a fourth-quarter 2017 charge of €1.5 billion ($1.8 billion), following a drop in the value of its deferred tax assets due to the US tax reform bill that Mr. Trump signed into law in late December. As a result, Deutsche said it would post a slight loss for the full year. Earlier in 2017, CEO John Cryan had predicted the bank would finally turn a slight profit again for the year.

The Trump-Bannon fracas also exposes Deutsche Bank to further reputational risk. “It is highly dangerous, when we are led by the nose through the political arena in the US,” said a Deutsche banker. US media have reported that Mr. Trump personally at one point owed the German bank some $340 million. Mr. Trump’s latest financial disclosure shows credits of $130 million still on the books.

In the forthcoming book “Fire and Fury: Inside the Trump White House” by Michael Wolff, parts of which have appeared in the press, Mr. Bannon has many harsh things to say about Mr. Kushner. Referring to the subpoenas to Deutsche Bank, Mr. Bannon is quoted as saying, “It goes through Deutsche Bank and all the Kushner shit.” Also, referring still to Mr. Mueller’s investigation of both Mr. Kushner and Mr. Manafort: “'The Kushner shit is greasy. They’re going to go right through that. They're going to roll those two guys up and say play me or trade me.”

Deutsche Bank had no comment beyond its standard refrain that it is cooperating with authorities. Lawyers for Mr. Trump and Mr. Kushner, as well as Mr. Bannon, were not immediately available for comment.

Michael Maisch is a Handelsblatt reporter in Frankfurt. Darrell Delamaide adapted this story into English for Handelsblatt Global. To contact the author: [email protected].

This story was updated Friday at 6 p.m. Berlin time with news of Deutsche Bank's quarterly loss.