Indeed, it must have occurred to David Enrich, an enterprising business reporter for the Wall Street Journal and the New York Times, that he couldn’t have made up a more intriguing tale than the story he uncovered at Deutsche Bank. The result, “Dark Towers,” is a real-life account that will confirm every suspicion you have about the greed and incompetence at the heart of modern finance.
Enrich traces the history of Deutsche Bank, from its entrepreneurial roots in the 19th century through its years of Nazi collaboration to the postwar decades when it stood at the nexus of political and economic relationships known as Germany, Inc. But in the 1990s, with its purchase of investment banks in London (Morgan Grenfell) and New York (Bankers Trust), Deutsche Bank began to shed its conservative culture and rush headlong into the more risky and lucrative areas of Anglo-American finance: derivatives, asset-backed securities, junk bond underwriting and proprietary trading
Before long, trading and fee-driven service businesses would overtake traditional corporate lending and account for a majority of Deutsche Bank’s revenue and profits. Besides becoming the world’s largest bank, with $2 trillion in assets, Deutsche Bank also became one of the world’s most heavily indebted. And with a decentralized management model and few controls in place, the lure of even greater profits and bonuses quickly led to legal and financial disasters:
A new Russian subsidiary laundered tens of billions of rubles into dollars for Russian oligarchs and cronies of President Vladimir Putin. Its London traders helped organize a conspiracy to fix interest rates. Its New York investment bankers were at the front of the pack peddling collateralized debt obligations (CDOs) and mortgage-backed securities they knew would go bad. 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. Its enormous stash of risky derivatives was carried on its books at prices well above their market value. And its top executives repeatedly lied about all these things to investors, regulators and even their own directors.
The consequences of all this risk-taking, mismanagement and fraud are now clear. Between 2015 and 2017, the bank was forced to record losses of more than $10 billion, and it only barely returned to profitability in 2018. Since 2007, its stock price has fallen 95 percent. And as Enrich reports, the bank’s financial position was so precarious that even longtime corporate customers abandoned it. The International Monetary Fund recently singled out Deutsche Bank as the institution posing the biggest risk to the global banking system.
Emblematic of the bank’s problems has been its relationship with Donald Trump, who by the mid-1990s had stiffed 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 at 40 Wall Street was followed by $900 million more for the GM Building on Fifth Avenue and a tower across from the United Nations. And when Trump was on the verge of defaulting on loans used to buy his failing hotels and casinos in Atlantic City, Deutsche Bank came to the rescue by peddling $484 million in junk bonds to investors — bonds on which Trump defaulted within a year.
Normally, such a default would have been enough to scare away even the most risk-tolerant lenders. But within months, Deutsche Bank’s real estate division was again providing Trump with a $640 million loan needed to build a new Chicago hotel, while its team in Moscow was steering Russian investors to Trump projects in Hawaii and Mexico. The relationship hit a low point in 2009 when Trump announced he had no intention of repaying his loan on the Chicago hotel, claiming that the unfolding financial crisis was an act of God that freed him of his obligation. When Deutsche Bank sued to get its money back, Trump countersued, preposterously accusing the bank of predatory lending practices. The matter was finally settled with a two-year extension on the loan — and a vow by the bank’s real estate lenders never to do business with Trump again. But two years later, Trump somehow sweet-talked his way into Deutsche’s private banking division, which over the next several years provided him with $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,” Enrich writes.
Whatever financial risks the bank might have taken with its marquee client, however, would soon pale compared with the regulatory and reputational risks it took on when Trump won the 2016 election. Even now, the Supreme Court is considering whether the bank must turn over records from its Trump files to the House of Representatives. Trump sued to block the bank from complying with the House subpoena.
All of this certainly provides material for a book with both popular and professional appeal, but in the end Enrich can’t quite pull it off. Part of the problem is that the demands of constructing a compelling, 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 make it a credible business history.
Enrich organizes the book around the career of one banker, Bill Broeksmit, and a handful of colleagues who were involved in some, but not all, of the bank’s risky and unsavory activities. Broeksmit’s suicide provides the dramatic opening scene for the book, and the search by his troubled stepson for the story behind the act takes up the final third, bringing it to an unresolved ending. We are meant to conclude that Broeksmit took his life because his repeated efforts to prevent Deutsche Bank’s excesses had failed. But in the end, the stories of the bank and the banker do not track each other in a way that feels true and convincing.
Enrich certainly did a tremendous amount of reporting, relying on internal documents, public records and scores of mostly off-the-record interviews that are only occasionally footnoted. And by the end, the reader is left with a clear impression that the people running the world’s largest bank were all fools and knaves. Some on-the-record conversation with them would have either confirmed such a conclusion or provided the author and readers with a more complete and nuanced picture.
The biggest shortcoming of “Dark Towers,” however, is that while it raises provocative questions about Deutsche Bank and Trump, it never quite answers them. Was it incompetence or corruption that caused American and European regulators to do nothing about the bank’s excessive leverage and mispricing of assets? Was Trump’s relationship with Justin Kennedy, head of Deutsche Bank’s real estate lending division, a factor in the decision of Kennedy’s father, Justice Anthony Kennedy, to retire from the Supreme Court and Trump’s decision to appoint one of his former clerks, Brett Kavanaugh, to replace him? Did Deutsche Bank help Russian oligarchs launder money through Trump’s projects? Why did the U.S. criminal investigation of the bank’s Russian money laundering suddenly go quiet after Trump’s election?
Although it might have taken months of additional reporting to nail down the answers to these questions, “Dark Towers” would have been better for it. Instead, we are left to surmise that where there is smoke, there must also be fire.
Deutsche Bank, Donald Trump, and an Epic Trail of Destruction
By David Enrich
Custom House. 402 pp. $29.99