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Donald Trump's looming Deutsche Bank problem

President-elect Donald Trump speaks to members of the media at Mar-a-Lago in Palm Beach, Florida, Wednesday. (AP Photo/Andrew Harnik)

Donald Trump's business empire is in the process of negotiating a restructuring of certain loans — to the tune of $300 million — with an institution that is in serious financial trouble and is currently being investigated by the United States Department of Justice.

German financial giant Deutsche Bank holds the loans, and the Trump empire stands to reap a massive financial benefit from the restructuring, as well as precious additional operating capital that will provide them with greater flexibility in their business operations. A successful restructuring is of significant importance to the Trump business empire.

However, Deutsche Bank is in serious trouble, a large portion of which is directly due to criminal and regulatory investigations currently underway at the behest of multiple governments, including the United States, the United Kingdom and Germany. Deutsche is accused of, among other things, helping organized crime elements in Russia disguise suspicious trades, and is facing billions of dollars in potential fines from the U.S. Justice Department alone from these activities, as well as from unrelated regulatory issues related to mortgage securities.

The sum total of the fines faced by the bank threatens its financial solvency. And its position is so precarious that the question of whether the German government will offer a bailout is a major political issue in Germany. If Deutsche fails, the financial effects will ripple across the globe, potentially creating a liquidity crisis similar to the one that created the 2008 recession.

In other words, the fate of one of the world's largest financial institutions will soon rest in the hands of Attorney General-designate Jeff Sessions, who will report directly to President-elect Trump. Trump, who has steadfastly resisted calls to divest his business interests, is currently involved in negotiations with that institution — and those negotiations stand to benefit both his companies and him personally.

The problems with this arrangement from a political standpoint are obvious on their face, even if the legal issues are admittedly murky. They also offer a glimpse of what the next four years will be like if Trump refuses to completely divest his business holdings, as numerous members of Congress (both Republican and Democrat) have called upon him to do.

The Deutsche Bank crisis has not really reached the consciousness of the average American, but if Deutsche Bank does ultimately fail, the events that led to its fall will be subject to intense public scrutiny both here and abroad. Every decision made by the Department of Justice will be put under a microscope.

If companies owned by the president of the United States receive favorable loan restructuring terms from Deutsche Bank while the Justice Department is investigating it, the optics will be terrible and the congressional hearings will be virtually endless.

Given the breadth and scope of the malfeasance Deutsche Bank is charged with, it's entirely possible that Deutsche Bank should be allowed to fail, without regard for the financial effects of such a failure. But if that decision is indeed made, the American public will want to know that that the decision was based solely on the legal considerations at issue, and not due to retribution for failure to give the Trump enterprises the refinancing terms sought by Trump.

Similarly, if the Justice Department reaches a favorable settlement with Deutsche Bank or announces that it is dropping its case altogether, the American public will want to know that this decision was based solely on the legal issues and not on the basis of a backroom deal struck with Trump during the course of refinancing his company's loans.

Trump has stated that he is not legally obligated to divest his businesses, which is correct. However, as the Deutsche Bank scandal careens onward, it illustrates (among other things) the political danger Trump faces from the continued ownership of his business enterprises — enterprises that will, by their nature, be constantly involved in renegotiating financial terms with institutions that are subject to regulation by the U.S. government.

One last thing…
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