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WSJ: Deutsche Bank Lost $1.6B on Buffett-Linked Trade

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Mohamed Ahmed Soliman | Dreamstime.com

By    |   Wednesday, 20 February 2019 05:18 PM

Deutsche Bank AG reportedly lost $1.6 billion over nearly a decade on a complex municipal-bond deal that involved insurance from Warren Buffett’s Berkshire Hathaway.

The embattled German lender bought a $7.8 billion portfolio of municipal bonds in 2007, according to the Wall Street Journal.

Deutsche Bank bought default protection on the bonds from Berkshire the following year, paying $140 million in the transaction.

Deutsche Bank failed to confront the loss head-on even as markets were upended and regulations tightened.

The firm ultimately chose to sell the bonds at a loss and retire its Berkshire insurance, recognizing the $1.6 billion loss in 2016, WSJ.com reported.

The loss, which hasn’t previously been reported, represents one of Deutsche Bank’s largest ever from a single wager—roughly quadruple its entire 2018 profit—and ranks as one of the banking industry’s biggest soured bets in the last decade.

The WSJ report came just hours after Bloomberg News reported that top Deutsche Bank executives were so concerned after the 2016 U.S. election that the Trump Organization might default on about $340 million of loans while Donald Trump was in office that they discussed extending repayment dates until after the end of a potential second term in 2025, according to people with knowledge of the discussions.

Members of the bank’s management board, including then Chief Executive Officer John Cryan, were leery of the public relations disaster they would face if they went after the assets of a sitting president, said the people, who asked for anonymity because the discussions were private. The discussions were about risks to the bank’s reputation and did not relate to any heightened concerns about the creditworthiness of Trump or his company, the people said.

The bank ultimately decided against restructuring the loans to the Trump Organization, which come due in 2023 and 2024, and chose instead not to do any new business with Trump while he is president, one of the people said.

A spokesman for Deutsche Bank declined to comment, and the people with knowledge of the discussions said they didn’t know why the bank ultimately decided not to extend the loans. The White House didn’t respond to requests for comment.

“This story is complete nonsense,” Eric Trump, a son of the president and an executive vice president of the Trump Organization, told Bloomberg in an email. “We are one of the most under-leveraged real estate companies in the country. Virtually all of our assets are owned free and clear, and the very few that do have mortgages are a small fraction relative to the value of the asset. These are traditional loans, no different than any other real estate developer would carry as part of a comparable portfolio.”

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Deutsche Bank reportedly lost $1.6 billion over nearly a decade on a complex municipal-bond deal that involved insurance from Warren Buffett’s Berkshire Hathaway.
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Wednesday, 20 February 2019 05:18 PM
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