Monday, December 11

Trump’s Debts Are Widely Held on Wall Street



The debts of President-elect Donald Trump and his businesses are scattered across Wall Street banks, mutual funds and other financial institutions, broadening the tangle of interests that pose potential conflicts for the incoming president’s administration.

Hundreds of millions of dollars of debt attached to Mr. Trump’s properties, some of them backed by Mr. Trump’s personal guarantee, were packaged into securities and sold to investors over the past five years, according to a Wall Street Journal analysis of legal and property documents.

Mr. Trump has previously disclosed that his businesses owe at least $315 million to 10 companies. According to the Journal’s analysis, Trump businesses’ debts are held by more than 150 institutions.

They bought the debt after it was sliced up and repackaged into bonds—a process known as securitization, which has been used for more than $1 billion of debt connected to Mr. Trump’s companies.

As a result, a broader array of financial institutions now are in a potentially powerful position over the incoming president. If the Trump businesses were to default on their debts, the giant financial institutions that serve as so-called special servicers of these loan pools would have the power to foreclose on some of Mr. Trump’s marquee properties or seek the tens of millions of dollars that Mr. Trump personally guaranteed on the loans.

The problem with any of this debt is if something goes wrong, and if there is a situation where the president is suddenly personally beholden or vulnerable to threats from the lenders, said Trevor Potter, who served as a general counsel to the presidential campaigns of Republicans George H.W. Bush and John McCain.

Wells Fargo & Co., for example, runs at least five mutual funds that own portions of Trump businesses’ securitized debt, according to an analysis of mutual-fund data conducted by Morningstar Inc. for the Journal.

The bank also is a trustee or administrator for pools of securitized loans that include $282 million of loans to Mr. Trump. And Wells acts as a special servicer for $950 million of loans to a property that one of Mr. Trump’s companies partly owns, according to securities and property filings.

Wells Fargo is currently facing scrutiny from federal regulators surrounding its fraudulent sales practices and other issues. Once he takes office, Mr. Trump will appoint the heads of many of the regulators that police the bank.

Other companies with holdings of Trump business debt include funds run by J.P. Morgan Chase & Co., BlackRock Inc., Fidelity Investments, Invesco Ltd., Pacific Investment Management Co., Prudential PLC and Vanguard Group.

Aides to Mr. Trump didn’t respond to requests for comment. Representatives of the financial institutions either declined to comment or didn’t respond to requests for comment.

It is common for big real-estate investors to have debts spread around Wall Street. But the wide-ranging nature of Mr. Trump’s debts complicates the potential conflicts he could face between his role as president and his personal financial interest—especially if Mr. Trump opts not to sell his real-estate holdings, some experts say.

The appearance of potential conflicts is dangerous and seriously exists in this situation, said Lawrence Noble, a former general counsel at the Federal Election Commission, who now works for the nonpartisan Campaign Legal Center.

US President-elect Donald Trump. The president-elect has yet to announce to what extent he plans to disentangle himself from his business empire before he assumes the presidency on Jan. 20. He has said he was taking steps to that effect and had planned an announcement in December, but that press conference was postponed. A new press conference is scheduled for Jan. 11, though it isn’t clear if Mr. Trump will discuss his business interests then.

That uncertainty—compounded by Mr. Trump’s decision to break with decades of precedent by declining to release his tax returns—makes it impossible to gauge the full extent of potential conflicts.

Mr. Trump’s business consists chiefly of real-estate assets and units that manage hotels and condo towers, rolled up in an umbrella company called the Trump Organization, which he owns.

Last May, Mr. Trump filed a financial-disclosure form with the Federal Election Commission that listed 16 loans worth $315 million that his businesses had received from 10 companies, including Deutsche Bank AG. But that form reported debts only for companies he controls, excluding more than $1.5 billion lent to partnerships that are 30%-owned by him.

Ladder Capital Corp., a New York real-estate investment trust, is listed in the disclosure as financing some of Mr. Trump’s most valuable Manhattan properties. The firm in 2012 lent $100 million secured by Trump Tower, the president-elect’s Fifth Avenue headquarters, and in 2015 lent $160 million secured by 40 Wall Street, named in gold lettering on its art deco walls as The Trump Building. Both loans are backed by personal guarantees from Mr. Trump for part of the debt, securities filings show.

Ladder no longer owns any of the $282 million in loans it made to Trump entities, according to securities filings and a person familiar with the matter.

The loans were packaged with other real-estate debts and sold to investors via six securitizations handled by Wells Fargo and Deutsche Bank. The special servicers on the loan pools—who would become involved if the loans defaulted—include units of regional bank PNC Financial Services Group Inc. and home builder Lennar Corp., according to Trepp LLC, a real-estate data service.

Representatives of those companies declined to comment.

It is impossible to identify all the firms or individuals that now hold Trump businesses securitized debt, as these investments often don’t have to be disclosed. Morningstar’s analysis of filings by mutual funds found 151 that own parts of the pooled debt.

The loans on entities that are part-owned by Mr. Trump’s businesses are also controlled by financial institutions with big stakes in the president-elect’s agenda.

MetLife Inc., for example, has a $300 million loan to the limited liability company that owns 555 California Street, a 52-story San Francisco skyscraper. That LLC is in turn owned 30% by Mr. Trump and 70% by Vornado Realty Trust.

MetLife is fighting regulators in court over its designation as a “systemically important financial institution,” a classification that subjects it to stiffer regulations. The government is appealing an initial ruling in MetLife’s favor, and the Trump administration could decide to drop that challenge. The Trump transition team has promised to dismantle the 2010 Dodd-Frank law that created the SIFI label.

A MetLife spokesman declined to comment beyond issues related to its court case.

Deutsche Bank, which is under investigation by the U.S. Justice Department over its equity trades for wealthy clients in Russia, is the single biggest lender to properties controlled by Mr. Trump.

Deutsche Bank has a total of $340 million in outstanding loans to Trump entities, including a $170 million line of credit on his recently opened Washington hotel, according to property and securities filings.

The German bank also is one of four firms along with UBS Group AG, Goldman Sachs Group Inc. and Bank of China—that in 2012 agreed to lend $950 million to the companies that own 1290 Avenue of the Americas, a New York skyscraper near Rockefeller Center.

Those companies are controlled by a partnership that is 30% owned by Mr. Trump.

The $950 million loan was securitized in 2012 in a deal led by Deutsche. Wells Fargo is the special servicer for the securitized debt.