The Trump ‘haircut’: yes, Deutsche Bank really used this term in reducing what Trump said he was worth – DAVID RAUDALES

DAVID RAUDALES

Businessman, musician / former Full Stack Developer

DAVID RAUDALES UK

The Trump ‘haircut’: yes, Deutsche Bank really used this term in reducing what Trump said he was worth

Then-President Donald Trump boards Air Force One.

Evan Vucci/AP

Trump’s civil fraud trial, which could run him and Trump Org out of NY, is in its second week.
On Wednesday, state officials called former Deutsche Bank banker Nicholas Haigh to the stand.
He described the so-called Trump “haircut”: routinely applied reductions to Trump’s stated worth.

They called it the Trump “haircut.”

Really, that was what Deutsche Bank – Donald Trump’s most generous lender – called the routine cuts they applied to whatever the former president told them he was worth.

The “haircut” reference was made Wednesday at Trump’s New York civil fraud trial, now mid-way through its second week. The word jumped out during an esoteric finance discussion.

“First of all, what is a haircut?” Kevin Wallace, an attorney for the AG’s office, asked while questioning one of the former president’s chief barbers, so to speak, Nicholas Haigh.

Haigh is a banker who helped sign off on the more than $400 million that Deutsche Bank loaned the former president over the past decade.

“A haircut is a way by which the bank reduces the stated value of the asset in order to form some kind of assessment of what it might be worth” should there be a default, Haigh testified in a crisp British accent.

Trump’s pre- and post-haircut net worth varied wildly, the banker showed.

In 2011, Trump told the bank he was worth $4.26 billion. But after the bank’s haircut, meaning in a hypothetical default, he’d be worth as little as $2.365 billion, according to the fourth page of Deutche Bank’s 2011 Trump “credit report,” an internal banking document entered into evidence in the morning.

So what, in simpler terms, was a Trump haircut? 

The Trump haircut, then, was Deutsche Bank’s way of taking Trump’s very sunny assessments of his worth and using them to calculate what he’d be worth in a very worst-case scenario. If he defaulted on a loan, for example, then the bank might sell his properties in a down market for golf courses.

The term first surfaced nearly two years ago, in a court filing by the attorney general’s office that described how the bank took Trump’s self-described net-worth and used it to calculate their own separate, lower, “stress scenario” worth.

In the lender’s own internal paperwork, there was what Trump said he was worth in his annual Statements of Financial Condition. To the right, in a separate column, there was his “DB adjusted,” which is Deutsche Bank’s fire-sale price, calculated via a percentage “haircut.”

An excerpt from Deutsche Bank’s internal records, showing the difference in what Trump’s self-reported net-worth and his “haircut” worth.

New York Attorney General’s office

Trump’s post-haircut worth was critical, over the years, in evaluating “whether to extend or maintain credit,” the AG’s filing said. The calculation influenced the bank’s decision to lend money to Trump, and to then continue to let him keep that money during the life of the loan. 

The loans helped build the Trump empire – and reputation – that in turn propelled him, as a billionaire businessman, to the White House.

Deutsche Bank financed the Trump National Doral Miami golf resort (he borrowed $125 million), Trump International Hotel & Tower in Chicago (he borrowed $107 million), and the renovation of the Old Post Office in Washington, DC (he borrowed $170 million).

The Trump Organization renovated the Old Post Office.

AaronP/Bauer-Griffin/GC Images

Crew cut? Trim?

That depends.

A different haircut would be applied by Deutsche Bank depending on the kind of asset. For instance, the haircut on cash was very small, since cash doesn’t really depreciate, Haigh testified Wednesday.

But the haircut on Trump’s golf resorts? That was 50%, he testified.

And in 2011, Deutsche Bank gave Trump a 75% haircut on what he said his Seven Springs estate in upstate New York was worth – because that valuation included the development of nine yet-unbuilt luxury “mansions.” 

“Asset properties that are not yet developed have a larger range of possible impacts on their value” in the future, Haigh explained. 

An excerpt from Deutsche Bank’s internal, 2011 Trump credit report, mentioning a 75 percent haircut.

NY Attorney General’s Office

That turned out to be a good call by Deutsche Bank. The nine mansions were essentially imaginary, the AG has argued, since zoning laws and other local regulations had already banned their construction, despite Eric Trump’s efforts at the time.

And why do we care about a bank’s calculations?

It’s a point of dispute in the trial. 

Trump’s side notes that the former president never defaulted, and that Deutche Bank made many millions off of his interest on the loans. They lent to him regardless of their most severe haircut calculations and were in no way victimized, his lawyers have argued.

The attorney general countered that in lending to Trump, Deutsche Bank relied on both Trump’s adjusted, worst-case, “haircut” worth and his self-reported worth. The state’s expert witnesses are expected to testify that it’s unlikely that the bank would have loaned to Trump at all if they knew those numbers were fraudulent.

James has accused the defendants in her lawsuit – Trump, his two eldest sons, and two former longstanding executives – of conspiring to lie about his worth by as much as $3.6 billion a year in a decade’s worth of the annual statements of financial condition he used to get and keep his loans.

She’s seeking to permanently ban him from running a business in New York, among other penalties, and has already won a pre-trial ruling that may shift control of the Trump Organization to a receiver who’d be tasked with selling assets.

Haigh’s testimony was taken during a break in longer testimony by Allen Weisselberg, Trump’s former CFO, who on Tuesday testified that Trump’s tripling of the square footage of his penthouse in five years of financial statements was a “minor” miscalculation.

Read the original article on Business Insider