President Trump painted a rosy picture of his financial condition during a televised town hall on Thursday night, calling his hundreds of millions of dollars in debt coming due “a peanut” and saying he had borrowed it as a favor to lenders eager to take advantage of his financial strength.
In fact, the loans, and the unusual requirement he had to accept to receive them, illustrate the financial challenges he faces and the longstanding reluctance of banks to deal with him.
Mr. Trump had to personally guarantee $421 million in debt, a rare step that lenders only require of businesses that may not be able to repay. The commitment puts his assets on the line and could place his lenders, should he be re-elected, in the position of deciding whether to foreclose on a sitting president.
The personal guarantee also speaks to why, despite Mr. Trump’s assertion that banks are eager to lend him money, nearly all the money he borrowed in the last decade came from only two institutions.
“When a bank asks for a personal guarantee, it is because the bank isn’t satisfied with the creditworthiness of the borrower,” said Richard Scott Carnell, who served as assistant secretary for financial institutions at the Treasury Department under President Bill Clinton and now teaches law at Fordham University. “If the captain gives a personal guarantee for the ship, he will be less likely to sink it.”
Mr. Trump was asked about the debt in response to an investigation by The New York Times published last month based on a review of more than two decades of his tax-return data. The investigation found that Mr. Trump had personally guaranteed $421 million of his companies’ debts, with more than $300 million coming due within four years.
The Times also found evidence that Mr. Trump might have difficulty repaying or refinancing the loans without liquidating assets. His main source of income in recent decades — a total of more than $427 million from entertainment and licensing deals that were fueled by his fame — has all but dried up. That cash enabled a buying spree of failing golf courses, and propped up those businesses as their losses mounted. In recent years, Mr. Trump has burned through most of the cash, stocks and bonds at his disposal and has recently explored the sale of some of his holdings, including the Trump International Hotel in Washington.
The investigation revealed that Mr. Trump’s finances were under stress, with losses that allowed him to pay just $750 in federal income taxes for 2016 and 2017, and nothing at all in 10 of the previous 15 years. Also hanging over him is a decade-long audit battle with the Internal Revenue Service over the legitimacy of a $72.9 million tax refund that he claimed, and received, after declaring huge losses. An adverse ruling could cost him more than $100 million.
The tax-return data obtained by The Times does not by its nature identify the lender for most of Mr. Trump’s debts. But the borrowing businesses and largest amounts track with the personal financial disclosures he has been required to file with the federal government as a candidate and president.
The bulk of the debt appears to be owed to Deutsche Bank, one of the few lenders that would do business with Mr. Trump in the last decade, even after he defaulted on past loans.
The tax records, for example, show that the largest loan balances at the end of 2018 that Mr. Trump had personally guaranteed were $160 million on his Washington hotel and more than $125 million on his Doral golf resort. His disclosure forms indicate that Deutsche Bank was the lender on both loans. Mr. Trump had also personally guaranteed $60.3 million of debt owed by one of his entities, DJT Holdings. His Chicago tower, another Deutsche Bank borrower, is among the many businesses he controls through that holding company.
Deutsche Bank is the only mainstream financial institution that has been consistently willing to do business with Mr. Trump. And even that lender has required him to personally guarantee what he has borrowed.
As The Times has reported, Deutsche Bank and Mr. Trump have had a long and fraught relationship, with the bank at times being hesitant to lend to Mr. Trump, including refusing to advance him money during his 2016 campaign.
Deutsche Bank has spent billions of dollars trying to transform itself into a global player, a strategy that has pushed it to take outsize risks that have repeatedly landed it in trouble with U.S. regulators. In recent years, the Justice Department has investigated whether the bank has complied with laws meant to stop money laundering and other crimes. And in 2017, the Justice Department completed a deal with the bank that required it to pay $7.2 billion for its sale of toxic mortgage securities in the run-up to the 2008 financial crisis.
According to Mr. Trump’s disclosure forms and property records, the only other significant lender to his businesses since 2012 has been Ladder Capital.
Mr. Trump’s reputation among lenders was sealed over the decades that his Atlantic City casinos repeatedly filed for bankruptcy. Ben Berzin, a retired executive vice president and senior credit officer at PNC Bank who dealt with Mr. Trump over the casino loans, said banks got “an expensive education,” and the ones that did not demand a personal guarantee got burned.
“They lent on the aura of success,” he said. “And things went really wrong.”
Mr. Trump’s most lucrative investment is one run by another company: a 30 percent share with Vornado Realty Trust in two office buildings, one in Manhattan and the other in San Francisco. Mr. Trump withdrew $125.5 million from his share of the partnership’s profits from 2010 through 2018, the records show.
The Times’s totals for Mr. Trump’s debts do not include $950 million that the Vornado partnership borrowed on the two buildings in 2012 from four lenders, including Deutsche Bank. Tax records issued to Mr. Trump show he is not responsible for any of that debt.
The debt that Mr. Trump has personally guaranteed was only part of the total debt and other liabilities shown in his tax records for the end of 2018. Additionally, Mr. Trump’s businesses owe more than $200 million for which Mr. Trump is not personally responsible.
During the town hall, Mr. Trump said that the $421 million in debt was not a concern, apparently clinging to his long-held assertion that his net worth is more than $10 billion.
“What I’m saying is that it’s a tiny percentage of my net worth,” Mr. Trump said
“When you look at vast properties like I have, and they’re big and they’re beautiful and they’re well located, when you look at that, the amount of money, $400 million, is a peanut; it’s extremely underlevered,” he added, seemingly using his own version of the financial term “underleveraged.”
In a dire situation, Mr. Trump could try to sell some assets or properties to cover a loan coming due. But loans are usually based on the profitability of the business borrowing the money.
Tax records for the businesses on which he borrowed the bulk of the money suggest that refinancing may present a challenge. Doral and his Washington hotel, with more than $300 million in debts coming due, have posted regular losses. And in addition to the debt he owes, Mr. Trump has pumped a net of $261.8 million cash into the businesses to help keep them afloat.
And he appears to have spent much of the cash and investments he had on hand just a few years ago, as his income from entertainment and endorsements began a steep decline.
In January 2014, he sold $98 million in stocks and bonds, his biggest single month of sales in at least the last two decades. He sold $54 million more in stocks and bonds in 2015, and $68.2 million in 2016. A financial disclosure released in July shows that he had as little as $873,000 in securities left to sell.
Mr. Trump’s businesses reported cash on hand of $34.7 million in 2018, down 40 percent from five years earlier.
Mr. Carnell, the former Treasury official, said Mr. Trump’s personal guarantee on the debts put his lenders, primarily Deutsche Bank, in an “awkward” spot, in no small part because banks are subject to federal regulation and Mr. Trump has displayed a willingness to push the Justice Department to investigate perceived foes.
“The Donald Trump approach to law is all legal levers would be fair game in pressuring or punishing a bank,” he said.
David Enrich contributed reporting.
The Trump campaign celebrated a growth record that Democrats downplayed.
The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.
The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.
“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.
GDP number just announced. Biggest and Best in the History of our Country, and not even close. Next year will be FANTASTIC!!! However, Sleepy Joe Biden and his proposed record setting tax increase, would kill it all. So glad this great GDP number came out before November 3rd.
— Donald J. Trump (@realDonaldTrump) October 29, 2020
The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.
Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.
“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”
Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.
“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.
Black and Hispanic workers, especially women, lag in the U.S. economic recovery.
The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.
Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.
Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.
“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”
The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.
The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.
“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.
Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.
“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.
Ant Challenged Beijing and Prospered. Now It Toes the Line.
As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.
“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.
“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”
The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.
The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.
More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.
These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.
The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.
Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”
“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.
Ant declined to comment, citing the quiet period demanded by regulators before its share sale.
The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.
After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.
China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.
Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.
“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”
China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.
Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.
A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.
People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.
The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”
Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.
“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”
But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.
“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”
The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.
Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.
The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.
“Living beyond my means forced me to work harder,” Ms. Huang said.
First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.
Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.
Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.
China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.
Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.
Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.
In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.
More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.
Ant does not talk much anymore about expanding in the United States.
Ana Swanson contributed reporting.
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