Trump Needed $225 Million. A Little-Known Bank Came to the Rescue.

The Washington Post

11:59 JST, July 28, 2023

SAN DIEGO – As Donald Trump considered another White House run last year, his company’s finances were at risk of spiraling into crisis.

The former president’s longtime lender and several banks with his deposits had cut ties in the days around the Jan. 6 attack on the Capitol by his supporters, at a time when Trump had hundreds of millions in loans coming due. In February 2022, the accounting firm that had worked for him for two decades dropped Trump and advised against relying on his “statement of financial condition,” a metric banks use to evaluate the risks of a loan.

Unless he found a new lender, Trump’s business empire could have been in jeopardy.

Then a new partner came to the rescue: A little known, online-only financial firm headquartered in a suburban San Diego office park.

Axos Bank, formerly known as Bank of Internet USA, had grown from one of the first digital banks into a profitable, publicly traded company in part by specializing in loans to borrowers other banks had shied away from – all while navigating federal regulator scrutiny over its internal operations and a congressional hearing that cited its involvement in high interest rates on some loans.

One day after the warning by Trump’s accounting firm became public, Axos’s blunt-spoken president and CEO – a Republican donor named Gregory Garrabrants – signed off on a $100 million loan for Trump Tower, the 58-story Manhattan skyscraper that had long been Trump’s home and base of operations, according to the bank.

Three months later, Garrabrants approved a second deal that provided $125 million for Trump’s Doral resort, a sprawling golf course complex in Miami-Dade County he had owned since 2012. Axos also financed part of a loan that helped facilitate the $375 million purchase of Trump’s D.C. hotel by a group of investors.

The Axos loans to Trump were vital to stabilizing his post-presidential finances and enabling him to mount the campaign that now has him leading the GOP pack for the 2024 presidential nomination, according to disclosure records, loan documents and financial experts.

“It was crucial . . . that someone gave him credit or he could have had loans going into foreclosure,” said Bert Ely, a longtime independent banking analyst. “And that was also an important factor for him politically.”

The loans have drawn scrutiny from New York Attorney General Letitia James (D) as part of her broader suit that accuses Trump of “falsifying” records to inflate the value of his properties on financial statements to obtain earlier loans at lower interest rates. Trump “sought to avoid submitting a statement of financial condition” to Axos and instead pushed the bank to calculate his worth, James asserted in the suit, which does not accuse Axos of wrongdoing.

For more than a year, Garrabrants, 51, has refrained from speaking publicly about his decision to approve the loans. But in his first interview about the matter, he told The Washington Post in June at the bank’s headquarters and a telephone follow-up in July that the deals had nothing to do with his Republican politics. He said he made the loans because they will be profitable for his bank, adding that he did not agree with other bankers who stayed away from Trump due to allegations that he had incited the insurrection or concerns about his honesty.

It was “not my job or my role” to judge Trump’s actions, said Garrabrants, who donated $9,600 to support Trump’s 2020 campaign but said he’s never met the former president, dealing instead with Trump’s son Eric, the executive vice president of the Trump Organization.

The $100 million Trump Tower loan was made at a 4.25 percent interest rate and the $125 million loan for the Doral property at a 4.9 percent interest rate, with both maturing in 2032, according to property records. The rates are within the range of commercial loans during that period, according to Federal Reserve data, and came before much of the interest rate spike occurred last year; public records do not say whether the rates will change over the life of the loan, which analysts said makes it difficult to directly compare them to other commercial loans.

Garrabrants declined to discuss some details of the loans, including the long-term interest rate or how they are secured, while saying they were done on “market terms.” The Trump loans, which represent about 1 percent of the bank’s $20 billion in assets, are structured to guarantee profits for Axos, Garrabrants said.

“It wouldn’t matter if I was friends with someone, I’m not going to make a loan that’s no good,” he said. “I don’t like anyone that much.”

As president, Trump tried to head off claims of potential conflicts of interest with his business by handing control of the family firm to his son and pledging to avoid deals with foreign entities. But those rules no longer apply post-presidency, and Trump and his family have struck up significant business with Saudi Arabia and other partners abroad in the last two years.

If Trump returns to the White House, Axos could face intensifying scrutiny from Democratic lawmakers about the loan terms, his relationship with the bank and its treatment by regulators, observers said.

In his interview with The Post, Garrabrants rejected James’s claims that Trump had sought to avoid providing certain financial information when applying for Axos loans, saying he received all relevant details he needed to review the deals.

“He never refused any information we asked for,” Garrabrants said. “We asked for a series of items in a specific format . . . and he delivered the items in the specific format we asked for.”

Garrabrants declined to comment when asked if he or the bank had been contacted by anyone from James’s office regarding her case against Trump.

Trump and his spokesman did not respond to a request for comment. He has denied James’s allegations and described her lawsuit as a political attack. The former president has recently downplayed the importance of loans to his finances.

“I don’t need banks,” Trump said in April, while not mentioning the Axos loans. “I have a lot of cash. I built a great business with my family.”

Edward Hemmelgarn, who closely follows Axos as president of Shaker Investments, which invests in the bank, said it likely was able to secure the loans with much stiffer terms than Trump usually accepts because of his urgent need for a lender.

“I assume the only reason Donald Trump was willing to put up with it is because no one else was willing to make a loan,” Hemmelgarn said, adding, “I am assuming the bank has been very careful about this because of the high profile of Donald Trump.”

‘It was the banks’ problem’

Trump had a long history of relying on banks for hefty loans to shore up his business, shifting the risk to others as much as possible.

While portraying himself as a business genius, Trump filed six corporate bankruptcies. He created a publicly traded company that eventually saw its share price tumble from $36 to 17 cents. By the early 1990s, long before he got into politics or starred on reality TV, Trump faced numerous financial crises as he tried to keep afloat a New York-based real estate empire.

So when he first came to Deutsche Bank in the 1990s seeking massive loans, a managing director at the bank, Mike Offit, knew it was a risk.

“He’d had problems with a bunch of properties,” Offit recalled in an interview. “Your immediate response is, ‘God, why would I want to get involved in that?'”

But after examining a proposed $125 million loan on a New York City office building and a separate deal on a condominium project, Offit calculated that the reward vastly outweighed the risk and signed off.

“You look at the property and if the property is great and meets the criteria for making a loan, absent some horrific reason not to, you make it because that’s how you make money,” he said. The deal was so favorable that Offit concluded “I can make 10 times the normal profit” at a low risk.

Both deals proved hugely profitable for the bank, said Offit, who left Deutsche in 1999. With Deutsche on his side, Trump rebuilt his brand and played the starring role in “The Apprentice,” the NBC series that presented precisely the titan image he wanted the world to see.

But the relationship soured after Offit left Deutsche and the 2008 financial crisis crashed real estate values. Facing difficulties repaying a massive loan on a 92-story Chicago tower, Trump sued Deutsche Bank by claiming it helped to cause the recession, and the bank countersued, noting that Trump had written in a book of his about his loans, “I figured it was the banks’ problem, not mine. What the hell did I care?”

After resolving the suit, Trump later borrowed another $170 million from Deutsche for his D.C. hotel. But the bank, which declined to comment for this story, finally refused his request for another $50 million in 2016, citing his presidential run as posing “an unacceptable level of reputation risk.”

And after Trump sought reelection in 2020, Deutsche cut ties with him, citing his company’s failure to answer the bank’s questions about James’s investigation – a decision made public after the Jan. 6 attack.

Signature Bank, where Trump had deposits, announced shortly after Jan. 6 that it was closing his account and urged Trump to resign, according to an archived version of its website. Two other banks where Trump held deposits also closed his accounts after the attack on the Capitol, The Post reported.

As he left the White House, Trump’s businesses also faced head winds. Trump Tower was put on a “watch list,” an indication of concern about the ability to repay a loan as its occupancy rate fell, according to a Wells Fargo analysis reported by Bloomberg. His Doral resort, meanwhile, had seen its revenue plummet by more than 40 percent in 2020, according to Forbes.

By February 2022, when his accounting firm, Mazars, issued its warning about Trump’s financial statements and ended its relationship with him, the former president’s family company faced having to repay more than $300 million to Deutsche and $55 million to another bank, according to Trump’s financial disclosure and other public records.

Failing to pay, in the worst case scenario, could have led to lawsuits and foreclosures.

Growing scrutiny into practices

As Trump searched for a new lender in the months after Jan. 6, a broker came to an Axos official with a proposal: giving Trump a new $100 million loan on Trump Tower.

Unlike many other bankers, Garrabrants was not put off by the risk. That’s how he’d made his career.

A former attorney who had clerked for a Republican-appointed federal judge, Garrabrants was a senior vice president of IndyMac bank before it failed during the 2008 housing collapse. He told the Los Angeles Business Journal that “they got caught on the wrong side of the tsunami,” leading the bank to be undercapitalized, a lesson that would guide his career. He said his role at IndyMac was in a division unrelated to the problems that led to the failure.

Garrabrants was appointed CEO of Bank of Internet in October 2007, and later also president, helping boost the decade-old bank into a formidable institution by continuing to forgo storefront locations and leaning into a lower cost, online-only operation. But Garrabrants’s approach drew intensifying scrutiny.

In 2016, the Houston Municipal Pension System filed a shareholder suit alleging in part that years earlier the bank and Garrabrants were “routinely overriding . . . internal controls.” The suit, which echoed some allegations in a lawsuit filed by a former Axos auditor, said the bank “issued loans to foreign nationals who had criminal or suspicious background” and claimed Garrabrants had threatened to “destroy” an ex-employee if they shared damaging information. A lawyer for the pension system declined to comment.

The bank denied the allegations, saying it had never revised a financial statement, had received “clean audits” and won approvals from regulators. Last year it settled the case for $14 million without admitting wrongdoing, according to court filings and the bank. Garrabrants said in the interview that the bank’s insurance company paid the settlement, which he said was less than the potential cost of litigation.

The Securities and Exchange Commission and the Treasury Department also opened probes into matters related to the bank’s practices, according to public documents; both were closed without charges.

After the SEC closed its probe in 2017, Garrabrants’s bank purchased an interest in a $57 million loan to Fortress Investment Group, which had backed a project linked to the family firm of Jared Kushner, Trump’s son-in-law and top White House adviser, according to the bank and contemporaneous media reports. Asked by reporters at the time about whether there was any connection between the loan and the SEC’s decision, Garrabrants described the claim as a “tin-hat conspiracy.” The SEC did not respond to a request for comment.

Garrabrants told The Post that it was not a loan to Jared Kushner or the family company directly, and that he didn’t talk at the time to Kushner. A Kushner spokeswoman, asked via email for comment, said in a statement that “Jared never spoke to Axos Bank, Bank of the Internet, or the SEC about any of this. He had no knowledge of this matter until this email.” Fortress did not respond to a request for comment.

Axos’s practices also drew scrutiny in a 2021 hearing where Sen. Elizabeth Warren (D-Mass.) said the bank had evaded a state rate cap by partnering with a firm that charged a family business 92 percent interest. Garrabrants said in The Post interview that the bank is no longer involved in such loans.

As the bank grew, Garrabrants became one of the best-compensated executives in the industry. Garrabrants’s 2018 compensation package had the potential to reach as much as $34.4 million, due in part to performance awards, the Los Angeles Times reported. When the pandemic hit in 2020, digital-only Axos was well-positioned to pick up customers, and its customer base grew exponentially.

Garrabrants, meanwhile, consistently contributed to Republican candidates, though he was not initially a Trump donor. After backing Mitt Romney and Ted Cruz, respectively, in the 2012 and 2016 presidential cycles, he backed Trump in 2020 as well as making contributions to the Republican Party and other GOP candidates, totaling about $66,000 between 2012 and 2022, according to filings.

“I’m a Republican,” Garrabrants said. “I’m not particularly politically active. But you can look at my political leanings from my donations.”

While the bank continued to be little known to the general public, it was gaining notice as a place where big borrowers who faced pushback from mainstream banks could find a willing lender – albeit sometimes at a higher interest rate and stiffer terms. Garrabrants said the image was unfair, stressing that the bank had specialized in large single-family loans to individuals with complex finances.

If any borrower had complex finances, it was Trump.

A willing lender

As Garrabrants pondered whether to loan hundreds of millions of dollars to the former president, he decided to personally investigate the risks.

In early 2022, Garrabrants met Eric Trump for the first time, and the pair went for a tour of Trump Tower. The bank CEO said his due diligence led him from upper-floor offices to the bowels of the building, where he even poked around the mechanical room.

He was impressed. “I walked the building and went through each individual plan, went through some of the underlying data. I walked the neighborhood, looked at other projects in that area, went through the lease,” Garrabrants said, noting the mechanical room was “clean as a whistle.”

Garrabrants personally signed off on the $100 million loan, he said. James, in her suit against Trump said the Trump Organization in February 2022 pushed the bank to “leave it to the lender” to determine his worth, rather than submitting the same kind of “statement of financial condition” he had provided for prior loans.

Three months later, Garrabrants authorized the $125 million loan to Trump for his Doral property. Unlike Trump Tower, Garrabrants was familiar with Doral after attending financial conferences there, he said.

While banks are required to obtain a company’s financial statement before making a loan, there is no industry-wide standard document and it is up to each institution to determine how to collect the information, according to Kyle Welch, an associate professor of accounting at George Washington University.

Garrabrants told The Post his bank had verified Trump’s information by its own methodology and was at the head of the line for repayment. He also discounted the value of statements of financial condition in general, saying, “I’ve never run into a borrower who thinks their property is worth what I think it’s worth.”

Eric Trump did not respond to an interview request, instead sending a statement to The Post: “Axos is an amazing bank and it is a pleasure to work with them.”

Garrabrants said he was barred for privacy reasons from disclosing certain conditions of the two loans. But he said that in loaning to the former president, he knew it would “be subject to additional scrutiny.”

“So what we wanted to make sure we did was structure the loan in a manner that was even at a higher bar than it normally would be, because I expected that there would be folks who would be interested in it,” he said. He declined to say what higher conditions were imposed.

Axos also played a role in another key deal: the sale of the Trump International Hotel in Washington. The May 11, 2022 purchase of that money-losing property fetched $375 million, much more than analysts had expected, enabling Trump to pay off his $170 million Deutsche Bank loan and make a profit of more than $100 million.

Axos had gotten involved in the deal two months before the closing.

CGI Merchant Group, the buyer of the hotel’s lease, got some of its financing from an investment group called MSD Partners. That group’s investors include computer mogul Michael S. Dell. MSD, which has often done business with Axos, asked the bank to help provide financing for the deal. They signed an agreement on March 1, 2022, MSD said in a statement to The Post. Dell was a passive investor and was not involved in the decision to provide the financing, his spokesman said.

MSD and Axos declined to specify the amount provided by the bank, but the bank is described in property records as having a “senior participation interest” in the loan, meaning it would be repaid ahead of others.

CGI Merchant Group, which partnered with Hilton to relaunch the hotel, did not respond to a request for comment. MSD Partners declined to comment beyond confirming the timing of its participation.

Garrabrants, asked whether the hotel deal could have happened without Axos’s support, responded that he believed it would have occurred regardless because he had to compete with other institutions before closing the deal.

Timely loans bolster net worth

Trump says that his finances have improved from the perilous days after Jan. 6, 2021, according to his latest personal financial disclosure report with the Office of Government Ethics.

Trump claimed in his July report that he has earned more than $1 billion in the past two years, with millions from speaking fees and significant revenue from new business partners – including new ventures tied to Saudi investors. Trump claimed he has paid off three of his four loans from Deutsche Bank, the disclosure said. He also reported earning $159 million from the Doral golf resort, indicating it has recovered from the pandemic lull.

While Trump provided more information than required in the disclosure, his family company is privately held, making it difficult to fully assess his claims of vast wealth.

Axos, meanwhile, has performed better than many other financial institutions. As of June 30, the stock of parent company Axos Financial has grown 2,128 percent since Garrabrant’s appointment in October 2007, compared to the Nasdaq Composite, which has increased 380 percent during that time, the bank said. Nonetheless, its long-term rating was downgraded by Moody’s Investors Service in March, in part due to the bank’s real estate exposure. The stock has dropped from around $61 a share in January 2022 to $47 as of Wednesday, following a broader decline in banks. The Moody’s report did not mention the Trump loans and the company declined to comment on its rating. Garrabrants said that action was part of a broad downgrade of the banking sector and stressed Axos is still “investment-grade rated,” which he said shows the bank is financially solid.

It has been growing steadily in recent years and now is the nation’s 101st-largest bank as other banks have suffered failures – including Signature Bank, which was closed by regulators in March.

Trump’s Axos loans are being repaid on schedule, Garrabrants said.

The civil fraud case instituted by James is scheduled for trial in October, with the state seeking to fine him $250 million and stop him from doing business in New York. Among the state’s allegations is that Trump’s falsifying of statements of financial condition saved him $150 million over a 10-year period in lowered interest costs.

The case could force Trump to reveal more about his finances and how he has obtained his loans. James has included the sale of his D.C. hotel in her complaint, alleging that it was the result of a Deutsche loan “he was able to obtain by using his false and misleading statements.” Trump was deposed by James’s office in April, but the contents so far have not been made public.

Separately, Alvin Bragg (D), the district attorney in New York City, is continuing to investigate a similar financial fraud case but has not decided on whether to file charges.

The James case could also draw more scrutiny, even indirectly, to Trump’s business with Axos. Ely, the banking analyst, said it is inevitable that the Axos loans will be viewed in a political lens, with questions asked about whether a borrower or lender has leverage over the other. In past instances, Trump’s lenders have been drawn into an array of investigations, most recently with Deutsche probed by congressional Democrats.

“Trump is like flypaper,” Ely said. “He draws regulatory attention, and there is reputational risk in that for a bank.”

Offit, the former Deutsche banker who once approved loans for Trump, said the negative publicity would have dissuaded him from getting into business with the former president.

“It’s just not worth it,” said Offit. “At some point, you can’t make enough money.”

But Garrabrants said his job is “not to be politicizing banking . . . would it really be the case you’d want a society where somebody who was prominent would be denied financial services from any institution? . . . I think the answer is, ‘No.'”

Asked his views about Trump’s actions on Jan. 6, 2021 – which the former president indicated earlier this month had made him the target of a federal grand jury probe – Garrabrants declined to respond directly, saying, “if I ever decide to run for political office, which I have no intention to do so, but if I do that, I’ll make sure that I am prepared to answer a wide variety of questions about different political events that occur.”

Nor did Garrabrants express concern about Trump’s history of corporate bankruptcies, his lawsuit against Deutsche, or his statement that “what the hell did I care” if banks were repaid.

“All I can say is that, if people don’t pay, I take their stuff,” Garrabrants said. “And I make sure their stuff is worth way, way more than enough to pay me.”