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Home / Business / Trump's company could save millions if interest rates fall as he demands

Trump's company could save millions if interest rates fall as he demands

President Trump will save millions of dollars annually on outstanding loans at hotels and resorts if the Federal Reserve lowers interest rates it has claimed, according to government filings and economic experts.

In the five years before he became president, Trump borrowed more than $ 360 million through four loans from Deutsche Bank for his Washington, D.C., and Chicago hotels, as well as his 643-room Doral golf course in South Florida.

Payment for all four properties varies with interest rate changes, according to Trump's official financial disclosures. That means he's already benefited from falling interest rates that was partially spurred by a cut the Federal Reserve announced in July, the first in more than a decade – and his payments could fall by millions of dollars more annually if the central bank grants Trump's wishes and cut short-term interest rates even further, experts said.

"It will reduce his borrowing costs quite a bit if he gets what he wants," said Phillip Braun, finance professor at Northwestern University Kellogg School of Management. Braun said Trump's savings could be even greater if Deutsche Bank allowed his company to pay down its loans faster without penalty, which banks sometimes allow.

The White House and the Trump Organization did not respond to requests for comment.

While Trump's adult sons, Donald Trump jr. And Eric Trump, who runs the family business, insisted on the president retaining ownership of his company after the election, and bowing to the practice of former presidents. That decision, ethical experts warned, would lead to potential conflicts of interest between his personal interests and public policy goals.

Trump's company raised a $ 125 million loan to buy and renovate Doral golf facilities in Florida. (Angel Valentin / For The Washington Post)

The Trump administration has argued that lower interest rates would spur more consumers to buy homes and cars and businesses to invest in new factories. Cutting rates also typically lower the value of the dollar, making US products cheaper for foreign buyers, a goal of the president.

But most economists and business leaders say that Trump's trade war is the biggest threat to the economy, not interest rates, which are already at historically low levels.

Trump has taken offensive since he took office, aggressively to lower interest rates and rejected the mostly hands-off approach other presidents have taken to the Fed, repeatedly blasting leader Jerome H. Powell – whom Trump appointed to the post in last year – not to fall in line.

Friday, after Powell did not announce an interest rate cut and instead expressed concern about Trump's trade war with China, the president immediately attacked him on Twitter, writing that "As usual, the Fed did nothing! ”And compared Powell to Chinese President Xi Jinping.

"My only question is, who is our bigger enemy, Jay Powell or Chairman Xi? ” Trump posted .

Trump and his advisers have privately discussed creating a rotation among Federal Reserve governors that would reduce Powell's influence, The Washington Post reported this past week.

Asked by reporters Friday night whether he wanted Powell to step down, the president replied, "If he did, I wouldn't stop him."

The central bank's reference rate is a factor in determining the interest rate on loans with variable interest rates, the type of president's property. Mortgage rates have also been reduced due to the trade war with China and concern for global growth.

Experts said it is difficult to determine exactly how much Trump will save if he gets the reduction in short-term interest rates that he has called for, from 2.25 percent to 1.25 percent – a move typically reserved for financial emergencies .

But the president would be significantly affected by a rate cut, they agreed.

As of 2012, Deutsche Bank gave Trump's company approximately $ 364 million in loans by working through the bank's private wealth division, rather than through traditional commercial lending units, according to government loan documents.

The loan was for two loans totaling $ 125 million to buy and renovate the Doral golf resort in Florida, a $ 170 million loan to renovate Washington's old post office pavilion to a Trump hotel and a $ 69 million loan to refinancing an existing Trump hotel in Chicago.

Trump's financial information and loan records indicate that all four of the loans remain outstanding. His company has paid at least $ 19 million of the Chicago loan, according to the filings, even though the documents do not show how much the balance is for some of the properties.

Trump could save at least $ 600,000 and as much as $ 1.1 million annually on just the largest of the two Doral loans if the Fed made a percentage reduction, depending on the loan agreement, according to Clifford Rossi, a professor at the University College of Business of Maryland.

Even a quarter reduction, which most Wall Street investors now predict will happen in mid-September, could save Trump as much as $ 275,000 annually on one Doral loan.

"If you are a consumer lender with a car loan or credit card, a quarterly reduction is significant savings," Rossi said. Trump "has more loans and a larger dollar size, so he would certainly have a larger reduction in the amount owed than most Americans out there."

A Bloomberg News analysis found that for every reduction in the quarter, Trump could save 850 $ 000 in annual interest payments, which would mean more than $ 3 million in annual savings if the Fed cut a clean percentage that Trump has demanded.

Over the years as a real estate developer, Trump was famous for his aggressive efforts to save money, even when it meant violating relationships or breaking professional standards.

Trump has been sued dozens of times for non-payment of bills by building entrepreneurs, bartenders and even his own lawyers. He used money from a nonprofit to pay legal settlements for his for-profit businesses. He once sued his own lender, Deutsche Bank, to get out of a large mortgage.

Before entering politics, Trump often argued for lower interest rates, which is the key to a business that relies on large sums of debt.

"Interest rates are very critical to the real estate industry, and [Trump has] spent his entire career there, so he has strong opinions about where interest rates should be," said James Bullard, president of the Federal Reserve Bank of St. Louis. "Every real estate person I've ever met in my life has always wanted lower prices in any case, so I think it's part of [Trump’s] nature."

In the 1980s, Trump became one of the most aggressive borrowers in the country, using cheap loans to fund an Atlantic City casino empire that eventually failed and forced four of his companies to go bankrupt.

In the wake of that collapse, Trump was largely frozen out of big banks. He used cash to finance much of the company's recent property expansion, and then turned to an increasingly risk-taking Deutsche Bank for some large loans that started in 2012, as The Post previously reported.

Democrats in Congress have sued Deutsche bank records, but Trump sued to stop the bank from responding, and the case remains sued in court.

Former presidents have avoided publicly criticizing the Fed for maintaining the board's isolation from politics. Trump decided on something else from the move and as global financial worries rose in recent weeks, he escalated his already routine attack on Powell, tweeted at various times in July that "the Federal Reserve has no bearing! "And" They raised rates too early, too often & tightened, while others did the opposite. ”

Four former Fed chairs, collectively appointed and appointed by six presidents, and then published a Wall Street Journal that was encouraged. that the Fed is allowed to act "free of short-term political pressure and especially without the threat of removal or demolition of Fed leaders for political reasons."

Trump increased pressure Friday after Powell spoke at a meeting with central bankers in Jackson Hole, Wyo. The chairman said the US economy was in a "favorable place", but that the Trump war started against China had created a "complex, turbulent" situation.

Trump responded with a tirade on Twitter, accusing China of a boatload of problems, demanding that American companies avoid doing business there. Equity market investors, who were already on the lookout for a trembling bond market and declining consumer confidence, began a sale that resulted in steep market losses.

Braun, the Northwestern professor, said that Trump's constant pressure on the Fed and his colleagues to adjust prices so that the president's taste could hurt the US economy.

"I don't think the Fed should accept Trump's trade war, and the risk is potential inflation and the Fed's reputation in the future," he said.

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