Banks give Donald Trump a $450k monthly allowance to pretend to be rich

The Trump Timeline

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A syndicate of about 70 national and international banks agree to loan Donald Trump $65 million to stay afloat and save his billionaire facade. The deal includes an allowance of $450,000 per month for his own personal expenses. In return, Trump gives up control of his finances and businesses until he’s no longer on the brink of bankruptcy.

Among the restrictions the banks have outlined in the loan agreement is that Mr. Trump’s monthly charitable contributions not exceed $100,000, and that his personal and household expenses not exceed $450,000 a month for the rest of the year, $375,000 a month in 1991 and $300,000 a month in 1992.

The New York Times – June 26, 1990

The $450,000-per-month allowance (or $14,516 a day) is specifically for the personal items we all purchase or pay on: clothes, rent, school, gas, food, health insurance, etc. Nobody needs $450,000 a month, but bankers involved in the deal promote the allowance as a restrictive measure for someone who is accustomed to Trump’s lifestyle.

In May, his bankers report, Mr. Trump’s personal spending amounted to $583,000 for day-to-day necessities of the ultrarich life style, which range from his $2,000 suits to the costs of maids, gardeners and chefs at his three homes… The personal spending limits agreed to by the banks, though a cutback for Mr. Trump, still come to $5.4 million a year.

The New York Times – June 27, 1990

The truth is that the banks need Trump to appear rich to keep money flowing to his properties — properties which remain valuable, to some extent, because of his own exaggerated wealth — so he can pay back what he already owes them. They choose to fund Trump’s persona and lifestyle rather than have him live quietly on a much smaller allowance until his finances recover.

Negotiations began in May after bankers expressed concern about Trump’s inability to meet payment deadlines for the debt he used to acquire the Plaza Hotel, the Trump Shuttle, and other properties. The bankers were interested in solving the problem before it worsened; Trump was interested in accumulating cash. For anyone else, the options would be to auction off the casino properties or somehow increase their profits. Trump had other ideas.

A little over a week ago, he ran out of time to make payments he owes to banks and bondholders, payments totaling $73 million. A 10-day grace period on $43 million of that expires tomorrow. If the banks didn’t reach a deal today, Trump would have lost the Trump’s Castle Hotel and Casino — and possibly more.

Some people involved in the talks said that much more than the one casino was at stake. Mr. Trump could eventually lose control of much of his real estate and gambling empire, they said, if the big banks cannot agree on the terms of the loan package and induce their various syndicate groups to approve those terms.

The New York Times – June 18, 1990

The final deal includes a loan for $65 million and temporary deferment of all payments on $850 million of Trump’s nearly $2 billion debt. Those payments can remain deferred for up to five years. In the meantime, income generated from the properties Trump bought with that $850 million will go to the banks instead of the Trump Organization. Those properties will not provide any income for Trump until either a) the five year period is up or b) both the deferred loans and the new $65 million loan are paid off.

For Trump’s part, he must meet with someone from the bank syndicate every Friday to review his spending. He also has to make an effort to sell some of his assets so he can pay the half of his debt that hasn’t been deferred: the rest of that $2 billion. Trump must also replace his current accounting firm Arthur Andersen — which has helped him hide the truth about his net worth — with the firm Kenneth Leventhal & Company. This may benefit Trump’s lies, though. Trump himself picked Leventhal, the country’s most respected real estate accountant. “If Trump said his properties were worth such and such, the bankers might not believe him. But if Ken Leventhal says they were worth it, nobody would challenge his word,” an executive told The Washington Post during negotiations.

Moreover, he has had to submit a monthly business plan for the bankers’ approval. That plan has projections on the income and expenses of each of Mr. Trump’s assets. Lawyers involved in the negotiations said the banks will regularly require detailed explanations of every aspect of Mr. Trump’s various businesses and will review, item by item, every receipt and disbursement.

“He will have to give monthly, quarterly and yearly reports on each asset,” said an attorney involved in the talks, ”and he will have to explain any significant variances from the business plan.”

The New York Times – June 27, 1990

For the first time in his life, Donald Trump is on a leash — a $450,000-per-month leash. But with little to do for his companies, the broke “billionaire” has more time for a cheaper project he started earlier this year: becoming a tabloid star.

Some of the banks in the syndicate include Citibank, Bankers Trust, Chase Manhattan, and Manufacturers Hanover in New York; First Fidelity Bancorp and Midlantic Banks in New Jersey; National Westminister Bank in the U.K.; Societe Generale in France; and Japanese banks Mitsubishi Trust and Banking, Sumitomo Bank, and Dai-Ichi Kangyo Bank.

The lawyers in the talks are some of the most well-known bankruptcy and workout specialists. Harvey R. Miller and Marcia Goldstein, of Weil Gotshal & Manges, represent Citibank. Bankers Trust, whose workout specialist, Joseph A. Manganello, usually runs the meetings, is also represented by Chaim J. Fortgang and Laurence D. Cherkis of Wachtell Lipton Rosen & Katz. Chase is represented by Sanford W. Morhouse, of Dewey, Ballantine, Bushby, Palmer & Wood, and by Barry G. Radick of Milbank, Tweed, Hadley & McCloy.

Manufacturers Hanover is represented by William O. Murphy and Gary Mottola, from Simpson Thacher & Bartlett, and Joel B. Zweibel, from O’Melveny & Myers.

Mr. Trump is usually represented by his friend, Gerald N. Schrager, who is with the firm of Dryer & Traub.

The New York Times – June 20, 1990

External Sources

The New York Times – June 5, 1990 (Archived)

The New York Times – June 18, 1990 (Archived)

The New York Times – June 19, 1990 (Archived)

The New York Times – June 20, 1990 (Archived)

The New York Times – June 25, 1990 (Archived)

The New York Times – June 26, 1990 (Archived)

The New York Times – June 27, 1990 (Archived)

Vanity Fair, Archived

The Washington Post (Archived)

Photo: Harry Benson via TIME

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