Revenge of the Money Launderers

The “FinCen files” story reveals: getting caught doesn’t stop banks from taking dirty money. It may even encourage them

On December 11, 2012, U.S. Justice Department officials called a press conference in Brooklyn. The key players were once and future bank lawyer Lanny Breuer (disguised at the time as Barack Obama’s Assistant Attorney General in charge of the DOJ’s Criminal Division), and Loretta Lynch, the U.S. Attorney for the Eastern District of New York, and future Attorney General. The duo revealed that HSBC, the largest bank in Europe, had agreed to a $1.9 billion settlement for years of money-laundering offenses.

An alphabet soup of regulatory agencies was represented that day, from the Justice Department, to Immigration and Customs Enforcement (ICE), the U.S. Treasury, the New York County District Attorney, and the Office of the Comptroller of the Currency, among others.

The regulators outlined a slew of admissions, with HSBC’s headline offense being the laundering of $881 million for Central and South American drug outfits, including the infamous Sinaloa cartel.

The laundering was so brazen, regulators said, the bank’s Mexican subsidiary had developed “specially shaped boxes” for cartels to pack with cash and slide through teller windows. The seemingly massive fine reflected serious offenses, including violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).

The next years would follow up with a flurry of similar settlements extracting sizable-sounding fees from other transnational banks for laundering money on behalf of terrorists, sanctioned businesses, mobsters, drug dealers, and other malefactors. Firms like JP Morgan Chase ($1.7 billion), Standard Chartered ($300 million), and Deutsche Bank ($258 million) were soon announcing settlements either for laundering, sanctions violations, or both.

Even seasoned financial reporters accustomed to seeing soft-touch settlements scratched their heads at some of the deals. In the case of HSBC, the stiffest penalty doled out to any individual for the biggest drug-money-laundering case in history — during which time HSBC had become the “preferred financial institution” of drug traffickers, according to the Justice Department — involved an agreement to “partially defer bonus compensation for its most senior executives.” If bankers can’t get time for washing money for people who put torture videos on the internet, what can they get time for?

When I did a story on the case in early 2013, I found the HSBC settlement was the latest step in a dizzying, decade-plus cycle of offenses and ignored reprimands, involving multiple regulatory bodies. The number of times HSBC had blown off compliance orders seemed too absurd to be real. In one stretch between 2005 and 2006, the bank received (and, apparently, ignored) 30 formal warnings just from the Office of the Comptroller of the Currency.

Prosecutors insisted the deferred prosecution settlements slapped on companies like HSBC, Standard Chartered, and JP Morgan Chase were tougher than jail terms. The deals would place banks in a permanent state of quasi-arrest, with regulators granted enormous supervisory power and serious charges pre-filed and hanging over the firms going forward.

As one federal investigator put it to me back then, “This way, we have them by the short ones.”

Fast-forward eight years. On September 20th, a combination of Buzzfeed and the International Consortium of Investigative Journalists (ICIJ) published the details of a major document leak highlighting a decade of money-laundering incidents, involving hundreds of billions of dollars and a number of the world’s biggest banks. The leak centered on a cache of over two thousand “suspicious activity reports,” or SARs, filed by those banks to the Financial Crimes Enforcement Network, a regulatory arm of the U.S. Treasury.

Though the ICIJ was also behind the release of the Panama Papers, investigative editor Michael Hudson told me he believes the FinCen leak is “the most important” project they’ve worked on. Instead of being about one group of actors, or one jurisdiction, these revelations span the banking sector as a whole.

“It shows the widest set of problems,” he says.

The story has been covered around the world, but some press accounts particularly here in the States seem to have missed the punchline, i.e. that the banks figuring most prominently in the FinCen leak are exactly the same institutions paraded before the public as subjects of “message-sending” punishments back in 2012-2014.

HSBC, for instance, continued to take in questionable money through 2012 and beyond, including $30 million from Hong Kong accounts related to a Ponzi scheme called World Capital Market. WCM was suspected of bilking “investors” — most of them ordinary people scraping together five or ten thousand dollars and throwing them at false promises of guaranteed returns — of nearly $80 million.

The leaked records show HSBC flagged the account as suspicious as early as 2013, but continued to take the money from this and a wide variety of other dicey accounts. Although regulators saw all of this information, the Department of Justice not only didn’t take action, it announced in 2017 that HSBC had “lived up to all of its commitments” and agreed to file a motion to lift the deferred prosecution deal.

A similar pattern held with JP Morgan Chase, which in 2013 was hit with a cease and desist order over “systemic deficiencies” in its money-laundering controls, yet continued to do business with rogue accounts, including some infamous and obvious ones. To give some sense of the sums involved, JPM made roughly a half-billion dollars just servicing the accounts for con artist Bernie Madoff.

As far back as 2006, JP Morgan Chase knew enough to pull its own money out of investments in hedge funds tied to Madoff, but never told investors, and continued to manage his accounts for years. The bank ultimately settled with the government over the Madoff episode in 2014, after the 2013 “cease and desist” order, while continuing to manage money for other malodorous accounts — including, according to the ICIJ, more than $1 billion for Jho Low, the fugitive financier behind Malaysia’s infamous 1MDB fund.

In a detail that should infuriate the #Resistance crowd, Jamie Dimon’s bank also continued to do business in huge sums for former Trump campaign manager Paul Manafort even after Manafort stepped down in scandal, and even after the bank flagged Manafort’s accounts. From the ICIJ report:

JPMorgan also processed more than $50 million in payments over a decade, the records show, for Paul Manafort, the former campaign manager for President Donald Trump. The bank shuttled at least $6.9 million in Manafort transactions in the 14 months after he resigned from the campaign amid a swirl of money laundering and corruption allegations spawning from his work with a pro-Russian political party in Ukraine.

“If you look at the cases where they tried to punish and deter the big banks, the headline-making efforts just haven’t worked,” says Hudson. “In the aftermath of these supposed crackdowns, the banks continued to move money in staggering amounts, for powerful and dangerous characters.”

“The big takeaway is, the system just doesn’t work,” adds former federal prosecutor Paul Pelletier. “I think these SARs represent about $2 trillion in suspicious transactions, and nearly all of it went through. And this is just a small fraction of the overall amount of money.”

According to Hudson, the FinCen files represent about two-tenths of one percent of the suspicious activity reports filed between 2011 and 2017.

In the aftermath of the HSBC deal in 2012, money laundering cases began to attract a fair amount of press attention. HSBC’s case even became one of the subjects for Oscar-winning documentarian Alex Gibney’s “Dirty Money” series:

At the time, there was an expectation that these stories could be told in the past tense, because firms like HSBC had been busted. The FinCen leaks show the opposite. The settlements may actually have been an accelerant, allowing for the appearance of regulation, while alerting banks to broader weaknesses that encouraged more brazen behavior going forward. We may have to change the way we think about “dirty money,” from being an outside contaminant, to endemic to the system at its core.


Public legend about movement of ill-gotten cash usually centers on crooks sitting under ceiling fans in tropical locales, receiving mysterious wire transfers in places outside the physical reach of American regulators, like VanuatuPanama, or the British Virgin Islands. The FinCen leaks make clear the real hub of money laundering is in what Hudson calls the “choke point” of New York, where the world’s largest financial institutions have streamlined the process of moving shady money.

SARs don’t always indicate a crime. They’re the regulatory equivalent of a call to police to check something out that doesn’t add up. Bank monitors who compile them might be spotting something in their account rolls like high numbers of cash transactions, large numbers of wire transfers to a country where the customer doesn’t do business, etc.

The requirement to produce these reports creates a cat-and-mouse game for banks. Every time compliance officers discover derogatory information that leads to an account being closed, it’s a direct hit to a bank’s revenues. On the other hand, to keep regulators off their backs, banks have to be seen to be doing all they can to sniff out illegalities. Therefore there’s an incentive for banks to cycle through creative ways of looking like they’re engaging in compliance, without actually doing so.

A bank might create sizable AML departments, but pad them with inexperienced, entry-level employees incapable of spotting problems (see here for the HSBC example I wrote about years ago). A firm may hire a top-of-the-line department head, but not give him or her real resources. Required hiring boxes may be checked, but the company may non-report or under-report problems. Companies may even generate huge numbers of suspicious activity reports while leaving key data like names or addresses missing.

In a different scenario, reports are filed too late for action to be taken. SARs are supposed to be filed within 30 days, for instance, but the FinCen documents were filed to the government an average of 166 days after the initial detection of a potential problem.

In another stalling method, banks informally agree not to close suspicious accounts until a certain number of SARs have accrued. When the Senate Permanent Subcommittee on Investigations looked at HSBC in 2012, for instance, they found internal emails from bank executives suggesting that HSBC’s Mexico operations had settled on a policy of not closing accounts until four SARs had been filed.

When the company’s chief compliance officer found out about its subsidiary HMEX’s standard, he wrote, in a bemused tone, “4 SARs seems awfully indulgent, even by local standards.” HMEX later cut the standard to two SARs, which seems to be the exception rather than the rule. In the FinCen leaks, companies are seen repeatedly filing reports about the same actor, each time implying they’ve dug just enough to write a report, but never quite enough to actually close the account.

Of course, in banking, size matters. “Maybe the bank looks at a wire transfer and says, ‘This smells.’ Do that in a $12,000 transaction, and they’ll kick you out of the bank,” says Pelletier. “Do it at $12 million, and they’ll let it go.”

What’s unique about this leak it shows bad behavior the banks actually reported. As one former investigator put it this week, “This is the stuff they actually have a suspicious activity report for!” That banks keep taking the money is bad, but the fact that regulators keep receiving the reports and letting shady transactions slide makes the dirty-money problem a bizarre symbiosis of private rapaciousness and (at best) governmental apathy.

While credit card companies are able to detect fraud and banks are able to detect suspicious activity thanks to technological advances, the government lacks the same capability, in part perhaps because the reporting system is not automated. Since it’s a crime to leak a “SAR” — you “literally have to steal one” to make one public, as one former investigator puts it — they’ve rarely been seen by the public. The ICIJ has now put them on display:

The government receives millions of these written reports, which often appear to reflect a fair amount of person-hours of research by the bank. However, the government lacks what one investigator described to me as an “AI-type test” for passive review of this material, and lacks the personnel to go through it all individually.

At best, a federal investigator may go through the SAR database to check an individual or company already targeted in another probe. This particular batch of SARs seems to have been gathered as part of a congressional investigation into Russian interference, for instance. The rest of the reports are fated to be memory-holed by overwhelmed regulators.

What do you get in this seeming worst-case scenario, when banks pretend to monitor, and regulators pretend to collect the monitoring? A short list of some of the messes found in the FinCen docs:

— In one ridiculous case, Deutsche Bank’s New York branch processed $2.6 billion and $700 million, respectively, for a pair of companies called Ergoinvest and Chadborg trade. Both companies declared annual incomes of $35,000, and the statements for both firms bear the signature of the same obscure dentist in Belgium, who claims he doesn’t even own a car. Yet the money kept rolling through! The companies earned British registrations through “formation agencies” located in the Baltics, where investigators have found a rat’s nest of problems in recent years. Deutsche Bank, the originator of 62% of the leaked SARs (perhaps reflecting the focus of the Russia investigation that produced the FinCen docs), moved at least $150 billion just from one small Tallinn-based bank, Danske Estonia, for instance.

— Ukrainian Ihor Kolomoisky was the subject of raids by federal investigators earlier this summer, and has been profiled in colorful news reports that read like movie scripts. In one piece, he allegedly dropped crayfish meat by remote control into a tank to be devoured by sharks in the middle of a meeting, as a Dr. Evil-style intimidation tactic.

ICIJ @ICIJorg

Learn about the 22 properties Kolomoisky and his associates purchased between 2006 and 2015 – with this interactive map made by @pirhoo. #FinCENFiles

Michael Sallah @MikeSallah7

The Oligarch Who Ate Cleveland: Untold story of how Deutsche Bank helped Igor Kolomoisky acquire an empire in real estate in America’s heartland — the money siphoned from Ukraine’s largest bank. @TanyaKozyreva and me and team from @ICIJorg https://t.co/2aWlZGtPQt via @ICIJorg

The crux of accusations by prosecutors is that Kolomoisky employed gangland tactics at home (including using “armed goons” to take over an oil company), then funneled the money to places like the States, to be invested in legit vehicles like real estate. This is exactly the kind of person the SAR process is designed to identify and disqualify quickly. Nonetheless, the FinCen files show Deutsche Bank, which had entered into a settlement deal in 2015 for moving over $11 billion in suspicious transactions, moved at least $240 million for a Kolomoisky-connected account at exactly that time, between 2015 and 2016.

— Even as Russian aluminum baron Oleg Deripaska garnered enormous media attention in recent years, including during the Russiagate furor, he continued to move money freely through the American banking system. The FinCen files contain a total of 58 SARs related to Deripaska, issued between 1997 and 2017, covering an amazing $12.41 billion in transactions. The Bank of New York Mellon flagged 16 transactions involving a Deripaska subsidiary company called Mallow Capital, but apparently kept doing business. To quote the ICIJ, “Mellon said Mallow Capital appeared to be a shell company operating in a high-risk area with no known legitimate business purpose. In 2012 and 2013, Mallow sent itself nearly $420 million using different British Virgin Islands addresses and different banks…”

The FinCen leaks highlight two major weaknesses of the regulatory system. One is the longstanding absence of a requirement that anyone opening a U.S. account name a “beneficial owner,” i.e. who is really controlling the account. The other is correspondent banking. Banks in the U.S. are required to “know your customer” in addition to monitoring and reporting domestic accounts. Still, any foreign bank with a license may open “correspondent” accounts in those same regulated Western banks. A lot of the worst instances catalogued in the FinCen leaks involve these correspondent accounts, opened in Asia, Eastern Europe, the Middle East, etc.

In the long run, the regulatory system ends up serving as a de facto partner for banks that all but admit they’re taking in money from Ponzi schemers, mobsters, drug lords, and rogue states.

This is a “feature, not a bug” problem. Going back to the years after the crash, regulators spoke often about the need to carefully construct settlements, so that even repeat offenders might remain viable.

In late 2012, for instance, at a press conference announcing a market manipulation settlement for the Swiss Bank UBS, Breuer told reporters, “Our goal here is not to destroy a major financial institution.”

This is a bank that has broken the law before,” a reporter said that day. “So why not be tougher?”

“I don’t know what tougher means,” Breuer answered.

Some time later, then-Attorney General Eric Holder gave a video message on the theme, “There is no such thing as Too Big to Jail.” While insisting “no one is above the law,” Holder pointed out that some criminal charges carried automatic regulatory penalties that “may even trigger the loss of that institution’s charter.” This, he implied, is not always a good thing.

This issue had come up at the HSBC press conference the previous year, when Breuer said, “had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking license in the US.”

For that reason, Holder insisted, regulators often “must go the extra mile to coordinate closely with the regulators who oversee these institutions’ day-to-day operations.”

Translated, this meant the Justice Department was crafting punishments to make sure banks landed on their feet and remained functional as American businesses, even in the face of public reprimand.

A typical settlement involved a fine that sounded large but was really equal to months or weeks of profit, with penalties in some cases also being deductible, so taxpayers could share in the joys of paying a bank’s debt to society. In other words, settlements were designed not to hurt too much, but just the right amount.

Even a “record” harsh settlement doled out to the French bank BNP-Paribas in 2014 for sanctions violations, which included a rare plea to a real criminal charge in addition to a $9 billion penalty, only incurred a one-year exile from U.S. dollar transactions. Even when throwing the proverbial book at firms, regulators made sure to pave clear roads to redemption.

This was not necessarily a bad thing. There’s no reason why anyone should want systemically-important institutions (who are often major employers) to be wiped off the face of the earth, willy-nilly. The problem is that if you completely remove the threat of a lost charter, it signals to everyone that regulators will tolerate even open repeat violations. In this light, even a “tough” public punishment becomes a license to steal.

Hudson, for instance, notes that announcements of many of the biggest money laundering settlements involving the firms in the FinCen files were accompanied by jumps in the company’s share prices. HSBC’s shares rose in London and Hong Kong after the 2012 settlement, and even BNP’s criminal plea deal prompted a 3.6% jump in share price. Markets see the settlements as seals of approval going forward, and “send the signal that the regulators are looking to do a deal,” Hudson says.

The irony of all this is that the Trump era has seen much gnashing of teeth over America’s withdrawal from global bureaucracies like the Paris Agreement, the “Open Skies” arms control treaty, the Iran deal, and other conventions. Meanwhile, in the one place we want an isolationist-style wall, around the Federal Reserve-connected American banking system, barriers are wearing away. Only in crime, it seems, is America becoming more global in outlook.

These Are the Deutsche Bank Executives Responsible for Serving Jeffrey Epstein

When New York regulators punished the bank for its work with Mr. Epstein, no individuals were named. The Times identified them.

Jeffrey Epstein, the sex criminal and financier, didn’t act alone. Now we know in vivid detail who some of his financial enablers wereexecutives and bankers at Deutsche Bank.

Last week the New York Department of Financial Services laid bare at least some of the financial underpinnings of Mr. Epstein’s sophisticated enterprise. Deutsche Bank agreed to pay a $150 million fine for its dealings with Mr. Epstein, who committed suicide last August, and for two other matters.

Mr. Epstein’s bankers “created the very real risk” that payments through the bank “could be used to further or cover up criminal activity and perhaps even to endanger more young women,” the department asserted.

Deutsche Bank executives approved Mr. Epstein as a client in 2013 and then kept working with him, even though employees worried about the fact that “40 underage girls had come forward with testimony of Epstein sexually assaulting them,” as the bank put it in internal communications about Mr. Epstein in early 2015.

And even though such high-risk clients are required to be carefully monitored to detect and prevent illegal activity, once Mr. Epstein was a client, “very few problematic transactions were ever questioned, and even when they were, they were usually cleared without satisfactory explanation,” the New York regulator concluded.

Deutsche Bank itself is a corporation, and, as has often been said, it’s people, not corporations, who do bad things. Responsibility for working with Mr. Epstein permeated the ranks of the private-banking division that caters to wealthy clients.

Yet Deutsche Bank declined to publicly identify any individuals involved — and the authorities didn’t demand it. The so-called consent order with the New York agency included no names of the bankers or executives who were implicated; instead, the document is littered with references like RELATIONSHIP MANAGER-1 and EXECUTIVE-2. A bank spokesman, Daniel Hunter, said the bank meted out appropriate punishments to employees who were still at the bank, but declined to name anyone.

Based on descriptions of the employees in the consent order and interviews with current and former Deutsche Bank officials, The New York Times was able to identify nearly every person anonymously described in the order. At least one high-ranking executive remains in her position: Jan Ford, the bank’s head of compliance in the Americas.

It is rare for companies and regulators that are settling allegations of crimes or other misconduct to name the individuals responsible for those misdeeds — a practice that perpetuates the myth that such acts were inadvertently committed by a faceless institution and were not the consequence of decisions made by human beings.

Large companies “will happily pay a big fine as long as senior managers are protected,” said John Coffee Jr., a Columbia Law School professor and author of the forthcoming book “Corporate Crime and Punishment: The Crisis of Underenforcement.”

Fines paid by public companies, even of the $150 million magnitude Deutsche Bank is paying, fall almost entirely on shareholders rather than the individuals responsible. When those individuals bear no discernible consequences, the result is an astonishing rate of recidivism, Mr. Coffee noted, despite repeated apologies and promises that bad behavior won’t happen again.

New York’s Department of Financial Services, not Deutsche Bank, wrote the consent order that omitted the executives’ and bankers’ names.

While the bank may not be legally obligated to name those responsible for the Epstein relationship, it should do so to rebuild public trust, said Brandon Garrett, a professor at Duke Law School and author of “Too Big to Jail.” “When a company does something seriously wrong, then accountability is all the more important,” Mr. Garrett said. “You want assurances they’re cleaning house. That’s especially true for Deutsche Bank, which has been around this block many times.”

Indeed, Deutsche Bank is a symbol of corporate recidivism: It has paid more than $9 billion in fines since 2008 related to a litany of alleged and admitted financial crimes and other transgressions, including

  • manipulating interest rates,
  • failing to prevent money laundering,
  • evading sanctions on Iran and other countries and
  • engaging in fraud in the run-up to the financial crisis.

Deutsche Bank claimed to have put all this behind it when it named Christian Sewing as chief executive in 2018. “We all have to help ensure that this kind of thing does not happen again. It is our duty and our social responsibility to ensure that our banking services are used only for legitimate purposes,” Mr. Sewing said last week in a message to employees.

Since neither the regulator nor the bank would reveal the people responsible for the misconduct, my colleagues and I decided to fill in some of the blanks left by the consent order. (Some of the bankers and executives confirmed their roles; none would comment on the record.)

“RELATIONSHIP MANAGER-1,” who brought Mr. Epstein into Deutsche Bank, is Paul Morris, who had previously helped manage the Epstein account at JPMorgan. Despite Mr. Epstein’s conviction in 2008 of soliciting prostitution from a minor and widespread press coverage of his involvement with underage girls, Mr. Morris in 2013 introduced Mr. Epstein to his Deutsche Bank bosses as “a potential client who could generate millions of dollars of revenue as well as leads for other lucrative clients to the bank,” according to the consent order.

In a subsequent email to higher-ups at the bank, Mr. Morris noted that the Epstein relationship could generate annual revenues of up to $4 million.

Mr. Morris needed approval for a client who carried such reputational risk. He sent Charles Packard, the head of the bank’s American wealth-management division and described in the consent order as “EXECUTIVE-1,” a memo detailing Mr. Epstein’s controversial past. In a subsequent email, Mr. Packard said that he had taken the issue to the division’s general counsel and the head of its anti-money-laundering operation and that neither felt Mr. Epstein required additional review. “We can move ahead so long as nothing further is identified,” Mr. Packard wrote in a May 2013 email to Mr. Morris.

(Deutsche Bank told regulators that it found no written record of any approval from the executives Mr. Packard said he consulted.)

At the time, Deutsche Bank was aggressively expanding its U.S. wealth management business under its new co-chief executive, Anshu Jain. The bank developed a reputation for courting wealthy clients who other banks shunned — including a default-prone real estate developer named Donald J. Trump.

Once the Epstein relationship was underway, Deutsche Bank executives ignored repeated red flags, including suspiciously large cash withdrawals and 120 wire transfers totaling $2.65 million to women with Eastern European surnames and people who had been publicly identified as Mr. Epstein’s co-conspirators, according to the consent order.

That and other activity — including media accounts of Mr. Epstein’s sexual misconduct — led employees in the bank’s anti-financial-crime department to urge executives to further scrutinize the Epstein relationship.

Mr. Morris and Mr. Packard met with Mr. Epstein at his East 71st Street mansion in January 2015 and asked him “about the veracity of the recent allegations,” according to the consent order. No one took notes; the bank told regulators it had no record of the substance of the meeting.

Whatever Mr. Epstein said, Mr. Packard “appeared to be satisfied,” according to the consent order. No one subsequently asked Mr. Morris for his opinion. Deutsche Bank apparently didn’t further investigate the allegations against Mr. Epstein.

Eight days after the visit to Mr. Epstein’s mansion, a bank committee charged with vetting transactions that pose risks to the bank’s reputation held a meeting. According to a bank official familiar with the meeting, it was chaired by Stuart Clarke, chief operating officer for the Americas; other attendees included Michael Chepiga, acting general counsel for the Americas; and Ms. Ford, the compliance executive who had joined the bank just one week earlier.

The committee concluded that it was “comfortable with things continuing” with Mr. Epstein, according to an email that a committee member sent Mr. Packard. One committee member “noted a number of sizable deals recently,” according to the consent order. In other words, the relationship was making money for Deutsche Bank.

The following week Ms. Ford, the head of compliance, memorialized the decision in an email to Mr. Packard and other executives that put the onus squarely on Mr. Packard: Deutsche Bank would “continue business as usual with Jeff Epstein based upon” Mr. Packard’s “due diligence visit with him.” Ms. Ford also imposed some conditions on the relationship, but Mr. Packard and others “inexplicably” failed to convey those conditions to all of those who regularly dealt with Mr. Epstein. The bankers “continued conducting business with Epstein in the same manner as they had,” the consent order said.

Only after The Miami Herald revealed in November 2018 the extent of Mr. Epstein’s sexual misconduct and lenient plea deal did Deutsche Bank begin to wind down its relationship with Mr. Epstein. Even then, a bank executive wrote letters to two other financial institutions essentially vouching for Mr. Epstein.

By then Mr. Morris and Mr. Packard had both left the bank. Mr. Morris went to Merrill Lynch, where he’s a private wealth adviser. Mr. Packard joined Bridgewater Associates, the hedge fund founded by Ray Dalio.

Of the members of the risk-assessment committee who approved continuing the Epstein relationship, Mr. Clarke and Mr. Chepiga have both left the bank. Only Ms. Ford remains.

The bank’s Mr. Hunter declined to comment on her behalf. “Deutsche Bank undertook appropriate disciplinary actions based upon its findings regarding the underlying conduct, including termination for some employees,” Mr. Hunter said. “We do not comment on individual instances of employee discipline.”

Steve Eisman: “They mistook leverage for genius”


Steve Eisman: Quantitative Easing was a failure: it didn’t get corporations to borrow and invest. Rather, they borrowed and bought up their own stock.

 


Steve Eisman: Inequality was cause of Financial Crisis (10:17)

 

Steve Eisman: They made money because of their leverage (debt ratio) and they mistook their leverage for genius (12:19)

 

Steve Eisman was one of the few who predicted the 2008 financial crisis, and he made his name by foreseeing the collapse of subprime mortgage market.

Michael Lewis portrays him as one of the heroes in the bestselling book The Big Short and Steve Carrell plays an outspoken version of him in the Oscar-winning movie of the same name.

EFN:s Katrine Marçal meets Steve Eisman at Claridges hotel in London.


Transcript

00:00
they’re all getting screwed you know you
00:03
know if they care about they care about
00:04
the ballgame or they care about what
00:06
actresses went into rehab I think you
00:08
should try medication no no we agreed if
00:12
it interferes with work you hate Wall
00:14
Street maybe it’s time to quit I love my
00:15
job you hate your job I love my job
00:18
you’re miserable I love my job I love my
00:21
job honey
00:22
mark Steve Iseman welcome to the offense
00:25
I’m glad to be here so you’ve been
00:27
portrayed in a book and in a film what
00:30
did you prefer I would say they were
both fairly accurate as the way I was
back then and let’s just leave it at
00:38
that okay okay so I’ve heard that some
00:42
Brad Pitt’s almost caladium in the film
00:44
it’s not true I got a phone call from
00:47
Adam McKay who was the author director
00:50
of the movie in November of 2015 to say
00:58
that he was writing the movie and that
01:02
there was a possibility that Brad Pitt
01:04
would play me to which I responded that
01:08
the only thing Brad Pitt and I have in
01:10
common is that we both have really good
01:11
hair okay
01:13
so being one a few people who sold the
01:16
financial crash coming how did it feel
01:18
to have see this big disaster unfold and
01:20
not being able to do anything about it
01:23
the analogy I use it’s a little bit like
Noah in the ark yeah so you know Noah’s
on the ark he’s okay and that he saved
his family but he’s not exactly happy
hearing everybody screaming outside
01:38
that’s was sort of my experience all
01:41
right did you think the financial market
01:44
potential market from the financial
01:46
sector would get back get back to
01:47
business and get back to some kind of
01:49
normal as quickly as it did no I didn’t
01:51
expect it would it would happen that
01:53
quickly you know a lot of that was the
01:57
fact that the government backstop the
01:59
system and once the become a backstop
02:01
the system it was what the financial
02:04
markets did come back but the banking
02:05
system has been changed so in the book
02:08
and the film it becomes very clear that
02:09
you’re you betting against the subprime
02:11
mortgage market is not
02:13
just a trade but it’s kind of a moral
02:15
crusade are you still on this moral
02:17
crusade I’m not because a lot has
02:20
changed
02:22
you know dodd-frank I think really fixed
02:25
a lot of things leverage has come down
02:27
enormous ly the Consumer Financial
02:29
Protection Board has been put in place
02:31
to protect consumers I the world’s very
02:33
different from what it was pre-crisis
02:35
hmm but now many of these things are
02:38
threatening I mean Donald Trump has
02:39
promised to repeal vast parts of the
02:41
dodd-frank act for example it’s not
02:44
something I’m in favor of I think that
02:46
will be a big fight you know it’s
02:48
possible the industry is going to get
02:50
deregulated to a degree we’re not going
02:52
to go back to what we where it was so
02:54
for example you know Citigroup used to
02:56
be levered 35 to 1 today its levered 10
03:00
to 1 I feel if we go into some type of
03:03
deregulation maybe you get 2 to 3 turns
03:05
more leverage it’s not something that
03:07
I’m personally in favor of but I don’t
03:08
think it’s a calamity hmm so do you
03:11
think with Donald Trump be president
03:14
today if more than one banker had gone
03:17
to jail for the financial crisis it’s an
03:19
excellent question and the answer is I
03:22
don’t know you know I don’t know
03:24
I’m cold about it I’ve thought about it
03:26
a lot
03:27
I think there’s a definite very strong
03:30
sentiment that it was wrong that nobody
03:34
went to jail I’m not going to say if
03:36
that sentiment is right or not but
03:39
there’s definitely a very strong
03:40
sentiment in the country that that’s the
03:41
case and I think people are very angry
03:44
that nobody did go to jail again I’m not
03:46
going to say whether that’s right or
03:48
wrong and if people had gone to jail I
03:50
think that would have soothed some of
03:52
the hangar that was seen in the election
03:55
so it’s possible that impact of the
03:57
election but it’s impossible it’s
03:58
impossible to say right so now taxes are
04:01
going to be can’t and Finance regulators
04:03
because the populace to campaign against
04:05
Wall Street 1 correct correct okay so
04:09
what do you do with investment then I
04:11
hear you you are investing quite a lot
04:13
in bank stocks well I mean there’s
04:15
there’s two issues there’s what I think
04:18
about finance the financial system and
04:20
what I think about financial stocks and
04:24
the two don’t necessarily
04:26
correlate so with respect to the
04:28
financial system I think that what’s
04:31
been done has been a good thing but it’s
04:34
been very intense bank the dodd-frank
04:36
act and the Fed forcing people to
04:39
de-lever to de-risk etc so from a
04:43
financial system I’m very happy I could
04:47
say very strongly the United States
financial system has never been held
this healthy in my lifetime but it’s
been very painful for financial stocks
because as you de-lever and do risk you
make less money and therefore it hurts
your stock price so the last six years
05:08
or so have been extremely painful for
05:10
financial stocks especially banks as
05:13
they’ve de-levered and dearest well if
05:16
we’re going to go into world where we’re
05:17
going to deregulate and leverage is
05:19
going to go up at least some just
05:22
reverse the story
05:23
so therefore financial stocks should do
05:25
well right okay
05:27
like I said financial system financial
05:30
stocks but you are not necessarily the
05:32
same an interest rates in America are
05:34
going up yes that’s very good for banks
05:37
all right
05:37
so America is kind of moving from a
05:39
monetary stimulus to a fiscal stimulus
05:41
with something but it’s like that’s
05:43
something I’m in favor of yes I think
05:45
it’s a good thing the infrastructure
05:46
investment yeah that’s right until not
05:48
believe that quantitative easing is a
05:52
successful strategy why not there are
05:55
too many negative impacts for from it to
06:00
I mean look it was a noble experiment
06:02
there was no fiscal expansion there was
06:04
no other game in town so I don’t blame
06:06
the Fed for doing it the idea was that
lowering rates would cause people to go
up or out on the risk curve and vest in
the economy and really the other thing
happened was they went out on the risk
curve by buying back their own stock
they didn’t really invest in the economy
06:22
and with lower rates that hurts consumer
06:25
because they makes us money we pay the
06:26
money in the bank so I haven’t you know
06:30
when we started the monetary policy of
06:33
quantitative easing
06:34
us growth was one-and-a-half to two
06:38
percent and after we did it it’s one and
06:41
a half to two percent so in my view
quantitative easing is a failure
06:45
alright so in November you said to the
06:48
Guardian in Europe but Europe is screwed
06:50
you guys are still screwed referring to
06:53
their non-performing loans in the
06:54
Italian depends of the country yes
06:56
are we in Europe still screwed well my
07:00
wife wish I hadn’t said that
07:01
yes so okay oh we in big trouble not big
07:07
it depends on the country you know Italy
07:10
has a very large non-performing loan
07:11
problem I don’t see the Italian
07:14
government doing anything to really
07:16
solve that problem if they like before
07:18
Christmas that was a nasty suppose that
07:20
was just monte de Paz yeah and you never
07:22
like to say monte de Partie because it’s
07:24
such a great name and the world’s oldest
07:27
bank as the world’s oldest bank correct
07:29
and I don’t you know you could try and
07:31
Simmel to deposit ten times fast it’s
07:33
very hard but it’s not really solving
07:37
the problem I mean this is something
07:39
called a Texas ratio which is a ratio
07:42
that bank analyst Achon myself compute
07:45
which is non-performing loans divided by
07:49
tangible book value plus reserves
07:52
basically the numerators all the bad
07:54
stuff divided by the money you have to
07:57
pay for the bad stuff and one of the
08:00
great lessons about bank analysis is
08:03
that one in Texas ratio gets over a
08:05
hundred percent the bank is done and in
08:08
Italy the two largest banks are in paisa
08:11
and you credit and their Texas ratios
08:15
are at ninety percent and every other
08:17
Bank in Italy is over 100 percent so I
08:21
don’t envy Italy the problem ok famous
08:24
ahma is the country there’s the bigger
08:26
than I think it won’t come and I think
08:28
the problem with the banks generally in
08:30
Europe is that they are still under
08:33
capitalized and they they are they do
08:37
not make enough money per dollar
08:39
employed basically European banks don’t
charge enough for this
services they never have and they’ve
tried to make up the difference with
leverage and in a world where you have
to use less leverage that model doesn’t
work
what about Deutsche Bank quite the same
well don’t you make sort of the poster
child for that let’s think about this
09:01
this way so today if a bank has a 1%
09:08
return on asset and is loved or ten to
09:12
one the return on equity is 10% that’s
09:15
the simple formula so you know Citigroup
09:19
for example doesn’t even have a 1% ROA
09:23
but they’re not that far off but
09:27
Deutsche Bank today has a 30 basis point
09:29
ROA they need to improve their
09:31
profitability by more than three times
09:34
there’s no way Georgia Bank on its own
09:37
can improve its profitability three
09:39
times the entire European banking system
09:41
has to be price you know how that’s
09:44
going to ever happen I don’t know but
09:46
until it does your paint banks it could
09:48
be a problem
09:49
they’re going to be a problem so you’ve
09:50
been in here in London for a few hours
09:52
now and you must have realized already
09:54
that the only thing people talk about
09:55
here with breakfast yes
09:57
so what financial risks do you see
09:59
coming from brexit big question is a big
10:04
question
10:04
okay what will happen in March I have no
10:07
idea you have no I really have no idea
10:08
honestly I don’t think and more
10:11
importantly anybody else has any idea
10:12
that it’s going to be an adventure a not
10:15
so it’s going to be a fun adventure but
10:17
it’s going to be an adventure so you
10:18
said that we’re very bad at dealing with
10:20
crises that develop very slowly and you
put the blame on the big financial
crisis of 2007-2008 on income
distribution really do you see that
10:32
changing at all I mean let me explain
10:35
that yes because it’s not intuitively
10:39
obvious how the two are connected so you
10:42
know my thesis is that one of the
underlying causes of the financial
crisis it was bad income distribution so
you know when I say that people’s eyes
generally clays are like you know what
are you talking about
but I think that there’s a
cause-and-effect relationship in that
you know starting in the 90s when income
distribution started to get really poor
in the United States rather than focus
on that and what the solutions worth of
that problem let credit get democratized
that was the euphemism for will will
make loans to people that we didn’t make
loans to before so rather than get
people’s incomes up they let them lever
themselves [take out more debt] and one of the ways people
lever themselves was by taking out loans
on their homes and loving themselves
that way and so I think one of the
causes of the subprime mortgage crisis
is that you know post dodd-frank hard to
get a mortgage loan yeah you know
incomes have only started to start
growing again we’ll have to see what it
does the new administration can do
anything hmm
so it don’t Frank it’s harder to get a
loan but well it’s hard to get a
mortgage why although I don’t think that
I caused a defect of dodd-frank I think
it’s more of an effect of all the fines
that were imposed on the banks for the
mortgage crisis and so the banks I think
not unjustifiably are kind of worried
12:11
about making mortgage loans that they
12:14
might they might not should or should
12:16
not make so the financial crisis what he
12:19
said the main problem was the products
12:22
the tools available or the culture ah I
would say is one of the unsung aspects
of the financial crisis that people have
definitely not written that up about
which is psychology yes and what I mean
by psychology is you have an entire
generation of Wall Street executives who
grew up in the 90s in the early aughts
who really only had one experience which
is they made more money every single
year now what they didn’t really notice
was that as they were making more money
every single year the leverage of their
various institutions was increasing
every single year
now they thought they were making more
money because it was them but really
what was happening as they were making
more money because their institution was
becoming more levered and really what
happened was they mistook leverage for
genius
I wrote that sentence by the way I read
that I do it’s a good son it’s a good
sentence I don’t write a lot of good
sentences but that’s definitely one of
them tweetable yes it’s very good right
if I tweeted I would tweet listen I am
so let’s imagine you went to a Wall
Street executive in circa 2006 and you
said to the CEO of you know pick the
name of your institution and you’d say
dude listen the entire paradigm of your
career is wrong you have to de-lever so
did you ever have a conversation like
that I did I’ve never told this story
before there’s like AI now it can be
told story okay um so the day is
February 2008 and I have a meeting with
the head of Risk Management and one of
the big Wall Street firms we won’t name
them anyone else today but it wouldn’t
matter because I would have had the same
it would have been the same conversation
with any of them
given what was discussion one so I sit
down with a head of risk management of
one of the big farms it’s one month
before Bear Stearns almost to the day
and I say to him you have got to de-lever
and you’ve got to de-lever now because
Armageddon is coming the point of it is
the direct that’s almost a direct quote
I used the word Armageddon and he looks
at me and he says you know I hear what
you’re saying but you know we at X we
can be much more levered to the bank now
back then there was a bank based in
Detroit called net city it was a
medium-sized regional bank and it had a
lot of subprime mortgages so it was a
bit of the topic of the day and so I
said to him you know do you know what
happens if knacks City goes down and he
says no what happens I said nothing the
regulator’s come in they seize the bank
they pay off the depositors they fix the
bank they sell the bank the government
takes something of a loss end of story
do you know what happens if your firm
goes down planet earth burns who should
be more levered and he looked at me like
I was speaking ancient Greek like he
just it was so outside his paradigm it’s
like he didn’t know I was talking about
and I realized it was over that there
was no way these guys were going to do
what needed to be done before the world
blew up but I think we’re going to see
someone to go to jail right
I mean you can have to break up the bank
partido I don’t know I don’t know I have
a feeling in a few years people are
going to be doing what they always do in
the economy tanks they would be blaming
immigrants and poor people it’s not X
equate from you is that Hollywood’s a
great quote it’s a great mark it’s not
yellow it was written by Adam McKay with
the author and director and but did you
16:26
think in those terms back then oh I
16:28
always think in those times always
16:30
thinks in terms of disaster yes why is
16:33
that just I have a very strange DNA do
16:39
you see this paradigm changing at all
16:40
this culture I was told check it steady
16:42
change they’ve been beaten to a pulp
16:44
yeah
16:45
you know the dodd-frank gave much more
16:49
power to the Fed to regulate the banks
16:53
that power was put in the hand of
16:56
Governor Daniel Tarullo and I think he’s
17:00
done a tremendous job of de-levering the
17:03
banks in the United States you know I
17:05
would say the CEOs of the bank’s fought
17:09
him kicking and screaming but I’d say in
17:12
the last year or two they gave up and I
17:15
know you said before that Europe’s done
17:18
not as good of a job with that that’s
17:21
correct why well it’s what your starting
17:25
point so you know just pre-crisis
17:29
Citigroup is levered thirty five to one
17:31
deutsche bank is lowered over 50 to one
17:35
so today’s Citigroup is levered ten to
17:37
one and deutsche bank depending on how
17:40
you calculate is probably levered twenty
17:41
five to one so everybody’s leverage is
17:44
lower European banks have always been
17:48
much more levered than US banks so
17:51
they’re still more levered they just
17:53
left levered than they were right not
17:57
they’re not de-levered enough to my taste
17:59
yes
18:00
but that again we gets back to the Paula
18:03
Mills they’re not profitable enough per
18:05
dollar employed so the regulator’s in
18:08
Europe let them be more levered I think
18:10
it’s a mistake but that’s the way the
18:12
systems it works okay and everyone’s
18:16
asking you what the next one of the
18:17
crisis is going to be so I don’t have a
18:19
dick I know I’m not going to ask you
18:20
money I will ask you that question I say
18:25
you know everybody’s trying to pick the
18:28
next big short and I’ve done that
18:30
already I’m in no rush
18:31
okay thanks a lot Steve Eisman thank you

Holding the G-7 Summit at a Trump Golf Course Is Blatant Corruption

In the competition to persuade wealthy customers to stay at high-end golf resorts, the Trump National Doral Miami is a so-so contender. When Golf magazine recently listed the top twenty-five golf resorts for luxury and the top twenty-five for general excellence, Doral didn’t make either list. It did get included in the top-hundred list, and it was also featured in the “Top 25 Resorts for Buddies,” a segment designed for hardcore golfers seeking “immersion therapy with multiple courses to play 18, 36, or until you just can’t see the ball anymore.” Doral has four courses, including the famous Blue Monster, which for many years was a regular stop on the P.G.A. Tour, and it’s certainly easy for your buddies to get to. Miami International Airport is just a few miles away.

Like many golf courses and golf resorts, Doral has faced serious challenges from rising competition and a decline in the number of people playing golf. In 2012, the Trump Organization purchased Doral out of bankruptcy court for a hundred and fifty million dollars—Deutsche Bank provided a mortgage—and added “Trump National” to its name. Once Trump bought the property, he started an extensive renovation, which was completed in 2016. The Trump Organization claimed that the renovation cost more than two hundred million dollars, although there is no way to verify that claim. But, in any case, Doral, which has almost six hundred and fifty guest rooms, represented a major investment for Trump, and it is by far the biggest of his golf resorts.

Despite the renovations, however, Doral’s struggles have continued. They may well have intensified. In 2016, Cadillac pulled out of sponsoring the venue’s annual P.G.A. Tour event, which created invaluable publicity, and the organizers moved the tournament to Mexico City. (“I hope they have kidnapping insurance,” a miffed Trump commented.) Earlier this year, the Washington Post’s David A. Fahrenthold and Jonathan O’Connell, two reporters who have done sterling work tracking Trump’s intermingling of his public duties with his private business interests, reported that Doral had seen a “steep decline” in its business since Trump decided to run for President. The resort’s “room rates, banquets, golf and overall revenue were all down since 2015,” the Post reported. “In two years, the resort’s net operating income—a key figure, representing the amount left over after expenses are paid—had fallen by 69 percent.”

In a statement provided to the Post, the Trump Organization claimed that the Zika virus and hurricanes had driven visitors away from South Florida. But the paper cited statistics showing that “competing resorts in the same region of Florida still outperformed the Trump resort in the key metrics of room occupancy and average room rate.” It also quoted experts who suggested that the Trump name might be hurting the Doral brand.

Whatever the cause of its troubles, Doral clearly needed a boost, and its proprietor has now provided it with a huge one: a federal contract to host next year’s G-7 meeting, which will bring the resort a substantial sum of taxpayers’ dollars and generate invaluable publicity for Doral all over the world. On Thursday, Mick Mulvaney, Trump’s chief of staff, announced that the summit will be held at Doral in June of 2020. Trump will attend the meeting, along with the leaders of Britain, Canada, France, Germany, Italy, and Japan, and sizable delegations from each member country.

Nobody should be surprised, of course. In making frequent visits to his commercial properties in Florida, New Jersey, and other locales, Trump has been funnelling federal dollars into his own coffers ever since he was elected. For example, Mar-a-Lago, Trump’s oceanfront resort in Palm Beach, charges its government visitors up to five hundred and fifty dollars a night for their roomsaccording to ProPublica. Trump started pitching Doral as the G-7 venue as early as June. By August, when he attended this year’s G-7 meeting, in the French coastal city of Biarritz, the fix was already in, although he tried to portray the choice of Doral as the outcome of a proper search process rather than that of a Presidential edict. “They went to places all over the country, and they came back and they said, ‘This is where we’d like to be,’ ” he said. “It’s not about me. It’s about getting the right location.”

Since resigning as the head of the U.S Office of Government Ethics, in 2017, Walter Shaub has taken on the invaluable role of pointing out Trump’s many transgressions and challenging them alongside his colleagues at the watchdog group Citizens for Responsibility and Ethics in Washington, or crew. But, as Shaub pointed out to me in a conversation on Friday, the selection of Doral represents a “new low” in the President’s behavior. “It’s just so obviously a right-and-wrong issue,” Shaub said. “It’s the kind of thing that we see happening in completely broken nations. There is no definition of corruption that anyone could think of that would lead them to say this isn’t corruption.”

The even greater scandal is that Trump continues to get away with this sort of thing. If an ordinary government official awarded a valuable federal contract to a company that he had an ownership stake in, he could well be arrested and sent to prison. As President, Trump is exempt from the federal conflict-of-interest statutes—a glaring omission that must have delighted him when he found out about it. That means there is virtually no chance of the Justice Department even looking into his involvement in the choice of Doral. Of course, other officials who were involved might not be so lucky. Shaub has raised the question of whether they may have violated criminal provisions of the Procurement Integrity Act, which lays down strict rules for the awards of government contracts. On Friday, Shaub and his colleagues at crew called on the State Department’s inspector general to look into the matter.

Since the delegations to the G-7 meetings routinely pay for their own hotel rooms and other facilities, choosing a resort that Trump owns to host the summit looks like a clear violation of Article I, Section 9 of the U.S. Constitution, which states that no federal officeholder can receive any “present, Emolument, Office, or Title, of any kind” from any foreign state unless he receives the consent of Congress. (An emolument is a payment in money or anything else of value.) But a number of legal challenges to Trump’s self-dealing based on the Emoluments Clause have already been bogged down in the courts.

In July, the Fourth Circuit Court of Appeals, which is based in Richmond, Virginia, threw out a lawsuit that claimed that the President’s ownership of the Trump International Hotel, in Washington, D.C., which representatives of many foreign governments now patronize, violated the Constitution. The three-judge panel said that the plaintiffs—the Attorney Generals of Maryland and Washington, D.C.—didn’t have legal standing to enforce the Emoluments Clause. Last month, a separate panel of judges, from the Second Circuit Court of Appeals, which is based in New York, issued a ruling that rejected the Fourth Circuit’s reasoning and reinstated another emoluments lawsuit, which crew had filed. But that case, and a third one in Washington, D.C., where the plaintiffs are a group of Democratic lawmakers, are proceeding at a very slow pace—too slow to stop Trump.

With the courts tied up and the Justice Department under the control of a Trump loyalist, responsibility for bringing Trump to book falls squarely on Congress, which already has a lot on its hands. The Democrats are busy pursuing “Ukrainegate.” Most Republicans on Capitol Hill are as cowed by Trump as they’ve ever been, and at least one of them has welcomed the decision to hold the G-7 meeting at Doral. “Selfishly as a Floridian, senator from Florida, I think it’s great any time our community gets that kind of attention,” Marco Rubio said.

That statement, along with the over-all lack of reaction from other G.O.P. officials, caused Shaub to despair. He said to me, “If the Republican senators shrug this off, then their message is that there is literally nothing they would say is corruption.” Judging by Trump’s recent actions, he has already received the message.

How U.S. Banks Took Over the World

A decade ago, they almost brought down the global financial system. Now they rule it.

When two of Europe’s corporate titans sat down to negotiate a merger this year, they called American banks.

Fiat Chrysler Automobiles hired Goldman Sachs Group Inc. as its lead adviser. France’s Renault SA hired a boutique bank stacked with Goldman alumni. In a deal that would reshape Europe’s auto industry, the continental banks that had sustained Fiat and Renault for more than a century were muscled aside by a pair of Wall Street deal makers.

A decade after fueling a crisis that nearly brought down the global financial system, America’s banks are ruling it. They earned 62% of global investment-banking fees last year, up from 53% in 2011, according to Coalition, an industry data provider. Last year, U.S. banks took home $7 of every $10 in merger fees, $6 of every $10 in stock commissions, and $6 of every $10 paid to hold and move corporate cash.

urope’s banks are smaller, less profitable and beating a hasty retreat from Wall Street.

From their central perch in London and with close ties to developing countries, Europe’s banks were primed to benefit as financial services went global. They charged onto Wall Street in the 1990s and pressed their advantage as U.S. banks limped out of the 2008 crisis.

Then, “they handed the whole system on a platter to the Americans,” said Colm Kelleher, the Irish-born former Morgan Stanley executive.

Coming out of the crisis, U.S. banks quickly raised capital and shed risk, unpleasant tasks that Europeans put off. American businesses recovered quickly, and its consumers are eager to borrow and spend. A tax cut in 2018 boosted profits. Interest rates have risen.

Meanwhile in Europe, regional economies are sputtering and borrowing has slowed.

Central bankers have cut interest rates below zero, which leaves banks struggling to eke out a profit on loans. Banking policy in Europe remains fractured, with national and continental regulators pursuing often conflicting agendas.

“It is not our remit to promote national, or even European, champions,” said Andrea Enria, the European Central Bank’s top banking regulator.

Twenty-five years ago, European banks charged into the U.S. They bought storied firms like Donaldson, Lufkin & Jenrette and Wasserstein Perella and dangled big paydays for rainmakers. When Deutsche Bank announced a $10 billion takeover of Bankers Trust in 1998, it promised at least $400 million in bonuses to retain top bankers.

The challenges of merging a conservative European commercial lender and a U.S. derivatives shop gave competitors pause. Goldman’s CEO, Hank Paulson, shared his doubts with a hotel ballroom of his bankers: Deutsche Bank “just signed up for 10 years of pain,” attendees remember him saying.

Henry Paulson is sworn in as Treasury secretary by Supreme Court Chief Justice John Roberts in 2006. Before he headed the Treasury, he ran Goldman Sachs. PHOTO: JIM YOUNG/REUTERS

But in an era of cheap debt and light regulation, the land grab seemed to pay off. Deutsche Bank had a $3 trillion balance sheet in 2007 and that year earned twice as much as Bank of America Corp. in securities-trading. Royal Bank of Scotland was briefly the largest bank in the world, wielding a balance sheet bigger than Britain’s entire economy.

Even the financial crisis looked at first like an opportunity. When Barclays PLC bought Lehman Brothers in a fire sale, it got 10,000 of the firm’s U.S. bankers and few of its bad debts. On Lehman’s Times Square trading floor, the loudspeakers played “God Save The Queen.” Deutsche Bank pounced on Wall Street’s clients.

The high-water mark was in 2011, when global investment-banking fees were roughly split between European and U.S. firms.

The good times didn’t last. A 2012 sovereign-debt crisis across the continent put new pressure on the region’s biggest banks. Economic growth slowed across the continent. Central bankers turned interest rates negative in 2014. German media calls them “Strafzinsen,” translating roughly to “penalty rates.”

UBS slashed 10,000 jobs and cut big parts of its trading operation. Royal Bank of Scotland fired thousands of investment bankers and sold its U.S. retail arm to focus on the U.K. Three-quarters of the Lehman bankers Barclays picked up in 2008 were gone within five years, according to Financial Industry Regulatory Authority records.

Meanwhile, U.S. banks were quietly encroaching on European rivals’ territory. In 2009, JPMorgan completed an acquisition of Cazenove, the U.K. investment bank. Every year since 2014, JPMorgan has generated more investment-banking revenue across Europe than anyone else, according to Dealogic. (The London-listed owner of Peppa Pig, a British cartoon character, hired JPMorgan Cazenove to advise on its sale in August to U.S. toy giant Hasbro Inc. )

As U.S. banks got stronger and their European rivals weakened, client loyalties began to change.

Today’s companies are increasingly global. They make more of their money in the U.S. and have swapped a shareholder register stacked with old-line European families and trusts for the likes of BlackRock Inc. and other U.S. investment giants, where Wall Street banks are better connected. The percentage of U.K. companies’ stock owned by foreigners rose from 16% in 1994 to 53% in 2016, according to government statistics.

Fiat, the Italian car maker that pursued a tie-up with France’s Renault this year, makes two-thirds of its money in the U.S.,  where it owns Chrysler. Its shots are called by John Elkann, the New York-born scion of the family that founded Fiat in 1899.

One of Mr. Elkann’s closest advisers is a Goldman Sachs banker who for the past 15 years has organized a yearly gathering of European billionaire business owners, according to people who have attended. They swap stories, share advice and, more often than not, hire Goldman for deals.

Globalization has cost the Europeans not just on headline-grabbing mergers, but in the everyday business of managing money for clients. Deliveroo, a food-delivery startup based in the U.K., sought to ramp up in Europe and the Middle East. Instead of hiring local banks in each market, it consolidated its money flows with Citigroup , which has local licenses in 98 countries and a global digital platform.

JPMorgan has made a big push to expand transaction banking for European clients. In 2010 it established a new unit of global bankers to pitch day-to-day transaction services to big companies, and later took over dozens of European transaction relationships from RBS.

UBS’s Stamford, Conn., trading floor in 2005. It was able to accommodate 1,400 traders and staff. PHOTO: RICK FRIEDMAN/CORBIS/GETTY IMAGES

Most recently JPMorgan said it is extending its commercial banking business globally, targeting hundreds of midsize businesses across Europe. It has sought to take on a more local flavoring, doing things like sponsoring math-and-science programs for students in France, Germany and Italy.

Last year, Citigroup and JPMorgan were two of the three biggest providers of day-to-day transaction banking globally, along with Britain’s HSBC Holdings PLC, according to Coalition. U.S. banks accounted for 57% of the global transaction-banking revenue pool among the biggest banks in that business, versus 22% for Europeans, Coalition said.