This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.
Don Hankey once said that two of his biggest mistakes early in his career were only doing business with honest people and trusting his gut to recognize them. Today Hankey is a billionaire and made his money by granting and insuring loans. It also finances car purchases from customers who don’t have the best credit rating.
“I sat down across from someone and looked deeply into their eyes – I thought I could tell whether they were being honest or not,” Hankey told the Los Angeles Business Journal last year. The paper in his hometown named him the sixth richest resident in Los Angeles. “I burned my fingers a few times.”
Now Hankey may be playing with fire again. Earlier this week, Knight Specialty Insurance, one of the companies in his network, paid Donald Trump’s $175 million bail. Hankey told The Associated Press (AP) that both cash and bonds were used as collateral for Trump’s appeal bond. Details of the bond arrangements were not disclosed. A spokesman for the Hankey Group left a corresponding request unanswered.
Trump had to deposit this sum in the appeal proceedings in a New York court. Otherwise, parts of his real estate assets would have been seized. According to a verdict, the entrepreneur Trump lied in financial reports about the valuation of his assets.
The lion’s share of the Hankey Group’s business is contributed by Westlake Financial, the largest lender in the United States to independent car dealerships, whose dealers can offer financing directly to their customers at the time of purchase. Hankey’s business boomed during the coronavirus pandemic. Many consumers saved money that they could not spend, sometimes enriched by government support. And because of supply chain problems, car prices rose.
More recently, Westlake and Hankey’s other companies are leveraging big data models and artificial intelligence applications to venture into medical care, certain medical procedures and jewelry with venture credit.
The Hankey Group is not listed on the stock exchange, but is a large issuer of securitized debt securities to finance lending. At the end of last year, the company had $23.4 billion in assets, up from $12 billion at the end of 2019. According to information on its website, the company had sales of $4.6 billion last year and employed nearly 3,500 people.
Hankey has previously supported Trump campaigns and donated more than $100,000 to the Republican National Committee during the 2016 campaign. He is also the largest individual shareholder, with a $200 million stake, in the internet bank Axos, which is now one of Trump’s largest direct creditors.
Hankey told the Associated Press that Knight underwrote the bond for Trump for purely business reasons and not political motives. The Los Angeles financier said his company reached out to the former president’s financial advisors last week after the New York appeals court reduced the amount Trump had to raise during the trial from the full $464 million, including interest .
Hankey’s fortune is estimated at $7.4 billion, according to Forbes. He told the AP that the former president posted cash and bonds as collateral for the bail, although he did not reveal how much or what Knight asked for the bail.
Before the court reduced the bail amount, Trump’s lawyers said the former president would have had to post collateral worth 120 percent of the bail and pay an underwriting fee of up to three percent. They also reported that they had contacted 30 surety insurers – including Allianz, Axa, Berkshire Hathaway, Chubb, Munich Re, Swiss Re and Zurich – through four different brokers in an attempt to obtain a higher guarantee, but without success.
In the past, some of Hankey’s companies have been accused of not being completely honest with customers. In 2015, the U.S. Consumer Financial Protection Bureau ordered two of Hankey’s companies, Westlake Services and Wilshire Consumer Credit, to pay a total of nearly $50 million in restitution and penalties.
The authority had accused the lender of using unclean lending and debt collection practices. Some customers whose cars had been confiscated were falsely assured that they could get them back through partial payment. But that wasn’t true. Others were told that their car was about to be repossessed, which was not true. Payments should be accelerated. Westlake and Wilshire complied with the CFPB’s request without confirming or denying the allegations.
“There is no excuse for lying to your customers,” the regulator’s then-head Richard Cordray said in a statement at the time of the settlement.
Hankey usually counters his critics by saying that he has taken action against abuses in his companies. For a borrower, even with a high-interest loan, it is better to be able to buy a car than to be sent away. It’s important to remember, he said, how important having a car is to your job in many parts of the country.
“Let’s say someone has bad credit, then they either have to pay 18 percent interest or they don’t get a car at all. Are we better off if we don’t give someone like that a car?” Hankey said in a 2020 radio interview. ” It has good and bad sides, but I think the good outweighs the bad.”
Copyright The Financial Times Limited 2024
