Bank of America’s $292m burn linked to Steinhoff saga
New York — Bank of America (BofA) just joined a roster of big US lenders suffering multimillion-dollar burns on their dealings linked to Steinhoff International Holdings.
Fourth-quarter earnings were crimped by a $292m "single-name non-US commercial charge-off", the Charlotte, North Carolina-based company said on Wednesday in a statement announcing results. The costs were incurred in two divisions: global markets and global banking.
The company got stung providing a margin loan that used Steinhoff’s stock as collateral, according to a person briefed on the matter who asked not to be identified discussing client business. Shares of the embattled South African retailer lost about 90% of their value last month after it announced December 5 that it had uncovered accounting irregularities.
BofA has examined "the credit that we have to this borrower and we feel very comfortable at this point that we’ve taken the appropriate charge-off", chief financial officer Paul Donofrio told reporters on a conference call to discuss fourth-quarter results, declining to name the borrower. Donofrio added that the bank was "well reserved for what might come in the future".
Banks and other creditors had almost €18bn of exposure to Steinhoff at the end of March. The company, criticized for being opaque about its finances, owns retail chains around the globe — including Conforama in France, Poundland in the UK and Mattress Firm in the US, which encompasses stores formerly known as Sleepy’s.
"All banks are now looking at this to see if there are things in the future that we could do different," Donofrio said.
JPMorgan Chase chief financial officer Marianne Lake acknowledged last week that Steinhoff was the cause of a $143m mark-to-market loss in the bank’s stock-trading unit during the fourth quarter as well as $130m of credit costs.
On Tuesday, Citigroup chief financial officer John Gerspach declined to provide more details about a "single client event" that triggered a derivatives loss of $130m in the equities-trading unit. He told journalists the same issue was responsible for roughly 90% of its institutional clients group credit loss of $267m. That client was also Steinhoff, according to a person briefed on the results.
Bank of America is a main lender on at least five major loans to Steinhoff subsidiaries, and an underwriter of at least some of its bonds, according to data compiled by Bloomberg. Those loans include a €2.9bn revolving loan due 2021 to furniture seller Steinhoff Europe and $2bn in term loans to Steinhoff Moebel Holding Alpha, which operates in Austria. The biggest of the term loans — a $1bn piece with nearly $500m in borrowings — matures in August.
Bank of America is also a top lender on a $200m fully drawn revolving loan to Stripes US Holding, the parent firm Steinhoff used to buy Mattress Firm Holding in September. Months earlier, in February 2016, Mattress Firm purchased the owner of Sleepy’s stores.
"There’s no change in risk appetite in the company," CEO Brian Moynihan told reporters. "Once in a while something doesn’t turn out the way we want because that’s what the definition of taking risk is."