J.P. Morgan Chase has revealed that a trading related loan to an individual client resulted in a huge loss for the bank during Q4. In its report, the investment bank disclosed that results for equity markets revenue included “the impact of a mark-to-market loss of $143 million on a margin loan to a single client.” If it had not been for this huge single loss, J.P. Morgan’s equity markets revenue would have recorded a 12 per cent increase for the fourth quarter.
J.P. Morgan chose not to disclose the individual client’s name, but did acknowledge the liability came from “a syndicated margin loan facility to related parties” of Steinhoff International Holdings NV. Steinhoff is a South African based retailer whose share price suffered heavy losses at the end of 2017, after the company became embroiled in an accounting scandal.
In December, Steinhoff confirmed publicly that accounting malpractice had been discovered within the company. The resignation of Chief Executive Officer Markus Jooste and Chairperson Christo Wiese quickly followed. The Financial Times then reported that the identity of the specific individual concerned with the loan was Christo Wiese.
J.P. Morgan also said that it expected other financial firms to confirm they were also exposed to the same particular client, and indeed it is being reported that the Goldman Sachs Group will disclose a loss related to Steinhoff. In 2015, Goldman was one of a group of lenders that facilitated a loan to the investment vehicles of Christo Wiese, Steinhoff’s former chairman, conditional on the vehicles pledge of 628 million Steinhoff shares for collateral.
In addition to Goldman Sachs and J.P. Morgan, it is believed that Citigroup, HSBC, Bank of America and Nomura Holdings also formed part of the margin loan arrangement to Wiese’s investment vehicles. All six of these large financial institutions will likely incur huge liabilities as a result of participating in this loan to Wiese, a loan that was most probably secured through the use of misleading financial statements and accounts from Steinhoff International.