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Four years after an accounting fraud at Steinhoff wiped out Goldman Sachs’ profits, the bank’s traders are retaliating.
According to those familiar with the situation, the Wall Street behemoth has profited by roughly $100 million (R1.5 billion) after acquiring Steinhoff debt at distressed prices and hanging on through the company’s recovery this year.
When hedge fund CQS began liquidating its assets last year, the bank snatched up substantially discounted loans to the furniture producer, according to two of the sources, who asked not to be identified because the information isn’t public.
Steinhoff’s stock plummeted in 2017 following the exposure of an accounting scam that resulted in losses of more than $1 billion for the largest US banks.
The group of banks had granted loans to the retailer’s then-chairman, but were burnt when the stock, which acted as collateral for the loan, crashed.
Even years later, the enormity of the hit has made a lender like Bank of America leery of large risk-taking trades. Goldman Sachs took a $130 million impairment on its loan to Steinhoff at the time.
A Goldman Sachs official declined to comment on the gains this year. According to the persons, the bank has been one of the most active traders of Steinhoff debt, which has been favored by some of the largest distressed-debt shops.
This year, Steinhoff’s stock has more than doubled in value. The troubled desk in London, which reports to Dan Friedman, who arrived from British bank Barclays in 2017, accounted for a large portion of Goldman’s profits.
As the CEO of the European credit flow trading company, Friedman’s responsibilities include other key money-making enterprises. Goldman has been increasing the amount of capital accessible for that desk and generating significant profits from worldwide trading.
This has aided the banking behemoth in achieving record revenues and profitability in the first nine months of the year, which have already surpassed previous full-year highs.
Two of the people indicated that some of Steinhoff’s success was due to gains in other sectors of the company. Last year, Michael Hintze’s CQS was retrenching due to losses.
According to the persons, the sale of some of its assets at the time found enthusiastic bidders, including Goldman Sachs. Over the previous year, the prices stated on some of Steinhoff’s subordinated debt have jumped dramatically.
Those tranches, which were previously valued at around 35 cents on the dollar, are now valued at around 80 cents, according to one of the sources.
Story by : Norvisi Mawunyegah