Goldman Traders Banish Ghost of Steinhoff With $100 Million Gain
Goldman Traders Banish Ghost of Steinhoff With $100 Million Gain
(Bloomberg) -- Four years after an accounting scandal at Steinhoff International Holdings NV punched a hole in Goldman Sachs Group Inc.’s earnings, the bank’s traders are exacting some revenge.
The Wall Street giant has locked in about $100 million in gains after acquiring Steinhoff debt at distressed levels and holding on through its rebound this year, according to people with knowledge of the matter. The bank snapped up deeply discounted loans to the furniture maker when hedge fund CQS was dumping its assets last year, two of the people said, asking not to be identified as the information isn’t public.
Steinhoff shares plunged in 2017 after the revelation of an accounting scandal, which saddled the biggest U.S. banks with losses in excess of $1 billion. The group of banks had extended credit to the then-chairman of the retailer and ended up getting burned from the collapse in the stock, which served as collateral for the loan. The magnitude of the hit was such that even years later it has left a lender like Bank of America Corp. wary of big risk-taking trades.
Goldman Sachs at the time took an impairment of $130 million on its loan tied to Steinhoff.
A representative for Goldman Sachs declined to comment on the gains this year. The bank has been one of the most active traders of Steinhoff debt, which has been favored by some of the big distressed-debt shops, the people said. Steinhoff’s shares have more than doubled this year.
A big chunk of Goldman’s gain was attributed to its distressed desk in London that reports to Dan Friedman, who joined in 2017 from British bank Barclays. Friedman’s remit includes other major money-making operations as the head of the European credit flow trading business.
Goldman has been expanding the capital available for that desk and has been reaping big gains from global trading. That has helped the banking titan notch record revenues and earnings through the first nine months of the year that have already exceeded past full-year records.
Some of the Steinhoff success was tied to gains in other parts of the firm, two of the people said.
Michael Hintze’s CQS had been retrenching last year after losses. The sale of some of its assets at the time found eager buyers including Goldman Sachs, the people said.
Prices quoted on some of Steinhoff’s subordinated debt over the last year show big jumps. Those tranches, earlier quoted at about 35 cents on the dollar, are now offered at about 80 cents, one of the people said.
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