JPMorgan lost $273 million on a single client in the fourth quarter

  • In an already wonky quarter, JPMorgan reported taking a $US143 million loss in its equities trading department from a single client.
  • The department had strong equities performance apart from that one loss.
  • The client was identified as Steinhoff International, a South African retailer embroiled in an accounting scandal.
  • Total losses related to Steinhoff could be as much as $US273 million.

After accounting for effects from the new tax law, JPMorgan posted a solid quarter, announcing earnings of $US1.69 share Friday.

But in an already wonky quarter, JPMorgan reported an unusual loss not related to the new law: Its equities team took a $US143 million loss from a single client.

JPMorgan confirmed the loss was connected to the South African retailer Steinhoff International, which is embroiled in an accounting scandal.

“It is by far and away the largest loss in that business we’ve seen since the crisis,” CFO Marianne Lake said in an analyst call.

Lake confirmed that the corporate and investment bank’s $US130 million provision for credit loss in the fourth quarter was also attributable to Steinhoff.

After accounting for the $US130 million in additional credit losses, JPMorgan booked a total of $US273 million in losses related to Steinhoff in the fourth quarter.

Here’s what JPMorgan said about the peculiar loss in its earnings presentation (emphasis ours):

“Equity Markets revenue was flat compared to a strong prior year and included the impact of a mark-to market loss of $US143 million on a margin loan to a single client. Excluding the mark-to-market loss, Equity Markets revenue was up 12%, driven by strength in Prime Services, Cash Equities and corporate derivatives …

“The provision for credit losses was an expense of $US130 million, driven by a reserve build for the same single client.”

Other banks are expected to be affected by Steinhoff’s accounting loss as well.

Citigroup, HSBC, Goldman Sachs, and Nomura initially extended a margin loan to an entity controlled by Christo Wiese, then Steinhoff’s chairman, according to The Wall Street Journal, and the losses from the loan were expected to be spread among a broader group of banks.

The entity controlled by Wiese put up millions of shares in Steinhoff as collateral for the loan – shares that collapsed in value following the accounting scandal.

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