Bank of America lost the nearly $300 million it lent to the then-chairman of South African mattress company Steinhoff International Holdings. This happened because said then-chairman put up his shares in Steinhoff as collateral, and then used the loan to buy more Steinhoff shares, all of which are now almost worthless on account of the accounting scandal at said mattress company.
That nearly everyone on Wall Street was taken in by Christo Wiese’s charms (and Steinhoff shares) was not a comfort for Brian Moynihan & co., who acutely felt the uncomfortable divot left in the proverbial mattress beneath which $292 million once lay. So he hired a bunch of lawyers to tell him how not to do it again. The answer which the elite and expensive legal minds at Davis Polk & Wardwell produced was, “don’t do it again.”
The bank said in a statement Tuesday that its review of the loss is finished. It said the responsible thing to do with such a loss is to “review it carefully, see if we missed something, and apply any lessons for the future,” adding that the “core cause” of the loss was due to the behavior of another party.
The review has led the bank to dial back its appetite for collateralized loans to individuals that are backed solely by a borrower’s holdings of a single stock. These loans leave a bank with few good options if the stock price collapses.