Just how much money did the ECB lose on its Steinhoff investment?

Q3.3 What are the risks of the programme and are there any plans to mitigate them? Will the Eurosystem be monitoring the creditworthiness of the companies behind its bond purchases?

As on any diversified portfolio of credit instruments, risks from the deterioration of issuers’ credit quality or from defaults of issuers cannot be totally excluded. At the same time, risks of the programme are contained in particular by (i) setting minimum credit quality criteria at the time of purchase, (ii) ensuring diversification through issuer group limits defined relative to a neutral benchmark, and (iii) by implementing appropriate due diligence procedures and credit risk mitigation measures on an ongoing basis

—Corporate sector purchase programme (CSPP) questions & answers

German prosecutors say they are investigating whether Steinhoff International inflated its revenue and book value, one day after the global home retailer announced that its longtime chief executive had quit…The investigators are probing whether Steinhoff flattered its numbers by selling intangible assets and partnership shares without disclosing that it had close connections to the buyers. The suspicious sales were in “three-digit million” euros territory each, according to the prosecutors.

—“Prosecutors probe for ‘inflated revenue’ at deal-hungry Steinhoff”

The European Central Bank has spent about $129 billion buying corporate bonds as part of its Asset Purchase Programme. A small portion of that money was used to buy Steinhoff Europe AG’s 2025 bond. As of December 1, the most recent data available, this Steinhoff bond was listed as one of the 1054 distinct securities held on the ECB balance sheet as part of the Corporate Sector Purchase Programme.

Here’s how that’s worked out recently:

Steinhoff’s structure is complicated. Arguably South African, it has operations in Europe and issued these particular bonds out of Austria. Total issuance was only €800 million. The Finnish central bank owns them on behalf of the Eurosystem and any losses will be shared across the currency bloc.

The ECB publishes which securities it owns, but it does not publish the size of its exposure to individual credit risks. (We asked and will update if we get a response.) Given the amount outstanding in this case, the limits on how much the ECB can buy, and the size of its total portfolio, these losses should have little impact on the overall balance sheet.

Still, we thought it worth pointing out. Could there be anything else the ECB has bought it may come to regret?

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.