Steinhoff has revealed accounting irregularities and has the company’s shares and bonds in a drastic spiral as the scandal unveils through the Steinhoff news. The ECB has purchased Steinhoff’s bond in the Summer of 2017 to contribute to its stimulus program.
A law professor at the Goethe University in Frankfurt, Helmut Siekmann said that the stimulus program is when the business risk is shifted from the private sector to the public sector. The ECB is so close to getting dried up of debt from the government in certain countries. This will create a possibility that the corporate bonds have a higher chance to take ECB’s growing share of asset purchases worth 2.55 trillion-euro.
There are no clear statements by the central bank that describes how much of each bond that has been owned by them but they have accumulated figures to show that they are close to 130 billion euros of corporate debt. Bundesbank in Germany, the bank that would bear the impact of any potential loss for ECB, has warned of the risks linked with the scandal and has already started putting aside funds for them.
Steinhoff’s senior bonds were the last to be converted into shares if by chance the company will go down, the ECB will be the one owning the bonds. While the possibility of the scenario that the company going down happening, the share conversion would leave the ECB with a tough conundrum.
Other than that, the Steinhoff scandal also placed the ECB in an uncomfortable spot of becoming the exposed lender to the South African company that has been accused of unethical financial acts. This will provide fresh tactics to critics within the European Parliament that has called for the ECB to follow ethical principles when deciding which company bonds to own.