Absa loses N$1 billion in futures market deal debacle

ABSA had approached the Reserve Bank ‘some time in late November’ to warn that some of its single-stock futures transactions were beginning to show signs of having problems, Errol Kruger, the registrar of banks, told Business Report yesterday.

‘They were just telling us so that we were not caught by surprise when they made announcements about client defaults on single-stock futures,’ Kruger said.’They did not know at that stage what the quantum of defaults was, because single-stock futures fluctuate a lot.’Absa reportedly lost N$1 billion in this debacle, but Kruger said the incident should be seen in the context of a total balance sheet of just less than N$800 billion.Last Thursday, Absa, South Africa’s biggest retail bank, said it had acquired shares worth N$1,4 billion in four JSE-listed firms after clients had defaulted on single-stock futures.It had taken over shareholdings amounting to 28 per cent in Pinnacle Point, 16 per cent in Blue Financial Services, 17 per cent in Sekunjalo Investments and 10 per cent in ConvergeNet.This happened after some shareholders in these firms had bailed out of the futures trade, failing to cover losses as the share prices plunged.Stock futures allow traders to take positions on company share prices, so that buying futures have the same effect as borrowing money to buy shares.Experts said it was difficult to know the total size of the single-stock futures market because some of the trading was outside the JSE.Yesterday Absa said that it had started seeing client defaults on single-stock futures since December, dispelling market talk that it had known about the problem since October and kept it under wraps.Jacques Schindehutte, the group financial director at Absa, confirmed to Business Report that the market had first noticed defaults on single-stock futures with the collapse of Dealstream, the failed derivatives broker, in September.’But at that stage our client positions were not in default,’ Schindehutte said. Positions had started accumulating at the end of 2008.’We made the announcement as soon as we concluded that we had sufficient facts to inform shareholders accurately.’-Business Report

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