René Benko’s corporate empire is apparently falling apart. Signa Holding’s debts are enormous. German state banks are probably also among the creditors. How risky is that?
At the beginning there is the hope of making a lot of money with a real estate project. The calculation doesn’t always work out – the case of the insolvent Signa Holding shows this. Investor René Benko found numerous investors for his projects: banks, insurance companies and investment companies gave Signa loans. Some of the creditors also come from Germany, according to media reports, such as the Landesbanken Hessen-Thüringen, BayernLB, LBBW from Baden-Württemberg and NordLB.
It depends on the individual project
The banks don’t want to confirm this, but according to reports it’s sometimes worth three-digit millions. How hard can the banks be hit? “German state banks always have relatively large investment needs and are therefore happy to be involved in such large projects – with quite high volumes,” says Hans-Peter Burghof, Professor of Banking at the University of Hohenheim. “But these banks also have to diversify their credit investments very well, and in this respect there is no volume that will really endanger the individual state bank.”
What is also crucial is the form in which the loans are secured, says Burghof. In the case of Signa Holding and its subsidiaries, these are probably mortgages, i.e. basic rights to the properties: “This means that the banks can then initially exploit these properties and only a possible difference between the loan volume and the proceeds from the sale is actually available to them “The burden falls,” explains the financial expert. “The money they invested there will be on fire for a while.” Ultimately, it depends on the individual project how much risk is associated with it.
Julius Baer warns of credit risk
This becomes more concrete in the case of the Swiss bank Julius Baer. The financial institution itself disclosed a credit risk of 600 million Swiss francs. The name Signa was not mentioned, but observers agree that this refers to the now insolvent holding company. According to media reports, the mountain of debt at Austrian banks is piling up at more than two billion euros.
Politicians in Austria are trying to smooth things over on the financial markets. The conservative Chancellor Karl Nehammer said that bankruptcies are part of the economy: “The crucial thing remains that Austria as a market – on the one hand as an investment location, also in terms of its skilled workers – remains a very popular investment location.”
Real estate crisis could cause more victims
The Signa case alone is unlikely to trigger a major tremor for the banks. But what if this is just the beginning – and the high interest burden gradually brings other real estate companies to their knees?
According to banking professor Burghof, the importance of real estate loans for banks is fundamentally great. “However, only part of it is project business, like we have here at Signa, where safety really matters.”
Ultimately, probably not threatening to existence
A large part is also private real estate financing, where it is not just the project that matters, but also the creditworthiness and solvency of the individual debtor. “To be honest, I’m not very worried about that. Unless the general economic situation in Europe deteriorates significantly.”
The coming months will show to what extent the Signa insolvency will continue to cause gloomy corporate news. For the banks involved, the bankruptcy is likely to be painful, perhaps expensive, but not a threat to their existence.
Sebastian Schreiber, HR, tagesschau, December 1st, 2023 2:19 p.m