The Future of a Crumbling Empire: René Benko's Signa Group in Insolvency

The insolvency of the Signa Group has far-reaching international repercussions. Signa, founded in 1999 by the Austrian René Benko, developed into a major real estate and retail group with a presence in several major European cities. The group is divided into two core divisions: Signa Real Estate and Signa Retail.

Signa Real Estate comprises companies that are mainly active in the real estate business, including Signa Prime Selection and its subsidiary Signa Real Estate Germany, which is involved in the construction of the Elbtower in Hamburg. The Group has also invested in development projects in metropolitan areas, both in German-speaking countries and northern Italy, and owns the Chrysler Building in New York.

Signa Retail comprises retail companies, including the KaDeWe Group and the Swiss department store chain Globus. It also includes Galeria, one of Germany's most important department store chains. Signa acquired the German department store group Galeria Kaufhof in 2018 and merged it with Karstadt. It is currently unclear what will happen with Galeria.

The European Central Bank's banking supervisors reviewed the exposure of European banks to the Signa holding company in the summer, as reported by Tageschau. This involved assessing the credit risks. More than 100 banks had lent money to the Signa Group, including German state banks such as Helaba, BayernLB and NordLB, as well as the Swiss asset manager Julius Bär and the Austrian Raiffeisen International.

Signa's insolvency also reflects the crisis on the real estate market, which is characterized by high construction costs, inflation and rising financing costs. Many real estate developers, including Signa, have already filed for insolvency, which led to a write-down of EUR 1.17 billion at Signa Prime Selection in the previous year.

These developments point to significant challenges and changes in both the real estate and retail sectors. They have an impact on numerous stakeholders, including employees, creditors and investors, as well as on the cities in which Signa projects are located.

What happens to the assets?

The insolvency creates uncertainty about the future of the Galeria department stores and further impacts the already struggling real estate market, as reported by ORF. Employees have already experienced two previous insolvencies and only 91 of the original 170 stores remain. An insolvency plan, which envisages financial support of 200 million euros from Signa for the restructuring of Galeria, may be jeopardized by the current situation.

A sale of the department stores could be an option, and trade unions hope that a new owner will be found who would be better than a pure real estate investor. Signa's insolvency is also causing unease in banks, as the company was heavily reliant on bank loans. For example, the Swiss private bank Julius Baer has already made write-downs of 70 million Swiss francs, while the potential default volume is a good 600 million Swiss francs.

Signa's insolvency is also having an impact on the commercial real estate market, which is already under pressure due to rising interest rates and financing costs. This situation has contributed significantly to Signa's decline. There is hope that project-by-project solutions will be found to complete projects, such as the Elbtower in Hamburg.

Signa's prominent construction projects include the Elbtower in Hamburg and the "Mynd" high-rise on Alexanderplatz in Berlin. Many of these construction sites are currently at a standstill, partly due to high construction costs and rising interest rates on loans. Billionaire and logistics entrepreneur Klaus-Michael Kühne may be considering investing in the Elbtower construction project, currently Signa's largest construction project.

The insolvency application itself is described as an "emergency brake", as the company apparently no longer had the liquidity to service its liabilities. Signa is seeking to restructure the company under self-administration, which will take place under the supervision of a court-appointed administrator. This procedure has been approved by the Commercial Court of Vienna and is intended to ensure a minimum quota for creditors of 30 percent.

The effects of the insolvency are far-reaching and not only affect Benko's personal future, but also the Austrian economy and politics. The bankruptcy of the Signa Group could have a massive impact on the entire real estate sector and drag many companies down with it. The situation is particularly critical for smaller construction companies that were dependent on Benko contracts and could now face serious liquidity problems. The insolvency could also lead to increased caution in lending by banks, which would make construction projects even more expensive. This could have a long-term impact on the development of city centers, especially if Signa's projects in central locations are affected.

René Benko's future

The insolvency of the Signa Group and the future of Signa's founder, René Benko, have attracted attention both in Austria and internationally. René Benko was known for his close ties to politics and was described as an influential networker. Before the insolvency, he was considered a model entrepreneur in Austria and had good relationships with high-ranking politicians, including federal chancellors such as Sebastian Kurz. These relationships spanned various political parties.

After the insolvency, however, the tide seems to have turned. Austrian Chancellor Karl Nehammer has distanced himself and emphasized that the insolvency of the Signa Group is a purely economic issue and not a political one. Benko continues to be described as combative and it is reported that he wants to inject his own money into the insolvency proceedings in order to save his company.

René Benko did hand over the chairmanship of the advisory board to restructuring expert Arndt Geiwitz at the beginning of November, as reported by Vindobona.org. This indicates a loss of confidence in his business policy on the part of business partners and investors. However, the Benko family private foundation remains the largest shareholder in Signa.

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