European Banking Authority Investigates Loans to Signa Group, René Benko’s Real Estate Empire

It’s never been like this before. The banking supervisors of the European Central Bank usually only check the transactions of the around 120 major banks in the euro area. For the first time, they are now examining a single customer – the Signa Group of the Tyrolean real estate investor René Benko. Something similar had only happened once a good two decades ago, when German supervisors carried out a special audit of this kind focused on a single borrower at eight of Leo Kirch’s creditor banks. In April 2002, the film retailer’s group actually went bankrupt.

According to reports in the Austrian media, all banks that have a business relationship with the Signa Group are now being targeted. This also includes German institutes. The investigators hope to learn details about lending to the group. The collateral deposited for loans should be checked to see whether all interest has been paid and other financial indicators have been complied with. It is not clear how many banks will be examined. We’re talking about a dozen. From the point of view of the ECB banking supervision, it should ultimately be about whether the loans to the Galeria-Karstadt investor represent a so-called cluster risk for the respective bank, which could endanger an institute in the event of an insolvency of Benko’s empire.

There are a few problem areas in the real estate tycoon’s realm. Benko only sold the furniture chain Kika/Leiner at the beginning of June, which filed for bankruptcy just a few days later. With the bankruptcy, 1,900 of the 3,900 employees were made redundant. Benko Kika/Leiner only took over in 2018 – with the kind support of the federal government under Chancellor Sebastian Kurz (ÖVP). Benko is now cashing up elsewhere too. It was already announced in March that Signa had sold a stake in the KaDeWe department store in Berlin to the Thai Central Group.

Benko’s strategy is obvious. And it is reminiscent of the Karstadt-Kaufhof takeover. He had promised to continue the operative business of the furniture chain. Kaki/Leiner is also said to have received a double-digit million euro sum for the modernization of the branches. The deal also gave Benko access to lucrative real estate and high rents.

The Austrian real estate and trading company Signa Holding was founded in 1999 by René Benko. It focuses on two divisions: Signa Real Estate primarily develops luxury real estate and land in expensive locations, in Berlin at Alexanderplatz, in Hamburg’s HafenCity and in New York the Chrysler Building. The second division, Signa Retail, includes the department store operator Galeria/Karstadt/Kaufhof. In several cases, Signa Real Estate owns the properties in which Galeria branches are located. The bottom line is that department store operations are only a small part of Benko’s business model. The larger one is the high-yield development of real estate, often houses in which department stores are often (still) tenants.

Long before the second Galeria bankruptcy within two years, doubts arose as to whether Signa was doing enough to preserve the department stores. Some state politicians in Germany feel pressured by the investor, others are sticking to the cooperation. At least 47 of the 129 Galeria stores have been or will be closed by the end of the year. Department store employees are expecting to be laid off, and residents fear displacement as a result of property modernization. The main shareholder of Signa Holding GmbH is the Benko family private foundation. Benko withdrew from the operative business in 2013, at least publicly, after being sentenced to probation in a controversial tax case.

One can only speculate about the exact reason why the ECB’s European Banking Authority is now particularly interested in the loans to the Signa Group. The wheel that Benko turned may be too big. The confusingly nested group puts the value of its own real estate at 28 billion euros; projects worth 25 billion euros are also said to be in development. The turnaround in interest rates could become the tipping point for the group. Since the ECB raised its key interest rates for the first time in July 2022, the prices for real estate loans have roughly tripled.