The insolvency of the Signa holding company marks the real start for the scramble for the remnants of the real estate and retail empire. For Swiss private bank Julius Baer, the episode with Austrian investor René Benko has become a recurring issue.
The sprawling Signa conglomerate is teetering. After the holding company spent the past few days unsuccessfully on the hunt for fresh millions, it filed for bankruptcy at Vienna Commercial Court on (yesterday) Wednesday. It has applied for a self-administered restructuring procedure, which implies that the creditors of the holding can still expect to recover at least 30 percent of their investment.
Investors Are Contemplating Bringing Criminal Charges
As the Austrian newspaper «Der Standard» reports, the current managing directors of the holding company will be involved in the proposed restructuring process. But René Benko, the founder of the real estate and retail company network, will not be playing a role in this process.
He had previously had to resign from managing the conglomerate earlier and appointed a restructuring specialist. The Tyrolean investor is still apparently on the advisory board of the holding company and is fighting hard not to be completely pushed out of the business. Benko is not completely out at Signa yet, partly as there may be possible legal repercussions.
According to German magazine «Der Spiegel» (paid article), investors are considering filing criminal charges against Benko. The accusation: concealing insolvency.
Neither Confirmed Nor Denied
According to private bank Julius Baer, the concern is that the Signa debacle will not remain an isolated incident, but rather become a recurring issue. It is generally assumed that the long-standing Zurich institution is one of the group of lending banks. The bank itself has neither confirmed nor denied the customer relationship. But market players assume that the «European conglomerate» referred to by the bank, with which Julius Baer has said it has an individual exposure of 606 million Swiss francs ($693 million) in its private debt division, is Signa.
The bank has already set aside provisions of 70 million Swiss francs for this specific loan. It has also been rumored that Julius Baer’s collateral also includes Signa Holding shares. These would probably be practically worthless with the filing for insolvency.
Complete Write-off?
According to sources within the private bank, the bankers are bracing themselves for an extensive restructuring of the outstanding loans, which could potentially roll on until late 2024. Last Monday, Julius Baer said in a statement that the overall exposure is secured by several packages of collateral in connection with commercial real estate and luxury retail. Julius Baer has taken measures to protect its own interests and maintain the value of the collateral received, and the Group will book further loss allowances where necessary.
It will be interesting to see how long the bank can wait things out given Signa-Holding’s insolvency. Julius Baer follows International Financial Reporting Standards (IFRS), under which principle of prudence applies. This requires companies to make loss allowances as early and as comprehensively as possible.
Share Price in Complete Write-off
If the private bank’s share price is taken as a yardstick, markets have already priced in a total write-off of 606 million Swiss francs and the corresponding impact on Julius Baer’s dividend policy. Since the first provision became known, the Baer names have lost more than 22 percent of their value.
But the complex situation at the conglomerate comprising over 1,000 companies is so opaque that a massive write-down would likely further destabilize the entire structure; a similar strategic approach applies to loan restructurings, where it is advisable not to let the other parties concerned see your cards. Each new announcement on the multi-million-dollar exposure would make it increasingly difficult for the banking group to recover its money.
«Herculean Task»
The task itself is already tricky enough. According to the Austrian Credit Protection Association KSV 1870, the now insolvent Signa Holding alone has stakes in 36 Austrian companies. Finding any remaining value in these companies will be a «Herculean task» for the future liquidator, especially considering that Signa Holding’s direct investments once again hold a multitude of stakes.
The number of creditors and the size of Signa-Holding’s debts are still unknown.
According to estimates by the U.S. banking giant J.P. Morgan, the conglomerate recently had a total of more than $13 billion in liabilities, with real estate assets of 15 billion euros. Below, somewhere hidden, there is also likely to be Julius Baer’s collateral.
