A sign at the entrance to a street next to the luxury department store KaDeWe in Berlin speaks of the better times in René Benko’s Signa Group. It is golden and indicates big plans. Signa wanted to build a new office building where the ugly KaDeWe parking garage used to stand; the shell is already there. For the real estate development in the project named No. 1 Passauer – as it says on the sign in front of the construction site – a subsidiary called Signa Real Estate Management Germany GmbH was responsible.

But because of the financial crisis in the group, work on the construction site has not only been at a standstill for a few weeks. The company responsible for development is now suddenly a symbol of the entire misery at Signa: Signa Real Estate Management Germany is the first company from Benko’s real estate division to file for bankruptcy. This Friday, the management of the company, a subsidiary of the most important real estate company Signa Prime Selection, filed for insolvency at the Charlottenburg district court due to insolvency.

The collapse of the group seems to have begun with the first bankruptcy in Signa’s core area – just over two weeks after the long-standing group ruler withdrew from day-to-day business and handed over command to the well-known German restructuring expert Arndt Geiwitz. The bankruptcy filing of the first real estate subsidiaries shows that the Signa Group is no longer able to provide its operating companies with liquidity. The group is missing hundreds of millions of euros. Recently, negotiations with an investor who specializes in investments in extreme crisis situations reportedly failed. The first rumors about bankruptcy filings began circulating on Thursday.

However, this not only worsens the situation for Benko and his fellow shareholders, they also have to fear for their Signa shares, which are sometimes worth three-digit millions. For Benko’s debt investors, the risks have also suddenly increased in view of the possible chain reactions across the Signa Group. These investors, who have financed Benko’s debt-driven expansion for years and now have billions of dollars in the bank, include not only banks from Austria – but also a whole range of companies from Germany, including several state banks, insurers and pension funds. Some have “huge tickets” at Signa, according to company circles.

This is not just about loans for specific real estate projects, but also about other debt securities through which Benko financed his growth. In addition, several institutional investors from Germany, such as the insurer R V, the RAG Foundation and the fund company Union Investment, are also shareholders in important Signa companies – some also in the sports trading division Signa Sports United, which recently filed for bankruptcy and is likely to be broken up .

Signa documents available to Capital show the extent to which institutions, which are primarily intended to invest their money safely, were involved with Benko in the zero interest years. Accordingly, the Landesbank Helaba, for example, has granted loans for several real estate projects in the mid three-digit million range – as have the insurers Signal Iduna and Ergo and the Bavarian Supply Chamber, which is intended to secure the pensions of civil servants in the Free State. BayernLB is also one of the larger Signa financiers, as is Aareal Bank. According to the documents, even individual savings banks have become involved as lenders in Benko projects, sometimes even far away from their home region.

Part of the loan volume flowed into projects for existing properties of Signa’s most important real estate subsidiary, Signa Prime Selection, such as the KaDeWe in Berlin or the Hamburg Alsterhaus. Very long terms are usually agreed here, up to the 30s or even early 40s. The shorter-term loans for development projects are likely to be riskier. These are suffering from rising construction and material costs; for some, construction work is currently on hold because Signa has not paid invoices. This involves financing for projects such as the Old Academy in Munich (including BayernLB), the Hamburg Gänsemarktpassage (including Helaba) or Benko’s prestige project Elbtower (including Signal Iduna), which was also supported by the then mayor of Hamburg, Olaf Scholz has used.

When contacted by Capital, most financiers did not want to comment on their involvement with Signa. The Bavarian Supply Chamber simply stated in general terms that its financing was always secured by “first-class mortgages”. Signal Iduna pointed out that its loans were secured by mortgages. The insurer said there are “currently no loan defaults” expected from the Signa Group. But even in the event of “possible loan defaults” there are currently no “significant risks” for your own company. With a view to the Elbtower, where construction has been halted since the end of October, Signal Iduna did not rule out increasing its current loan commitment in order to secure the mega project that has begun. “Based on the construction activity that has already taken place, it is fundamentally conceivable for us to use increased borrowed funds,” explained the company. However, this would be “evaluated individually” as part of the usual examination processes.

Particularly affected by the escalation of the situation in the Signa empire are those Benko partners who are shareholders in important group companies and are therefore at risk as equity investors. This involves, among other things, R V Versicherung and the RAG Foundation, which is intended to finance the consequences of hard coal mining in Germany. Both hold a five percent stake in Signa Prime Selection and are also shareholders in the development subsidiary Signa Development Selection. The insurer LVM holds a stake of almost three percent in Signa Prime Selection. When asked, all four declined to comment on these Signa investments.

Even in 2022, when the interest rate turnaround was already underway and the real estate market was already cooling down, the fund company Union Investment had also invested in Signa on a larger scale. As can be seen from the Austrian commercial register, Union Investment subscribed for a five percent stake in Signa Prime Selection for a special fund for institutional customers. She also took a stake in the Signa development subsidiary. When asked, a spokesman for Union Investment emphasized that no shares of the two most important Signa real estate companies were held “in Union Investment’s mutual funds”. It is not possible to comment on the investments of special funds.

While it is still unclear in the real estate sector how tough the restructuring will be and which projects Geiwitz might sell off, the Signa drama is already having a concrete impact on the owners of the insolvent sports retail subsidiary. The shareholders of Signa Sports United (SSU), which was until recently listed on the New York Stock Exchange, included various long-standing business partners and financiers of Benko. These include R V Versicherung and the RAG-Stiftung: According to a report from the SSU to the US Securities and Exchange Commission (SEC) from August 2023, the RAG-Stiftung held a stake of 1.3 percent, the R V in total, via a Luxembourg fund around six percent.

At Capital’s request, the RAG Foundation recently estimated its share in the insolvent Signa sports subsidiary at a “single-digit million amount”. A spokeswoman said that the financial burden caused by the SSU’s bankruptcy was “tolerable for the foundation due to its small share.” The damage can only be specifically quantified after the insolvency proceedings and parts of the company have been sold. In the end, the loss for RV insurance could be significantly higher. An R V spokesman declined to comment.

The Signa quake could have unpleasant consequences not only for some companies that have entrusted Benko with their money, but also for their top managers. According to several Signa insiders, Benko personally negotiated many of the financial deals with the bosses. Some of them still sit on supervisory boards in the Signa Reich today. A real estate executive at the major lender Helaba even moved directly to the management level of the Signa Group in 2017. If Signa’s involvement leads to major write-downs, a Benko confidant predicts that there will be a “mass exodus” at the top of many banks and insurers – not just in Austria.

This article first appeared at capital.de.