Austria’s “Wunderwuzzi” no longer to be trusted: Benko empire on the verge of uncontrolled collapse

In just a few years, the self-made man built a €28 billion empire from scratch; This empire includes Swiss Globus stores and the famous Chrysler skyscraper in New York (USA).

However, Benko lost the trust of his co-investors. This week the situation escalated further with a letter. Finally, they demand that the real estate mogul withdraw from the company. Even though Benko has long ceased its operational activities in the group, it still holds the reins with its share of around 50 percent. Angry investors are demanding the appointment of a reorganizer who will take over Benko’s shares in escrow. He must save what can be saved. It is doubtful whether he will succeed in saving the holding from collapse.

Urgent negotiations with Saudis

The situation got worse months ago, but everything is fine now. René Benko could no longer attract new investors. The group now lacks the liquidity necessary to cover the shortfalls caused by the credit loss. Specifically, it concerns a failed loan on Signa Prime Selection worth between 400 and 500 million euros. Benko is said to be currently negotiating a financial injection with the Saudi sovereign wealth fund.

The company’s survival hangs “by a hair-thin thread,” one insider says. It may only take a few days to finish.

The crisis also alarmed European regulators. They are working on scenarios for how the bankruptcy of the Signa Group will affect the banking and real estate sectors. Since the lending banks are secured by Pfandbriefe, the financial damage to them should be limited. However, fire sales can cause commercial real estate prices to drop.

A master of surprise

Benko is a master of surprise. He knows how to divide his businesses into isolated units called silos. This means that no one other than himself has any general knowledge of the company’s financial situation. There are various commitments, a lack of a consolidated view of the value of properties and how much they are mortgaged. Such a structure is extremely dangerous in markets such as Germany and Austria, where commercial real estate prices have been falling rapidly for months and interest rates have also been rising.

Why didn’t investors like him take a closer look and ask persistently? Benko’s most important supporters include chocolate tycoon Ernst Tanner from Lindt & Sprüngli, Arthur Eugster from coffee machine manufacturer Eugster Frismag, Klaus-Michael Kühne from the logistics group of the same name and the Brazilian-Swiss Koranyi-Arduini entrepreneurial family. But German and Austrian investors also entrusted Benko with millions, such as the well-known management consultant Roland Berger or Fressnapf founder Torsten Toeller and Austrian construction master Hans Peter Haselsteiner (Strabag).

You have to bear the accusation of falling into a conjurer’s trap. A source in contact with investors says investors are now embarrassed. In case of bankruptcy they could face losses of several hundred million francs. At least they pay for their naivety with their own money. The situation is different for institutional investors who invest with other people’s money. These include South Korea’s state pension fund and two German insurance groups, LVM and R+V.

Two Austrian banks Raiffeisen and UniCredit Bank Austria are said to be the largest lenders. According to media reports, they are said to have loaned over two billion euros to individual real estate projects. Insiders assume that Swiss banks have not made a major commitment directly to Benko.

Thais may increase sales at Globus

However, Swiss cantonal banks participate in the financing of the conversion and new construction of Globus stores in Switzerland through a syndicated loan. What happens if the company goes bankrupt? Probably not much for now. The construction work is fully financed. The operational business of department stores is debt-free.

Additionally, half of the department stores belong to Thai Central Group. In case of liquidation, this company could take over the shares of the Signa Group, as it previously did with the luxury department store KaDeWe in Berlin. Globus stores in Switzerland, together with KaDeWe, Italian Rinascente Group and British Selfridges stores, make up the group’s luxury store portfolio.