ECB Now Investigating Banks – Signa Made Billion Dollar Balance Sheet Changes

In Signa Development, EUR 161 million was subsequently reclassified to financial liabilities. In the Signa Prime Selection, 496 and 763 million euros were regrouped into financial liabilities, writes “Der Standard” (weekend). Signa speaks of a technical adjustment of IFRS accounting rules.

The auditor KPMG states in its statements in the balance sheets that the so-called covenants, ie contractually binding commitments by the borrower, were of course complied with. The company said on request according to “Standard”: “These adjustments are due to IFRS (International Financial and Reporting Standards, note) accounting guidelines – it’s just a more detailed reporting issue – so it’s a technical reclassification.”

According to Signa, all points have been disclosed in detail in several places in the “Notes”. “The facts were well rearranged, presented and explained.”

Banks took on the cluster risk
In the years that followed, reclassifications were no longer necessary, Signa emphasises. For example, the German department store giant Galeria Kaufhof belongs to Signa Prime. In Austria, Signa failed to make headlines in the wake of the Kika/Leiner bankruptcy. This came shortly after Signa sold the furniture store chain.

According to the published balance sheets for 2020, between 2022 and 2025, the two main parts of the Signa Group will have to repay approximately EUR 3.7 billion in obligations and EUR 800 million in interest. Almost 8.2 billion euros in bank debts must be secured in the land register.

According to management consultancy “Finanzombudsteam” in the report, it is clear that huge increases in rental income and property value appreciation were needed to close the gap between cash flow in 2020 and reported loan repayments in the future. Banks are accepting a concentration of risks here, while it is becoming increasingly difficult for SMEs to obtain credit, General Manager Gerald Zmuegg told the newspaper.

ECB investigates banks
However, the “Presse” reported, citing an article in the “Frankfurter Allgemeine Zeitung”, that the European Central Bank (ECB) for the first time examined banks for only one borrower – Benko’s Signa Group. A team of banking supervisors – mainly consisting of Austrians – investigate European banks for this selected borrower. “It’s never happened before,” the German newspaper quoted a longtime bank manager who asked to remain anonymous.

Accordingly, all banks that have business relationships with Signa are included in the on-site inspection: state-owned banks, special real estate banks, German and Austrian finance houses. According to “Presse”, the banking regulators should know the amount of Benko loans per institution, even if the Signa empire is branched. Under the parent company Signa (holding company), two-thirds of which are part of the Benko family foundation, there are three separate companies, one of which also includes the Galeria Karstadt Kaufhof department store chain. This has received huge state support in Germany.

The research team is collecting data on whether Signa Group lenders have adhered to lending standards. They also query the collateral of the loan and check whether all interest payments have been made and whether the financial covenants agreed in the loan agreement have been complied with or may have been broken. These studies usually last six to eight weeks.

The ECB itself has not confirmed the report. According to the press, Signa did not want to comment on this. However, companies are never informed about any bank checks by the ECB.

It has been known for some time that the ECB is scrutinizing banks’ real estate risk. All types of real estate and corporate loans are monitored. Until now, bad loan (non-performing loan) ratios have been extremely low.