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German insurers including Munich Re and Allianz have amassed more than €3bn of exposure to the struggling property empire owned by real estate billionaire René Benko.
The network of firms in Benko’s Signa group not only borrowed from banks including Julius Baer and UniCredit, but also relied heavily on funding from more than half a dozen insurers, according to documents reviewed by the Financial Times and people with first-hand knowledge of the details.
The people added that about a third of this exposure was not backed by any collateral. “For some insurers, this will be extremely painful,” one of the people said.
Signa Holding, the central company in the group that owns Selfridges in London, the Chrysler building in New York and KaDeWe in Berlin, filed for administration last month. The company had built up €5bn in debt by the end of September, the majority of it during the first nine months of this year.
Benko has not disclosed the total debt accumulated by firms across the Signa group, but people familiar with the structure say his other entities have borrowed more than twice that amount. Many companies within the group are still trading, but people close to the business said further insolvencies were expected within days.
Insurance companies lent money to Signa partly because of the regulatory and interest rate environment, according to one person familiar with the situation. “Highly regulated banks were unable or unwilling to do certain types of transactions due to their capital requirements while insurance groups were drowning in cash during the era of ultra-low interest rates,” the person said.
A significant part of the Signa group debt was provided by non-bank financial companies such as Dortmund-based insurer Signal Iduna, a midsized company with 12mn customers, mainly in health and life insurance. Signal Iduna lent close to €1bn to Signa, people with direct knowledge of the matter said.
Signal Iduna declined to comment on the size of its exposure but said it did not expect “material loan losses” because its loans were “in large part” backed by collateral in the form of property in prime German city locations.
Munich Re’s main insurance business Ergo provided about €700mn in loans, while Germany’s fourth largest insurance group R+V lent €500mn, more than half of which is not collateralised, according to the documents and people familiar with the matter.
Allianz made €300mn in loans for Signa’s 2018 purchase of a high rise building in downtown Berlin, while Volkswohl-Bund, a medium-sized Dortmund-based insurer, racked up a €250mn exposure.
Ergo, R+V, Allianz and Volkswohl-Bund declined to comment. Signa did not respond to a request for comment.
German financial regulator BaFin told the FT it was monitoring the situation but added that the exposure “in most of the cases” was negligible compared to the individual insurer’s total assets and that it did not expect a “material threat” to any of the affected groups.
As well as providing lending for specific Signa real estate assets, some insurers made equity investments, according to documents seen by the FT.
Medium-sized German insurer LVM holds a 2.9 per cent stake in Signa Prime Selection, one of the two companies that owns most of the Signa group’s assets. A significant share of LVM’s €300mn Signa exposure is not collateralised, according to people familiar with the firm’s exposure and documents seen by the FT. LVM declined to comment.
Additional reporting by Ian Smith and Cynthia O’Murchu in London