The European Central Bank is telling several lenders to the businesses of Austrian real estate tycoon Rene Benko to take a financial hit on related exposures, according to people familiar with the matter.
(Bloomberg) — The European Central Bank is telling several lenders to the businesses of Austrian real estate tycoon Rene Benko to take a financial hit on related exposures, according to people familiar with the matter.
The regulator is pushing these banks to write down the value of their loans or make further provisions for potential losses, said the people, who asked to remain anonymous as the discussions are private. Not all lenders to Benko’s businesses face such action and any such hits to earnings probably won’t be big enough eat into the banks’ capital reserves, said the people.
A spokesman for Benko’s Signa Holding said the company was aware of the probe but was “quite relaxed” about it “due to the outstanding quality of our prime real estate portfolio.” Signa has signed roughly a dozen deals in Germany, Austria and Switzerland totaling about €2 billion ($2.16 billion) in recent months, with the price in each case “significantly above” the most recent bank valuation, he said.
An ECB spokesman declined to comment.
Benko’s sprawling property group is among firms at the epicenter of Europe’s commercial real estate turmoil as the sector grapples with sharply declining valuations amid a surge in the cost of borrowing. Signa Prime, Benko’s larger real estate investment firm, recorded a revaluation loss of €1.16 billion last year, cutting the book value of property assets by almost 6%, Handelsblatt reported previously.
The ECB’s actions come after months of scrutiny of banks that work with Signa in Austria, Germany and other European countries, said the people. German insurance companies also have exposure to Benko, said one of the people.
Some regulatory officials are critical of the probe’s design because singling out Benko’s companies raises the risk of stigmatizing them in the eyes of lenders, said the people. While the ECB has previously quizzed banks on risks related to individual companies, an in-depth investigation of such exposures is unusual, they said.
The Signa spokesman said proceeds from the dozen sales it realized in recent months was 250% higher in total than the outstanding bank loans of these assets. He also said that the total consolidated debt of Signa Real Estate, or the loan to value ratio, was still less than 50%.
Signa Prime was downgraded to A- with a negative outlook by CreditReform last November on the back of falling property valuations across the industry and rising financing costs for Signa specifically. CreditReform withdrew the rating earlier this month after Signa objected to it.
The ECB has previously highlighted that commercial real estate faces challenges from rising interest rates, a surge in construction costs and the shift toward remote working.
–With assistance from Alonso Soto.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.