On the way to a wave of bankruptcies in Europe

The bankruptcy of SIGNA Holding and other associated companies is at the epicentre of a property bubble that has now burst at the latest. The pressure wave extends far beyond the holding company's headquarters in Austria and is currently cascading through Germany and Switzerland in particular. Commercial property, where it is not just about speculative profits but also about thousands of jobs, is a particular cause for concern. This is because owner René Benko has also acquired department stores' chains on his long-standing shopping spree in order to "restructure" them - often with massive state support.

Maximum return

In 2020, Mr Benko acquired the Swiss Globus chain and its properties together with the Thai Central Group. The joint venture between the two investor groups, the European Luxury Department Store Group, also includes the KaDeWe Group in Germany and Selfridges in the UK and Ireland. Now the Globus department stores in Switzerland want to get out of the firing line [1] and are looking for new investors to save jobs and complete construction sites. This is because property speculator Benko was interested in attractive locations for his project development, not in rescuing ailing retail chains.[2]

Things also look bleak for the German department stores' chain Galeria Kaufhof. Despite 700 million in state aid, this Benko project is already bankrupt. Locations have been closed and employees have been made redundant. The chain currently has 92 locations and employs 13,800 people. 50 million in financial aid from Signa had been promised for February. This has now come to nothing. What remains is a bitter aftertaste of completely overpriced rents at those 18 locations where SIGNA had also acquired the properties.[3]

In Austria, Benko's "fall from grace" is the bankruptcy of the Kika/Leiner furniture store chain this year, shortly after the speculator had successfully sold on the properties. Even by Austrian standards, this was too much of a good thing: in the insolvency proceedings, the SIGNA Group had to commit to contributing a quota of 20 million euros. Now the taxpayer will probably pay the quota.

Wave of insolvencies

Speculation like that of Mr Benko very often drags other companies into the abyss, especially companies in the construction and ancillary building trades. In small Austria, there are currently 15 bankruptcies per day, and the trend is rising.[4]

Switzerland already recorded a record increase in insolvencies of +32 per cent in 2022, and this year it is still +8 per cent.[5] The ancillary construction sector is the most affected by bankruptcies with a share of 15 per cent, which is being exacerbated by the looming slump in the construction industry. This is closely followed by the retail and catering sectors.[6]

In Germany and Austria, insolvencies have shifted over time due to government Covid-19 subsidies. While it was still smaller, economically weak companies that went bankrupt in 2022, the dams are now breaking: the number of major bankruptcies in Germany is on course to reach the record level of 2020 with 45 cases in the first nine months of 2023. This is the conclusion of the latest analysis by global credit insurer Allianz Trade: "There have been a particularly large number of major bankruptcies in (fashion) retail, hospitals and mechanical engineering in the year to date."[7]

A total of twelve major German textile companies and fashion retailers had slipped into insolvency by September 2023, including the fashion retailer Peter Hahn, the fashion retailers Gerry Weber and Ahlers, the Düsseldorf-based company Peek & Cloppenburg and the aforementioned department stores' group Galeria Karstadt Kaufhof.[8]

The current wave of insolvencies among German hospitals is remarkable. According to figures from the German Hospital Federation (DKG), 26 operators with a total of 34 hospitals filed for insolvency within a period of just under a year, starting in November 2022.[9]

In 2023, the number of corporate insolvencies in Germany rose significantly by 23.5 per cent to 18,100 cases. "More and more companies are collapsing under the constant pressure of high energy prices and the interest rate turnaround," explains Patrik-Ludwig Hantzsch, Head of Creditreform Economic Research. In addition, the "economic policy lurch" is making companies even more insecure.[10]

Those who can, migrate
The German Chamber of Industry and Commerce issued a sharp warning at the end of the summer: Almost a third of industrial companies (31.7 per cent) are planning or implementing the relocation of capacities abroad or the reduction of production at home in response to the energy policy framework.

The tendency to relocate is most pronounced among larger industrial companies (500 employees or more). Here, 43 per cent of the companies that took part in the survey are already planning or relocating. These companies are often closely interlinked with foreign countries and are in particularly fierce competition with other locations. High energy and raw material prices contribute to uncompetitive production costs in Germany.[11]

Economics Minister Habeck, who is responsible for the "economic policy lurch", is now also worried about a wave of emigration if the money from the climate fund cannot be paid out. As is well known, the Federal Constitutional Court overturned the transfer of 60 billion euros in Covid aid to the climate fund in November. After weeks of wrangling, the government led by Olaf Scholz agreed on a budget for 2024 on Wednesday. The details do not bode well for the German economy:

The CO2 levy for petrol, heating oil or gas is to be raised faster than planned. The price is currently 30 euros per tonne, but is now set to rise to 45 euros from 2024. According to calculations by transport clubs, petrol and diesel will become around 4.3 and 4.7 cents more expensive per litre respectively. Naturally, this significant increase in the tax will also affect crude oil and natural gas and make production in Germany more difficult.[12] The cancellation of subsidies on agricultural diesel and the introduction of a paraffin tax on domestic German flights are also being discussed.
The government's austerity measures apparently do not affect the billions in aid for foreign companies in Germany: for example, the state wants to inject ten billion euros into the planned construction of a new chip factory by US manufacturer Intel in Magdeburg. The Taiwanese company TSMC is planning a semiconductor factory in Dresden - the state subsidies are expected to amount to around five billion euros.[13] The Swedish battery manufacturer Northvolt is being supported with 700 million euros.

However, at least Robert Habeck asserts that he wants to support the smelters in Saarland with 2.6 billion euros for the production of "green steel".[14]  The transformation is to be completed in two stages by 2030 and 2045 respectively. We will see whether the plants can survive the coming years in view of the enormous energy costs. Or whether they will soon be running under Chinese management.