A failed property empire sheds its party planners and jet crew

One thing to start: The Financial Times’ award-winning podcast series Hot Money is back as our reporter Miles Johnson investigates a mysterious murder in a small town that leads to a web of drugs, money laundering and state-sponsored assassinations stretching from Dublin to Dubai.

In today’s newsletter:

• A property empire’s big spending revealed

• Chapter 11 bankruptcy gets its day in court

• Toyota ushers a corporate unwinding boom

Benko’s byzantine business is left exposed

Administrators to Signa Holding, the company at the centre of René Benko’s crisis-stricken European luxury property empire, on Tuesday announced they were making most employees of the company redundant as they raced to cut costs and preserve value for angry creditors.

The dismissals are hardly unusual in an emergency restructuring. But just who had been let go was eyebrow-raising: most of the staff at Signa Holding, court filings seen by the FT show, were “hunting, flight, security and event management personnel for representation and business initiation tasks”.

Benko, 46, has long been known as a consummate networker, writes the FT’s Sam Jones. But the fact that the management company at the top of Signa’s bewildering complex corporate structure was mainly given over to corporate glad-handing, rather than overseeing the group’s byzantine financial flows, has creditors increasingly worried.

To give you a sense of the complexity of his empire, it includes more than 1,000 entities, managing assets which include Selfridges in London, KaDeWe in Berlin, Globus in Zurich and the Chrysler Building in NYC.

The FT on Monday revealed how Signa Holding itself now has liabilities of €5bn, up from just over €600mn 18 months ago.

Benko, who is still Signa’s controlling shareholder via opaque foundations in Innsbruck, hasn’t held an official managerial role at the property group he founded two decades ago since 2013. He stepped back then after being convicted of bribery in his native Austria.

Outside of Signa’s corporate structures, however, he has continued to make all the decisions with a group of trusted advisers around him.

In total, JPMorgan Chase analysts estimate the whole Signa Group to owe more than €13bn.

The crisis is having knock-on effects in commercial real estate, with some European lenders reporting nervousness on capital markets about their Signa exposure and European property books more generally. 

On Saturday, the FT reported Signa had sold half of its prime asset, the KaDeWe building in Berlin for just €300mn, implying a 30 per cent haircut on its valuation. Signa values the building on its books at more than €1.5bn, with €500mn of debt currently secured against it.

Chapter 11 bankruptcy faces its own day in court

Has the “creativity” that bankruptcy petitioners use to expunge their financial problems via Chapter 11 restructuring gone a step too far?

That may be the subtext from Monday’s Supreme Court oral arguments over the deal struck in the Purdue Pharma bankruptcy. It’s specifically considering a $6bn settlement that extinguished all future civil liability for the Sackler family over charges that they improperly marketed the painkiller OxyContin, which has been at the centre of the opioid public health crisis.

The $6bn contributed by the Sacklers is a big chunk of the Purdue profits that the family withdrew over several years. But the novel legal question is whether the Sacklers themselves are benefiting from bankruptcy, which means they never have to pay out another dollar to victims or have to file themselves and face the strict rules of that regime.

As DD’s Sujeet Indap explored, such an arrangement has both strong merits and shortcomings, leaving the nine justices in a pickle.

The Sacklers say they would only make such a contribution by getting, in exchange, these so-called third-party releases. The bankruptcy settlement then allows victims to quickly get money.

But for the relatively small number of objectors to the deal, the practice, if allowed by the Supreme Court, will deny them a chance to keep chasing the Sacklers for damages.

The Department of Justice says third-party releases cannot be justified under current bankruptcy law and blowing up the Purdue settlement wouldn’t prevent the Sacklers from cutting another deal with those victims who want a near-term payout. It’s worth noting that almost 98 per cent of victims, including 50 US states, have signed on to the present deal.

One law professor told the FT that the Purdue case was the most important bankruptcy law matter to reach the Supreme Court in a generation.

Third-party releases have become part and parcel of complicated workouts not just in “mass tort” matters such as opioids but also in many private equity situations and even the recent crypto cases. Without it, Chapter 11 could leave business owners financially exposed even after their investments are wiped out.

A Purdue decision is expected by summer with bankruptcy lawyers on edge about how their practices may change forever.

Toyota drives hopes of Japanese corporate governance reform

Toyota, the north star of corporate Japan, is unloading a small bit of its $40bn web of cross shareholdings.

The sale of roughly $2bn in car parts maker Denso might look underwhelming at first glance. But it follows another smaller sale and could presage something far bigger.

“Two years ago people would have said there is no way Toyota would sell down their cross-shareholdings like this, and the fact they have done it sends a very clear signal to the rest of Japan,” said Carl Vine, a portfolio manager at M&G, a Toyota shareholder.

Where Toyota goes, others follow. And while Japanese companies have defended cross-shareholdings as a way to cement business relationships and rebuff hostile takeovers, many investors want them unwound as soon as possible.

Companies on the benchmark Topix index have a median of 11 equity holdings, according to Jefferies, down from 15 a decade ago. And that capital, say investors, is better used elsewhere.

Japan’s most valuable company agrees, even if it says the decision to cut its stake — from 24.2 per cent to 20 per cent — is less about governance and more about shifting capital into electric vehicles and the like.

But the decisions also come amid mounting pressure at AGMs — where voting has become a “blood sport”, according to Nicholas Smith, Japan strategist at CLSA — and as proxy advisers take aim at cross shareholdings.

That leaves the tantalising possibility that Japan, already buffeted by manifold reform pressures, might be on the cusp of another governance revolution. Already, say people familiar with the matter, other companies have taken note of Toyota’s decision and are preparing for pressure on their own holdings to increase.

Job moves

• CBI, the scandal-hit UK business lobby group, has tapped City veteran Rupert Soames as its next president.

• TD Securities has expanded its global financial institutions group with managing directors Geoff Bertram and James Spencer to co-lead the team. TD also announced several other hires in investment banking, global markets and research here.

• Brown Advisory, the investment management firm, has made three senior hires to its international advisory board: ex-Chatham House CEO Sir Robin Niblett, Rothschild & Co senior adviser Sian Westerman, and Travis Perkins chair Jasmine Whitbread.

Smart reads

The $900k Book Companies still lavish time and money on IPO prospectuses even though their purpose is shifting, writes The Wall Street Journal.

A Parisian Affair Binance used aggressive tactics in France to solicit people in some of the country’s most deprived areas, Akila Quinio reports in the FT’s Alphaville.

Hot Potato An exploration of the weird, secretive world of crisp flavours, courtesy of The Guardian.

News round-up

Thames Water to be investigated over financial stability and dividends (FT)

Jamie Dimon takes aim at US bank rule proposals in Senate testimony (FT)

Wells Fargo earmarks up to $1bn for ‘unanticipated’ severance costs (FT)

Elon Musk’s start-up xAI seeks to raise $1bn (FT)

Trafigura accused of multimillion trading cover-up in London’s High Court (FT)