Signa insolvency is credit negative for some banks, Moody’s says

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Controlled by Austrian magnate Rene Benko, the group is an owner of New York’s Chrysler Building as well as several high-profile projects and department stores across Germany, Austria and Switzerland, and its insolvency makes it the biggest casualty so far of Europe’s property crash.

Calling Signa’s structure “opaque and complicated”, Moody’s said in a report it circulated on Wednesday that most of Signa’s bank loans were secured, which would soften the blow.

“However, the declining valuations of the underlying pledged assets…imply additional risks, increasing potential losses in the work out of defaulted loans,” Moody’s said.

Nonperforming loans and risk costs are likely to rise in the fourth quarter of this year, it said.

The Moody’s report adds to concerns voiced by the European Central Bank, which has said that euro zone’s sinking commercial property sector could struggle for years, posing a threat to the banks and investors which financed it.