labels: World economy
Lone Star acquires IKB Deutsche Industriebank AG, first German casualty of sub-prime mortgage crisis news
21 August 2008

American banks and their failures have dominated headlines since the sub-prime mortgage crisis broke last year, with an occasional UBS causing a major flutter.

Now, in a reminder of the global implications of the fiscal mayhem, a German bank has become the country's first casualty of the crisis and agreed to be sold for a fraction of its value of a year ago.

IKB Deutsche Industriebank AG, a German lender hit by massive losses from the sub-prime crisis, has agreed to sell a 90.8-per cent stake to US private equity group Lone Star, which defeated a rival bid from RHJ International SA.

Lone Star plans to keep IKB listed for now and is seeking regulatory exemptions so it doesn't have to make an offer to other minority shareholders.

IKB's biggest shareholder, state-owned KfW, wouldn't give an exact purchase price for the deal, which is expected to close in October. But CEO Wolfgang Kroh told a press conference the bank didn't get the price it was originally hoping for and that the deal was in the low three-digit millions of euros.

IKB was the first German bank to find itself in serious trouble from the sub-prime crisis and had to be bailed out three times by the government, KfW and other banks with rescue packages totaling over €8 billion ($11.8 billion).

IKB's troubles began over a year ago due to sub-prime exposure at its Rhineland Funding investment vehicle. Wary investors refused to buy debt from the off-balance-sheet vehicle - which issued short-term debt in order to fund longer-term investments - leaving it struggling to stay afloat.

IKB and its funding units have posted about $15.1 billion in write-downs, more than any other German bank. KfW has also ousted CEO Stefan Ortseifen and three other top IKB executives after auditors blamed ''flawed'' risk management for the lender's collapse.

Since then governments in other countries have stepped in to prop up lenders, including in the UK, where Northern Rock was nationalized earlier this year after having to borrow billions of pounds from the Bank of England. (See: Bank of England loans to Northern Rock may top 26 billion pounds)
http://www.domain-b.com/finance/banks/20071124_northern_rock.html

Shares in IKB jumped as much as 25 per cent immediately after the opening bell. By afternoon, gains were closer to 10 per cent. The stock is still down around 80 per cent from a year ago.

Lone Star will inject €225 million in fresh capital into IKB and another €200 million into a special purpose vehicle that will contain €3.3 billion in securities currently owned by IKB. KfW will assume €1.3 billion of the bank's remaining securities, for which the German government will provide a €600 million-guarantee to cover possible losses.

The US firm plans to boost profit its investment in IKB by charging more for loans, selling other products such as derivatives and possibly wealth-management services to corporate clients.

Lone Star, which manages more than $13 billion, is targeting distressed financial assets around the world as credit market turmoil deters other investors. The firm agreed last month to buy $30.6 billion of collateralized debt obligations from US securities firm Merrill Lynch & Co. for about a fifth of their face value.

It also acquired mortgage bank Allgemeine Hypothekenbank Rheinboden AG in 2005, renamed it Corealcredit Bank, and returned it to a profit last year after selling its international loans and targeting commercial property financing in Germany.

Lone Star has also acquired delinquent mortgages from Japanese and South Korean banks, golf courses in Japan and consumer lenders and office towers in both countries. The firm has been trying to sell its stake in Korea Exchange Bank to HSBC Holdings Plc for $6 billion for the past year, as regulators challenged Lone Star's original purchase of the bank in 2003. (See: Lone Star chief cleared of stock manipulation, may accelerate HSBC purchase of KEB)


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Lone Star acquires IKB Deutsche Industriebank AG, first German casualty of sub-prime mortgage crisis