Germany debates bailout for ailing bank IKB

13th February 2008, Comments 0 comments

The bank has been reeling from losses of 11.5 billion euros due to the US subprime crisis.

Berlin -- A government bailout appeared imminent Wednesday at German bank IKB, which has been reeling from 11.5 billion euros (16.7 billion dollars) in losses in the US subprime loans crisis.

The board of the federal government bank KfW was set to meet in Berlin in the afternoon to debate throwing a lifeline to the bank. KfW twice plugged the gaps last year, but the help was not enough.

At a news conference, a German government spokesman, Thomas Steg, rejected suggestions that the IKB simply be allowed to fail as simplistic and not taking the possible consequences into account.

He declined to give details of the government position at the board meeting, saying only, "It aims at a solution involving all parties."

The business newspaper Handelsblatt had earlier told other media that hours of late-night talks in Berlin on a rescue package had been fruitless, with commercial banks flatly refusing to contribute any funds.

Handelsblatt said IKB's funding gap was bigger than the 2 billion euros earlier reported and was "apparently" close to 3 billion euros (4.4 billion dollars).

German Economics Minister Michael Glos was to chair KfW meeting in Berlin. KfW owns the main, 38 percent stake in IKB.

There were also calls from German politicians Wednesday to cut IKB loose and let it collapse.

IKB, which lends mainly to industry to build factories, unwisely hedged with near-worthless US mortgages and lost.

Handelsblatt said Wednesday the crisis would have a knock-on effect on the government budget.

Berlin and the German state governments must divert funds into rescue plans for battered state banks and now IKB. In addition, they would also face a 5-billion-euro shortfall in tax revenues as bank losses cut into earnings, the newspaper said.

KfW is considering sacrificing some of its "crown jewels" to rescue IKB, sources close to the negotiations in Berlin said. KfW might raise a convertible loan, repayable with 1 billion euros' worth of shares in German mail carrier Deutsche Post.

Currently KfW owns 31 percent of the former German postal monopoly.

The sources said this option was to be conditional on commercial banks helping to avert an IKB crash and in protecting German financial prestige.

The sources said another option was a direct bailout by the federal government.

IKB has refused to confirm news reports that the market value of its securities and loans had slumped by 2 billion euros, bringing its accumulated losses to 11.5 billion euros.

DPA with Expatica

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