Germany finally ended the rescue mission of IKB, the lender stricken by the sub-prime crisis, with an agreement to sell more than 90 per cent of IKB to the US investment group Lone Star.
Germany finally ended the rescue mission of IKB, the lender stricken by the sub-prime crisis, with an agreement to sell more than 90 per cent of IKB to the US investment group Lone Star.
According to the agreement signed yesterday in Frankfurt, Lone Star will purchase all of KfW Bankengrupp’s holdings in IKB of approx. 90.8%. KfW Bankengruppe states that it ‘has thus reached the crucial milestone for the end of the IKB rescue mission and the sale of its shares in IKB Deutsche Industriebank AG to a private investor.’
The selling process, including the selection of the buyer, was carried out by KfW in consultation with its Executive Committee. The sale still needs to be approved by KfW’s Board of Supervisory Directors and by others including BaFin, the German Federal Financial Supervisory Authority, and the European Commission. The closing of the agreement is expected by October 2008.
In the purchase agreement signed today KfW was able to achieve an adequate, positive purchase price and to reach an agreement on sharing certain portfolio and legal risks.
Among other things, KfW will acquire a smaller share of IKB’s on-balance portfolio than originally planned. Lone Star will also provide IKB with additional equity. Both contracting parties agreed to keep further details on the purchase agreement confidential.
As at 31 December 2007 the overall charge from the IKB crisis that was posted in KfW’s balance sheet added up to EUR 7.2 billion. KfW will post additional charges when the transaction is completed. A current valuation puts their total at less than 10% of the above stated costs arising from the rescue measures.
Wolfgang Kroh, Speaker of the Managing Board of KfW Bankengruppe, says that the solution that has now been found meets the key objectives of the IKB rescue efforts. The collapse of IKB was prevented and IKB will retain its role as a bank for small and medium-sized enterprises, the Mittelstand. Germany’s financial market has been stabilised and major damage to the German economy has been averted.
"In order to attain the goals of the IKB rescue mission, KfW took on an extraordinarily heavy burden, but one that is not too heavy to handle. We remain on solid financial footing. What is important is that we have now closed the chapter on IKB’s rescue. We do not face any more unforeseeable risks with regard to IKB. We can now go back to concentrating fully on our work as a promotional bank", adds Kroh.
