Lone Star buys sub-prime victim IKB

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The Independent Online

The US private equity group Lone Star has bought the distressed German lender with the dubious honour of being the country's first victim of the credit crunch, and which threatened to bring down the German economy.

Dallas-based Lone Star landed IKB Deutsche Industriebank for "low three- digit millions of euros", seven months after it was put on the block by KfW Bankengruppe, the German state development bank.

KfW, which owns 90.8 per cent of IKB following a capital raising this month, said: "KfW has thus reached the crucial milestone for the end of the IKB rescue mission."

Wolfgang Kroh, managing board speaker of KfW, said it had prevented the collapse of IKB. "Germany's financial market has been stabilised and major damage to the German economy has been averted," he said.

Lone Star has a strong track record in Germany; in May 2005 it bought MHB Bank followed by what is now called Corealcredit Bank, a group struggling with its own insolvency issues, eight months later.

The Dusseldorf-based IKB has been active in various guises for more than 80 years, predominantly lending to small and medium-sized companies. In July last year it announced it had run into trouble as a direct result of the sub-prime meltdown in the US, just a week after announcing it expected to meet its targets for the year.

The problems lay in IKB's Rhinebridge vehicle, which had invested heavily in US sub-prime real estate loans, and, to prevent the bank collapsing, KfW formed a consortium to raise a €3.5bn (£2.8bn) rescue fund. Earlier this year, the bank needed a €1.5bn rescue package to keep it liquid. Market experts believe its collapse would have spelt disaster for the German economy.