FRANKFURT (Reuters) - IKB, the German bank which nearly went bust after its subprime investments crashed, is searching for up to 2 billion euros ($2.9 billion) to stay afloat, sources with direct knowledge of the situation told Reuters.
By John O'Donnell and Patricia Nann
FRANKFURT (Reuters) - IKB, the German bank which nearly went bust after its subprime investments crashed, is searching for up to 2 billion euros ($2.9 billion) to stay afloat, sources with direct knowledge of the situation told Reuters.
The corporate lender became one of Germany's highest-profile casualties of the global credit crisis in late July. It has since been propped up by two rescues, shouldered mainly by its top shareholder, state bank KfW.
Now IKB again needs to beef up its capital base, which is threatened with fresh write-downs on billions of euros of toxic investments still left on its books, the sources said.
!ADVERTISEMENT!It needs up to 2 billion euros of fresh capital, without which the bank could go out of business, two of the sources told Reuters, news which sent the company's shares tumbling.
"The question is not whether a capital increase is necessary but who takes part," said one.
German government-owned lender KfW, which together with a foundation controls roughly half of IKB, is reluctant to foot the bill alone. It has already spent 5 billion euros putting the Duesseldorf-based bank back on its feet.
Now KfW is in talks with the German banking association, which represents the country's commercial banks, to persuade it to help out with this third rescue as it has in the past, the sources said.
Should IKB fail, Germany's commercial banks could ultimately be forced to pick up the bill through an industry bailout fund.
KfW is trying to find a solution before its top management meets next Wednesday in Berlin. Its top board of supervisors is chaired by German Economy Minister Michael Glos and includes Finance Minister Peer Steinbrueck.
VISIT TO CHANCELLOR
Sources said KfW chief Ingrid Matthaeus-Maier had visited German Chancellor Angela Merkel's office this week to discuss the crisis. But the Berlin government is not prepared to pitch into any rescue, shifting the onus onto KfW and others.
Insiders said it would be politically unacceptable to see IKB go out of business. "It would send a very bad message to the markets for a German bank to go bust," said one source.
IKB's stock, which is worth about a fifth of what it was at the start of the year, dipped as much as 8 percent on the news that it was looking for a cash injection. It was trading down more than 2 percent at 1507 GMT to 6.14 euros.
KfW, IKB and the German banking association all declined to comment. The chancellor's office could not be reached immediately.
Many Germans had known little about IKB, which lends to one in 10 of Germany's top companies, before its near-failure in early August became front-page news.
When mounting the first rescue, banking watchdog Jochen Sanio warned IKB's problems could snowball into the worst banking crisis in Germany in more than 75 years.
The credit crisis, which started when U.S. home owners were squeezed by falling property prices and rising interest rates, rocked the market for securitized debt and has threatened to drag down the global economy.
It caught IKB, which had piled up more than 17 billion euros of investments in subprime and other risky debt, off guard.
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(Editing by Quentin Bryar)
