IKB Seeking Approval for Stock Sale

FRANKFURT — IKB Deutsche Industriebank AG, wracked by losses from the U.S. subprime mortgage crisis, will sell 1.5 billion euros ($2.2 billion) in shares as part of a government-sponsored bailout, provided its shareholders agree to the move.

In a statement released late Saturday night, IKB said that KfW Group, the state-owned bank that controls it, had pledged that at least 1.25 billion euros ($1.8 billion) from the offer would go to IKB.

KfW also agreed to inject 600 million euros ($880 million) to IKB's core capital by Feb. 19, a move that will give IKB more liquidity.

The move to sell shares will be voted on by shareholders when Duesseldorf-based IKB holds its annual meeting on March 27.

On Feb. 13, German Economy Minister Michael Glos said the government would provide 1 billion euros ($1.5 billion) to help bail out IKB but said the bank would need another 1.5 billion euros, hence the stock sale.

Finance Minister Peer Steinbrueck said that to permit IKB bank to go bankrupt would "threaten a significant loss of confidence for Germany's entire financial sector."

IKB, which lends to small and medium-sized German companies, has also received help from the state-owned KfW development bank and other banks to help protect its exposure to subprime mortgage securities.

German state development bank KfW — IKB's biggest shareholder with nearly 38 percent of the company — and other lenders formed a banking pool to protect IKB. It raised the initial risk shield in November to 4.8 billion euros ($7 billion), more than double the initial amount.

IKB's problems sprang from its Rhineland Funding investment vehicle's apparent inability to cover its funding needs because of exposure to U.S. subprime real estate loans, made to borrowers with weak credit histories.

In late July, IKB abandoned a profit forecast for the 2007-2008 fiscal year of 280 million euros ($410.8 million) and said it had "felt the impact of the crisis in the U.S. subprime mortgage market." Its chief executive, Stefan Ortseifen, also resigned.

Now, IKB's board expects a net loss for the year of approximately 750 million euros ($1.1 billion) in the current financial year.

"This loss reflects the increased losses resulting from the new valuation of the portfolio investments, that are compensated in part by loss bookings from participation rights and silent participations," the bank's board said in a statement.

Shares of IKB were up 2.1 percent to close at 6.75 euros ($9.90) in Frankfurt on Friday.

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