Berlin saves IKB Bank

The German government announced that it intends to lead a €1.5 billion bail-out of the German small business lender IKB. Minister of Finance Peer Steinbrück (SPD) said that the state would contribute €1 billion to save the bank.

“(A bank collapse) could create difficulties for confidence and economic growth,” Steinbrück told Die Welt.

Steinbrück stressed that the private sector must come up with the remaining €500 million needed to save IKB. Minister for Economics and Technology, Michael Glos (CDU), said that the financiers as well as the sum they intend to invest are yet to be determined.

“We have already given our contribution,” said Henrich Haasis, president of the association of Sparkasse to Berliner Morgenpost. Sparkasse is the state owned savings and loan bank, which has offices throughout the country. A spokesperson from the Association of German Banks said that he could not yet foresee if private banks will participate in IKB’s bail out.

Experts estimate that IKB has lost up €2 billion due to its exposure to US subprime mortgage investments. Shareholders and private German institutions have already bailed the bank out twice since its problems started this past summer. IKB’s shareholders, lead by the state owned development bank KfW have claimed that they do not have the funds to contribute the required capital to save IKB now.

Experts have said that one option could be that KfW, which owns a 31 percent stake in Deutsche Post, to issue a €1 billion convertible bond or other instrument based on its ownership of the mail service in order to finance a bail out of IKB.