FRANKFURT (AFP) — Germany's IKB unveiled more bad news Thursday, suspending the sale of billions of euros (dollars) of risky assets tied to US subprime mortgages and revealing it was getting yet more state aid.
IKB, which has been bailed out several times by Berlin and private banks to the tune of several billion euros, said tough market conditions meant it had to "temporarily" suspend the sale.
Potential buyers appeared to think the loans were even riskier than IKB made out, forcing IKB to write down their value on its books by 450 million euros (695 million dollars).
This took total losses on the three-billion-euro package of high-risk securities to 2.1 billion euros. It also announced a 140-million-euro writedown on a lower-risk loan book that it is also trying to offload.
As a result, the state-owned development bank KfW, which holds a 43 percent stake in IKB, is providing a 450 million euro capital injection on the same terms as a 600 million euro package announced in February, it said.
As far as profits go, the new writedowns mean that IKB now expects a net loss of 800 million euros for 2008, a statement said. It also said it will "not post any, or very low profits" in subsequent years.
Shares in the lender were temporarily suspended in Frankfurt on Thursday and after trading resumed they were off almost nine percent at 4.61 euros, a sixth of what they were worth in July. The midcap MDAX index was down 1.39 percent.
"The bank is dead and as I mention on each and any occasion, it has seen further problems; the bank is not worth a dime," one Frankfurt trader said.
IKB specialised in lending money to Germany's "Mittelstand" sector of small- and medium-sized companies while investing in complex financial instruments linked to risky loans to homeowners in the United States.
When these homeowners began defaulting on their mortgages last year, IKB -- along with much of the US banking sector -- got its fingers badly burned and became one of Europe's first casualties from the resulting turmoil.
It would have gone under but for an 8.1-billion-euro bail-out from KFW and a credit line worth 3.5 billion euros from a group of private banks. This consortium of banks then provided a further 350 million euros in November.
The bailout may fall foul of European regulators, who last month said they had launched a probe into whether the aid provided to IKB and to Sachsen LB, another troubled German lender, was legal under EU law.
The KfW will be called on to provide yet more cash when IKB carries out a 1.5 billion euro capital increase which shareholders are due to vote on on March 27.
The bank itself is also up for sale.
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