KfW development bank's risk shield doubled thanks to new business information

KfW development bank has nearly doubled its risk shield for IKB Deutsche Industriebank AG.

Photo: KfW development bank's risk shield doubled thanks to new business information

KfW, which is IKB's biggest shareholder, said it raised the risk shield by 2.3 billion EUR(US$3.4 billion) to 4.8 billion EUR (US$7.1 billion) on the basis of new information regarding the valuation of risks covered by IKB's Rhineland Funding investment vehicle.

"In addition, the latest capital market developments have led to a dramatic worsening of the fundamental market assessment of the actual default risks in the subprime segment," KfW said in a statement.

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

IKB said in early September that it expected to lose up to 700 million EUR(US$1 billion) this fiscal year as it aims for a "fresh start."

The bank's problems sprang from Rhineland Funding's apparent inability to cover its funding needs because of exposure to U.S. subprime 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 EUR(US$416 million). It said it had "felt the impact of the crisis in the U.S. subprime mortgage market," and said its chief executive, Stefan Ortseifen, had resigned.

IKB shares plunged by as much as 9 percent in Frankfurt trading shortly after the announcement, but recovered much of the lost ground to close down nearly 2.1 percent at 8.56 EUR(US$12.70).