IKB Deutsche Industriebank
Encyclopedia
IKB Deutsche Industriebank is a bank based in Düsseldorf
, Germany
.
It is specialized in lending to small and medium-sized companies.
In August 2007, it had to be bailed out due to bad losses in the subprime market meltdown
.
IKB's fiscal year ends March 31 of each year.
in 1924 as "Bafio" (Bank für deutsche Industrieobligationen, Bank for German Industry Obligations). Bafio dealt in long-term real estate
financing in an effort to aid the German economy grow under the weight of the World War I reparations
the country owed.
The bank was incorporated under Germany's stock law (Aktiengesetz
) in 1945. In 1974 it merged with Deutsche Industriebank to become IKB Deutsche Industriebank.
IKB's main area of business is financing for small and medium enterprises in Germany. In addition to corporate financing, they also undertake real estate financing.
The German government's financing bank, KfW
(formerly Kreditanstalt für Wiederaufbau), owns a 38% stake in IKB. After several months of consideration of the sale of the IKB stake, it was announced on 21 August 2008 that private equity firm
Lone Star Funds
would acquire an almost 91% holding in the bank.
In July 2007, IKB announced that it had been affected by the subprime mortgage crisis in the United States. Only a week earlier the bank had released a statement saying it expected to meet it earnings goals for the year. "Rhinebridge", a structured vehicle operated by IKB, had invested heavily in the U.S. subprime market
.
To control the effects of the crisis in Germany, KfW, along with numerous commercial and coop banks (including Deutsche Bank
and Commerzbank
), formed a rescue fund to bail out the group. The funds used to bail out the bank amounted to €3.5 billion. Although IKB's stocks fell drastically, the bank avoided default, and the rescue is credited with having spared the German economy drastic fallout from the subprime crisis.
In February 2008, the German government announced that IKB would require another rescue package to remain liquid, largely because peer banks were reluctant to invest further in the bank. The rescue package was announced in mid February at an amount of €1.5 billion. As a result of the losses suffered by IKB, the company was demoted from Deutsche Börse
's mid-cap MDAX
stock market index
to the small-cap SDAX
in March 2008.
and the Ministry of Finance opened an investigation into allegations of reporting and accounting misconduct. Although no charges were brought against the bank, four of the five executives of IKB stepped down between 1 August and 1 November 2007.
opened an investigation into the rescue package to determine if the package contravened its state aid regulations. After protracted talks with the EU, the German government submitted an official notification of the rescue measures and possible future restructuring
measures in January 2008. , no ruling has been made by the European Court on the IKB case.
and one of Goldman's CDO traders on April 16, 2010. The SEC alleges that IKB was on the wrong side of the CDO instruments Goldman was creating and that Goldman defrauded both IKB and ABN-Amro in failing to disclose that the CDOs that IKB was purchasing were not assembled by a third party, but instead through the guidance of a hedge fund
that was counterparty in the CDS transaction. This hedge fund, Paulson & Co.
, stood to earn great benefit in the event of default. The suit by the SEC alleges that IKB lost US150,000,000 which Paulson gained.
Düsseldorf
Düsseldorf is the capital city of the German state of North Rhine-Westphalia and centre of the Rhine-Ruhr metropolitan region.Düsseldorf is an important international business and financial centre and renowned for its fashion and trade fairs. Located centrally within the European Megalopolis, the...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
.
It is specialized in lending to small and medium-sized companies.
In August 2007, it had to be bailed out due to bad losses in the subprime market meltdown
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
.
IKB's fiscal year ends March 31 of each year.
Corporation
IKB (Industriekreditbank) was granted its banking licenseBanking license
Under most jurisdictions, a banking license is a prerequisite for a financial institution that wants to provide banking services, such as taking deposits from the general public....
in 1924 as "Bafio" (Bank für deutsche Industrieobligationen, Bank for German Industry Obligations). Bafio dealt in long-term real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
financing in an effort to aid the German economy grow under the weight of the World War I reparations
World War I reparations
World War I reparations refers to the payments and transfers of property and equipment that Germany was forced to make under the Treaty of Versailles following its defeat during World War I...
the country owed.
The bank was incorporated under Germany's stock law (Aktiengesetz
Aktiengesellschaft
Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e. owned by shareholders, and may be traded on a stock market. The term is used in Germany, Austria and Switzerland...
) in 1945. In 1974 it merged with Deutsche Industriebank to become IKB Deutsche Industriebank.
IKB's main area of business is financing for small and medium enterprises in Germany. In addition to corporate financing, they also undertake real estate financing.
The German government's financing bank, KfW
KFW
KFW may refer to:*Keith Fullerton Whitman , an American musician*KfW or Kreditanstalt für Wiederaufbau, a German public-sector financial institution...
(formerly Kreditanstalt für Wiederaufbau), owns a 38% stake in IKB. After several months of consideration of the sale of the IKB stake, it was announced on 21 August 2008 that private equity firm
Private equity firm
A private equity firm is an investment manager that makes investments in the private equity of operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital...
Lone Star Funds
Lone Star Funds
Lone Star Funds is a worldwide private equity firm based in Dallas, Texas, that specializes in purchasing distressed companies and assets, often well-known consumer brands that have seen better times or gone through financial difficulties due to leveraged buy-outs...
would acquire an almost 91% holding in the bank.
Losses
When the subprime market in the United States crashed in the summer of 2007, the global reach of the crisis was not immediately obvious. Several European banks, however, became victims of the crisis due to investment history; IKB was the first European bank to declare financial trouble due to the subprime disaster.In July 2007, IKB announced that it had been affected by the subprime mortgage crisis in the United States. Only a week earlier the bank had released a statement saying it expected to meet it earnings goals for the year. "Rhinebridge", a structured vehicle operated by IKB, had invested heavily in the U.S. subprime market
Subprime lending
In finance, subprime lending means making loans to people who may have difficulty maintaining the repayment schedule...
.
To control the effects of the crisis in Germany, KfW, along with numerous commercial and coop banks (including Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
and Commerzbank
Commerzbank
Commerzbank AG is the second-largest bank in Germany, after Deutsche Bank, headquartered in Frankfurt am Main.-Activities:Commerzbank is mainly active in commercial bank, retail banking and mortgaging. It suffered reversals in investment banking in early 2000s and scaled back its Securities unit...
), formed a rescue fund to bail out the group. The funds used to bail out the bank amounted to €3.5 billion. Although IKB's stocks fell drastically, the bank avoided default, and the rescue is credited with having spared the German economy drastic fallout from the subprime crisis.
In February 2008, the German government announced that IKB would require another rescue package to remain liquid, largely because peer banks were reluctant to invest further in the bank. The rescue package was announced in mid February at an amount of €1.5 billion. As a result of the losses suffered by IKB, the company was demoted from Deutsche Börse
Deutsche Börse
Deutsche Börse AG is a marketplace organizer for the trading of shares and other securities. It also is a transaction services provider. It gives companies and investors access to global capital markets. It is a joint stock company and was founded in 1993. The headquarters are in Frankfurt,...
's mid-cap MDAX
MDAX
The MDAX is a stock index which lists German companies. The index is calculated by Deutsche Börse.It includes the 50 Prime Standard shares from sectors excluding technology that rank immediately below the companies included in the DAX index...
stock market index
Stock market index
A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used as benchmarks, to measure the performance of portfolios such as mutual funds....
to the small-cap SDAX
SDAX
The SDAX is a stock market index composed of 50 small and medium-sized companies in Germany. These so-called small caps rank directly below the MDAX shares in terms of order book volume and market capitalization...
in March 2008.
Misconduct investigation by the Federal Republic of Germany
After the crash of its shares, the German financial watchdog BaFinBaFin
The Federal Financial Supervisory Authority better known by its abbreviation BaFin is the financial regulatory authority for Germany. It is an independent federal institution with headquarters in Bonn and Frankfurt and falls under the supervision of the Federal Ministry of Finance...
and the Ministry of Finance opened an investigation into allegations of reporting and accounting misconduct. Although no charges were brought against the bank, four of the five executives of IKB stepped down between 1 August and 1 November 2007.
State aid investigation by the European Union
Shortly after the IKB crash, the European UnionEuropean Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
opened an investigation into the rescue package to determine if the package contravened its state aid regulations. After protracted talks with the EU, the German government submitted an official notification of the rescue measures and possible future restructuring
Restructuring
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs...
measures in January 2008. , no ruling has been made by the European Court on the IKB case.
Goldman Sachs SEC lawsuit
IKB was mentioned by the U.S. Securities and Exchange Commission (SEC) in court fillings when it sued Goldman SachsGoldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
and one of Goldman's CDO traders on April 16, 2010. The SEC alleges that IKB was on the wrong side of the CDO instruments Goldman was creating and that Goldman defrauded both IKB and ABN-Amro in failing to disclose that the CDOs that IKB was purchasing were not assembled by a third party, but instead through the guidance of a hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
that was counterparty in the CDS transaction. This hedge fund, Paulson & Co.
Paulson & Co.
Paulson & Co. Inc. is a hedge fund sponsor owned by its employees and founded in 1994 by John Paulson.-Overview:Paulson & Co. Inc. is an employee-owned, hedge fund headquartered in New York, New York...
, stood to earn great benefit in the event of default. The suit by the SEC alleges that IKB lost US150,000,000 which Paulson gained.