German banks take on $520 million in IKB losses

Earlier this week, KfW announced the default risk on Rhineland had risen significantly. "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," the bank said. A spokesperson for IKB told Risk yesterday: "It is now very close to the default triggers; this will occur in the next days or weeks".

Havenrock is one of 30 investment vehicles operating under the Rhineland umbrella. In a meeting on Wednesday, led by the Bundesbank and German financial regulator BaFin, the banks investing in IKB (which had already bailed out IKB in July) agreed to take on the risk associated with Havenrock.

The bailout has suffered from the complexity of the Rhineland structure, IKB said. "Under the Havenrock prospectus, the risk remained with IKB. This was almost undetectable - it was on page 92 of a 400-page prospectus," the bank said. It added that it would be "complex to consolidate Rhineland because it has 30 companies under the same roof".

"It's up to KfW what happens to the other companies," IKB said.

See also: KfW exposure to IKB losses rises to €4.8 billion
IKB concealed subprime risk from board, auditor says
German contagion looms as funds buckle

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