Monday, July 30, 2007

IKB In Subprime Trouble...State Owned KfW To The Rescue

This is a real shocker! IKB is listed in the MDAX and one of the midsized German banks. Isn´t it funny when your main target group is the German "Mittelstand" and you brand yourself the leading player in this field and you have taken on huge bets on the riskiest assets out there that have nothing to do with your business. The thing is getting worse...All this action has taken place while the state owned KFW is the main shareholder. The main goal for the KfW (presentation) is........ to provide help through special credit programs, export financing etc for the Germany economy and especially the "Mittelstand". Now they have to provide liquidity to prevent further damage. ... Needless to say that the analysts had 12 buy, 5 holds and only 2 sells on the stock.....

Das ist doch mal ein Wochenauftakt. Wer von uns hätte gedacht das die angeblich so solide IKB die sich in erster Linie als Mittelstandsbank sieht sich heftigst im US Hypothekenmarkt verzockt hat. Das ganze wird noch trauriger wenn man bedenkt das die staatliche KfW mit fast 40% der Hauptaktionär ist und dieses Geschäftsgebaren jeglichen Zielen der KfW zuwiderläuft. Zum Dank für das offensichtlich vollkommen losgelöste oder kaum vorhandene Risikomanagement darf jetzt die KfW mit Bereitstellung von Liquidität einspringen. Meiner Meinung nach sollten auch bei der KfW Köpfe rollen. Überflüssig zu erwähnen das die Analysten 12 Kauf, 5 Neutral und nur 2 Verkaufsempfehlungen am Start hatten.... :-)


Konzerngeschäftsbericht 2006/07 der IKB / PDF Annual Report:

The capital released through our securitisation activities over recent years has been used to expandour national and international lending business. Additionally, the capital has also been used to investing international loan portfolios. Two thirds of ourinvestments are focused on US investment-gradeportfolios (including, for example, credit card claims,mortgage loan claims and corporate loans), with theremaining third being invested in similarly structured European portfolios.

Das durch die Verbriefung während der letzten Jahre freigesetzte Kapital haben wir für die Ausweitung unseres nationalen und internationalen Kreditgeschäftes genutzt. Darüber hinaus haben wir dieses Kapital verwendet, um in internationale Kreditportfolien zu investieren. Unsere Investments konzentrieren sich zu zwei Dritteln auf mindestens Investmentgrade-geratete US-Portfolios (wie zum Beispiel Kreditkartenforderungen, Hypothekenkreditforderungen sowie Unternehmenskredite) sowie zu einem Drittel auf europäische Portfolien mit ähnlichen Strukturen.

> This strategy has worked just fine........ Just as everybody wants to invest in Germany and limit US exposure the IKB is doing the opposite......In the 270 page thick annual report the word subprime isn´t mentioned once!

> Einfach genial........ Just zu Zeiten wo internationale Investoren unbedingt in Deutschland investieren wollen und nach Möglichkeit Ihre US Positionen abbauen wollen schlägt die IKB den umgekehrten Weg ein. Zudem besonders lustig das das Wort "Subprime" in den kompletten 270 Seiten nicht ein einziges Mal erwähnt wird.

Presseschau Deutschland:
Financial Times Deutschland Warum die US-Krise die IKB erwischt
Manager Magazin Subprime-Krise erreicht Deutschland
Handelsblatt Deutsche Banken müssen um ihr Geld bangen
FAZ Eine Kreditlinie wurde der IKB zum Verhängnis

KFW stützt IKB mit 8,1 Milliarden Euro


IKB Targetgroup:
The upmarketGerman mid-sized companies–the engine of the German economy

•Specialist in long-term corporate finance
•Market leader in long-term corporate lending in Germany (market share: 13.5%)

•Investments in international loan portfolios*: (March 2007)
-€7.0 billion of direct investments
-€12.7 billion of investments underadvisory in a conduit

Data and Charts taken from IKB Presentation (PDF)
IKB Deutsche Industriebank AG (IKB) has felt the impact of the crisis in the US sub-prime mortgage market, as spreads widened sharply during last week’s violent fluctuations, causing massive uncertainty amongst institutional investors. In this context, the ability of the Rhineland Funding conduit (managed by IKB) to access funding appeared to be threatened, in which case IKB would have been drawn upon liquidity facilities provided to Rhineland Funding. Rhineland Funding – and, to a lesser extent, IKB itself – have invested in structured credit portfolios, which include exposures to US sub-prime real estate loans. Despite market discounts affecting the valuation of such assets, to date there have been few loan defaults, and only some rating downgrades affecting portfolio investments. Nevertheless, towards the end of last week IKB’s creditworthiness was being questioned due to said exposures. There was a risk that this confidence crisis would deteriorate further.

KfW, IKB's main shareholder holding a 38% stake, took immediate action, implementing measures to safeguard IKB's creditworthiness without delay. Specifically, KfW will assume IKB’s financial obligations under the liquidity facilities vis-à-vis Rhineland Funding with effect from 30 July 2007. In addition, KfW will protect IKB against risks resulting from certain portfolio investments. These measures will maintain IKB’s strong creditworthiness, in particular in its banking business with German medium-sized businesses.

> today around 18 € down 17 percent

Given the developments outlined above, IKB is no longer in a position to maintain its earnings forecast of € 280 million for the 2007/08 financial year. From today’s perspective, results will be significantly lower.

Bloomberg IKB Cuts Profit Forecast Amid Rout in U.S. Mortgages

IKB Deutsche Industriebank AG, the German bank that reported 10 days ago it won't be affected by ratings downgrades on U.S. subprime mortgages, replaced its chief executive officer and said profit will be ``significantly'' lower than forecast.

Disclosure: Short MDAX (including IKB)
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10 Comments:

Anonymous Anonymous said...

What have they been up to? Supposed to be in Mstand financing no? So why the Rhineland exposure?

GGl found this: http://www.investkredit.at/at/dt/docs/ABS_Folder06.pdf

and this: http://www.boerse-express.com/familien/kongress/2005/neumueller.pps

My German not good enough.

3:12 AM  
Blogger jmf said...

Moin,

that´s the question.

I´m pretty sure the KfW will force the IKB out of this kind of business.

They should focus on their "core" business. I think 12 month from now this will be the case. If they don´t do it there is no need for the KfW to hold onto their stake.

I suggest to read the english pdf
IKB presentation
based on March exposure.

In hindsight a complete joke!

3:24 AM  
Blogger jmf said...


Corporate Bond Risk Surges as IKB Reports Subprime-Loan Losses


Credit-default swap contracts based on 10 million euros of IKB debt, which traded at 15,000 euros a month ago, were at 95,000 euros today, according to Royal Bank of Scotland Group Plc. The contracts were at 120,000 euros on July 27.

3:48 AM  
Anonymous Anonymous said...

Still puzzled as to rational. I see the E12.7bn via conduit = Rhineland presumably. This is where they say problems are. Why did they make them? Did they know what RCC doing? I see some profits from financial instruments, just reaching for more?

From 2006-2007 "We expect an investment volume of € 20 billion
(currently € 12.7 billion) for the Rhineland Funding
conduit, and a volume of € 10 billion for Rhinebridge."

4:29 AM  
Blogger jmf said...

Moin,

i think they have reached for more yield... and now got burned

Looks like their "risk management" and their oversight on some units was not "appropriate"

4:37 AM  
Anonymous Anonymous said...

So what is a "conduit" and how is it managed?

"Since the late 1990s, IKB has been
pursuing the concept of the risk-based external
placement of balance-sheet assets, and of loans and
advances to customers in particular. To date, the
bank has securitised a cumulative volume of almost
€ 18 billion of such assets, synthetically placing them
on the national and international capital markets.
This has enabled us to free up a high level of credit
risk and equity, with the result that we have been able
to raise our total loan volume by 115% over the period from 1995 to 2007 without issuing new shares.

The capital released through our securitisation activities
over recent years has been used to expand
our national and international lending business.
Additionally, the capital has also been used to invest
in international loan portfolios. Two thirds of our
investments are focused on US investment-grade
portfolios (including, for example, credit card claims,
mortgage loan claims and corporate loans), with the
remaining third being invested in similarly structured
European portfolios.
However, we also utilise our wealth of expertise in
this area to advise external companies – against a
fee – on their own investments in international loan
portfolios. This applies in particular to the Rhineland
Funding Capital Corporation in the US. Based on
our advice, this company is investing in portfolios
com parable to those in which IKB is itself investing. In
this way we ensure that the same quality standards
that apply to the bank are also applied to third
parties."


"A gratifying increase in net commission income
was also recorded, up by 19.2% to € 108 million. Half
of this income resulted from structuring fees and
commission earned in the Corporate Clients, Real
Estate Clients and Structured Finance segments,
with the other half being contributed by the Securitisation
segment from advisory fees relating to the
Rhineland Funding conduit.

5:02 AM  
Blogger John M said...

Hi Jan-Martin,

So the subprime crisis is now affecting German? They can't say you didn't warn them.

5:46 AM  
Blogger jmf said...

Moin John,

it looks i failed...... :-)

5:51 AM  
Anonymous Anonymous said...

Die Kommentare zu dem Thema hier sind leider von tiefster Unkenntnis des Sachverhalts geprägt, sorry

5:36 AM  
Blogger jmf said...

Moin Anon,

besten Dank für die detailreiche Auflistung der "Unkenntnis".

Links?

Ich verweise mal auf das
Update
.

5:45 AM  

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