Germany agrees third rescue for subprime-hit IKB

By Gernot Heller and Noah Barkin

BERLIN (Reuters) - Germany agreed a 1.5 billion euro (1.11 billion pound) rescue package for IKB (IKBG.DE: Quote, Profile, Research) on Wednesday, the third bailout for the subprime-stricken German lender, saying a collapse of the bank would have "incalculable" consequences.

The corporate lender has become one of Germany's highest-profile casualties of the global credit crisis since it nearly went under in late July.

Late on Wednesday, IKB announced new write-downs, saying it had revalued its balance portfolio investments of currently 5.9 billion euros and the valuation losses exceeding the existing risk shield provision added up to about 950 million euros.

Among the expected valuation losses was one of about 630 million euros and included assets carrying a higher probability of default, IKB said.

Based on the valuation losses IKB said it had entered into talks with KfW and others to agree on a restructuring package to provide a sufficient increase in the capital base to cover valuation losses and restore access to capital markets.

IKB has already been propped up by two rescues costing more than 6 billion euros, with state-owned bank KfW KFW.UL shouldering the lion's share.

"After lengthy talks we have decided to do all we can to save IKB," Economy Minister Michael Glos said after a meeting of the supervisory board of KfW, IKB's top shareholder.

Glos later told German television that the government's stake in the bank would effectively increase as a result of the rescue plan. "The government's stake will increase again via the exercising of an option," Glos told the ARD television channel. "Soon we will be at 43 percent."