KfW to bear some potential IKB lawsuit costs

BERLIN, July 11 (Reuters) - German state-owned development bank KfW [KFW.UL] will bear some of the cost of billions of euros of potential lawsuits against lender IKB (IKBG.DE), according to a government paper seen by Reuters on Friday.

IKB, a lender to medium-sized companies, nearly went bust last year after its subprime-linked investments turned sour and faces lawsuits, including one worth $1.9 billion from U.S. insurer FGIC.

The threat of the lawsuits is seen as a possible hurdle to the sale of IKB, which said last week it was on track for a capital increase in August and that KfW was talking to three potential buyers for its 45.5 percent stake.

In a written response to a parliamentary question, the German government said KfW would assume lawsuit costs linked to off-balance sheet investments by IKB as long as this was necessary to help push through the sale.

Sources with direct knowledge of the situation told Reuters last week that U.S.-based Ripplewood Holdings had made the most attractive offer for Duesseldorf-based IKB, whose market capitalisation is around 270 million euros ($426 million).

Swedish bank SEB (SEBa.ST) and U.S. group Lone Star [LS.UL] were also in the running, the sources said. Binding offers are due by July 17. A final decision on the sale, long in doubt due to limited buyer interest, is due by September.

IKB became one of Germany's highest-profile casualties from the collapse in risky U.S. home loans after it piled up roughly 17.5 billion euros of subprime-linked investments. (Reporting by Matthias Sobolewski; Writing by Iain Rogers; Editing by Erica Billingham)