EU opens in-depth probe into aid for German banks

By David Lawsky and Ilona Wissenbach

BRUSSELS (Reuters) - The European Commission opened in-depth investigations on Wednesday to determine if billions of euros in German government assistance to two banks, hit by the U.S. sub-prime market crisis, amounted to illegal state aid.

The European Union's executive arm will decide whether state loans and guarantees granted to corporate lender IKB and state-backed regional bank SachsenLB were made under normal capital market conditions.

If not, the aid would be considered illegal and must be paid back to the German government.

IKB, which has lent to many of Germany's top firms, is on its third bailout after its state owners hammered out another rescue earlier this month.

A spokesman for the German Finance Ministry in Berlin left the door open to even more aid.

"We don't rule that out, how could we?," spokesman Torsten Albig said when asked at a regular government news conference whether Germany excluded the possibility of further aid.

The Commission said state-owned bank Kreditanstalt fr Wiederaufbau provided a risk shield of around 9 billion euros (6.84 billion pounds) to IKB and the government of the German state of Saxony and state-owned banks clubbed together to grant liquidity assistance of around 17 billion euros to SachsenLB.

"Without these and several subsequent measures the banks would not have been able to continue their business," the Commission said in a statement.