July 30 (Bloomberg) -- IKB Deutsche Industriebank AG replaced its chief executive officer and said profit will be ``significantly'' lower than forecast, hit by the U.S. subprime mortgage rout that it said 10 days ago would not affect it.

The shares fell the most in at least a decade after the bank said in a statement it had to scrap its 280 million-euro ($382 million) earnings forecast as ``massive uncertainty'' in the markets threatens access to funding. State-owned KfW Group, which holds a 38 percent stake in IKB, said it will cover the company against potential losses. CEO Stefan Ortseifen will be replaced by Guenther Braeunig, a management board member at KfW.

``One can only gawp at what happened,'' said Konrad Becker, an analyst at Merck Finck in Munich who is reviewing his ``buy'' rating on Dusseldorf-based IKB, Germany's 27th biggest bank by assets. ``I'm asking myself whether KfW will be keeping its stake in the longer term.''

More than 40 companies worldwide have reorganized or abandoned borrowing plans in the past month, forcing banks to take on at least $32 billion of debt and threatening to bring an end to a record run of leveraged buyouts, which topped $690 billion this year. HSBC Holdings Plc said today provisions for bad loans soared 63 percent to $6.4 billion in the first half.

Shares of IKB fell 20 percent to 17.16 euros in Frankfurt, cutting the company's value to 1.51 billion euros. The stock slumped 21 percent this month before today's release on anticipation the company could be hurt by the subprime market.

`Few Loan Defaults'

IKB, which lends to small- and medium-sized companies, didn't quantify the impact of the subprime rout on its earnings. It said there were ``few loan defaults, and only some rating downgrades'' among its investments in U.S. mortgages.

The bank's securitization division probably won't contribute to profit this year, Johannes Thormann, an analyst at WestLB in Dusseldorf, wrote in a note to clients today. He cut his recommendation on IKB to ``hold'' from ``buy'' and reduced his forecast for net income by 38 percent to 134 million euros.

BaFin, the German financial-services regulator, said it helped to analyze the situation and that KfW's support will prevent ``negative effects on the banking system.'' BaFin spokeswoman Sabine Reimer declined to comment further.

IKB said June 28 pretax profit would rise to 280 million euros in the fiscal year starting April 1, up from 263 million euros a year earlier, as export demand fuels the German economy.

The company repeated the forecast July 20 when it said first-quarter operating profit rose 15 percent to 63 million euros. It said then that the ``bulk'' of its investments are in portfolios of corporate loans and that it was holding less than 10 million euros in bonds that were downgraded or put on watch for potential downgrade by rating agencies.

`Violent Fluctuations'

The bond market experienced ``violent fluctuations'' last week and IKB's creditworthiness was being questioned because of its exposure to subprime, the company said today. IKB spokesman Joerg Chittka and KfW spokeswoman Christine Volk declined to comment beyond the companies' statements.

U.S. Federal Reserve Chairman Ben S. Bernanke said July 19 there will be ``significant financial losses'' from risky mortgages, pointing to estimates as high as $100 billion.

The ABX-HE-BBB- 06-1 index, tied to mortgage-backed bonds with the lowest investment-grade ratings, fell 17 percent last week, increasing this year's drop to more than 60 percent, according to London-based Markit Group Inc., administrator of the ABX indexes.

`Subprime Challenges'

HSBC, the world's third-biggest bank by market value, said costs for potential loan losses surpassed analysts' estimates of $5.65 billion. Pretax earnings in North America fell 35 percent to $2.4 billion. CEO Michael Geoghegan said the company is ``working through the challenges of subprime lending.''

Dillon Read Capital Management LLC, one of UBS AG's hedge- fund units, collapsed in May after more than $120 million of losses from mortgage-related holdings. Dillon Read probably cost UBS another 150 million Swiss francs ($124 million) in the second quarter, said Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods Ltd. The debacle led to this month's ouster of CEO Peter Wuffli.

To contact the reporters for this story: Stuart Kelly in Sydney skelly22@bloomberg.net; Elena Logutenkova in Frankfurt at elogutenkova@bloomberg.net.

Last Updated: July 30, 2007 11:54 EDT