Crisis Era Casualties Converge in ABN Amro Bid for Germany's IKB

  • ABN Amro is said to be in talks to buy IKB from Lone Star
  • Both lenders participated in infamous ‘Abacus’ securities

What a difference a decade makes.

Almost exactly 10 years ago, IKB Deutsche Industriebank AG became the first German lender to fall victim to the subprime mortgage crisis, doomed by exotic investments including those sold by Goldman Sachs Group Inc.’s Fabrice “Fabulous Fab” Tourre. Now it may be taken over by ABN Amro Group NV, another bailed-out crisis-era survivor that also participated in Tourre’s infamous “Abacus” deal.

IKB is attracting interest from the Amsterdam-based lender and several parties including Chinese bidders as the auction process reaches its final stages, according to people familiar with the matter. The German bank is controlled by U.S. private equity firm Lone Star, which has unsuccessfully tried to sell the bank before.

Officials for ABN Amro, Lone Star and IKB declined to comment.

The takeover talks, at a time when U.S. peers are already lobbying to dial back post-crisis regulations, highlight the long road to normality at many European banks who were stung by subprime investments. For ABN Amro, which transformed itself from one of the world’s largest banks to a consumer lender, an acquisition of IKB would be the first takeover of a rival since the Dutch government floated it on the stock market in late 2015. For IKB, it would mark the end of its 93-year history.

Abacus Deal

“IKB was one of the first banks that brought the financial crisis to Germany in 2007,” said Joerg Rocholl, a professor of finance and president of the ESMT business school in Berlin. “It would be ironic if that bank was taken off the market for good exactly ten years later.”

Both banks were participants in a 2007 collateralized debt obligation tied to the housing market that later was at the center of a fraud case by the U.S. Securities and Exchange Commission against Tourre, a former Goldman Sachs vice president. The CDO, called Abacus 2007-AC1, was built by Goldman Sachs and hedge fund Paulson & Co. and was used by Paulson to bet against the housing market.

To read more about the Abacus deal, click here.

IKB bought $150 million of the securities and ACA Management LLC invested $42 million. ACA Financial Guaranty Corp., an insurer, sold protection on a $909 million tranche of Abacus while ABN Amro Group assumed the credit risk of that portion in the event ACA was unable to pay. The investors lost more than $1 billion, the U.S. Senate found.

Bailed Out

IKB was bailed out in 2007 amid mounting subprime losses and later received guarantees of as much as 12 billion euros to help steer it through the global financial crisis. ABN Amro was nationalized when a record takeover of the lender on the cusp of the financial crisis ended in the company’s breakup.

With the government planning to exit its investment over time, ABN Amro has said it wants to expand its international business, including corporate banking in neighboring countries, and earlier this year announced three senior hires in Germany. IKB, which caters to the small and medium sized enterprises that make up Germany’s Mittelstand, would help it reach that goal.

ABN Amro signaled interest in buying IKB when a deadline expired last week and is now conducting further due diligence before binding offers are required, the people said.

No Easy Sell

Still, some bankers said IKB isn’t an easy sell, given a complex funding structure that includes expensive hybrid bonds. A deal could value IKB at 300 million euros ($354 million) to 400 million euros, or roughly 0.3 times to 0.4 times its book value, they estimate. By comparison, Commerzbank AG trades at about 0.5 times book value and Deutsche Bank AG at 0.4 times.

Lone Star agreed in August 2008 to take control of Dusseldorf-based IKB and said at the time it expected to own its holding for at least two years. It unsuccessfully tried to sell the bank in 2010.

IKB earlier this year agreed to sell its leasing unit to HPS Investment Partners. The deal, which is scheduled to close in the second half of this year, held up the current auction for the bank, the people said.

— With assistance by Sarah Syed

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