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Exclusive: Lone Star hires advisors for IKB sale as stress tests loom

Picture shows the logo at the headquarters of the Deutsche Industriebank IKB in the western German city of Duesseldorf December 10, 2007. RE
Picture shows the logo at the headquarters of the Deutsche Industriebank IKB in the western German city of Duesseldorf December 10, 2007. RE

By Arno Schuetze

FRANKFURT (Reuters) - Private equity investor Lone Star has hired Rothschild and Bank of America Merrill Lynch as advisors for the planned sale of German corporate bank IKB , two people familiar with the transaction said.

The sale of one of the highest-profile German casualties of the financial crisis is likely to begin shortly, they said, as upcoming European bank health tests put pressure on Lone Star to find a financially robust home for the lender.

It is likely to spark the interest of banks hoping to expand business with medium-sized German companies. Potential suitors include BNP Paribas , Societe Generale , Santander or HSBC , the people said.

"Lone Star has shown that it is ready to exit German banking assets now," said one person close to the sale.

Lone Star, IKB, Rothschild, Bank of America, BNP Paribas, Societe Generale, Santander and HSBC declined to comment.

U.S. investor Lone Star, which owns 91.5 percent of IKB, sold property lender Corealcredit to Aareal Bank in a 342-million-euro ($464 million) deal in December.

IKB was known before the financial crisis mainly as a lender to mid-sized German companies. It required several bailouts from development bank KfW and the German state after its off-balance sheet investment vehicles ran into funding problems in 2007.

Following the rescues, IKB was taken over by KfW, which sold it to Lone Star in August 2008 for 137 million euros.

By late 2012, IKB had returned the last of the 12 billion euros in state guarantees it received from Germany's bank bailout fund Soffin during the crisis, and its Chief Executive Hans Joerg Schuettler said late last year that a restructuring of the lender was now largely complete.

IKB now has a market capitalization of 432 million euros, but the sources familiar with the sale said the current stock price was unlikely to be a good indication of how much a sale could be worth.

STRESS TEST

Potential buyers will be allowed to bid for individual parts of IKB, one of the sources said, adding that Lone Star aimed to conclude a deal this year.

IKB reported a profit of 8 million euros for the six-month period ending in September, compared with a 51 million-euro loss in the same period last year, mainly because of lower legal and consulting costs.

Bankers said a sale of IKB to a peer with a strong balance sheet may help the German lender pass European bank health checks that the European Central Bank and the European Banking Authority are running this year.

IKB is the smallest German bank deemed important enough to be supervised from November by the ECB rather than the national regulator. IKB said last year it could meet the ECB's demands, but it would not be easy.

Tested banks will need to have minimum Core Tier 1 equity capital of 8 percent of risk-weighted assets by the end of 2013, something IKB described as a "surprisingly harsh" requirement "that left banks little time to react".

IKB's balance sheet totaled 25.8 billion euros at the end of September, compared with 1.65 trillion euros at Deutsche Bank , Germany's largest bank.

(Reporting by Arno Schuetze; editing by Maria Sheahan and Tom Pfeiffer)

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