German state lender KfW is set to lose over $7.3 billion after attempting to bail out German bank IKB, Reuters reports.
The bank is facing losses of $7.1 billion due to IKB’s exposure to US sub-prime mortgage markets, but it’s possible that it may lose even more. Thus far, KfW has written down the value of its 38% share of IKB by $575 million.
“At the moment it is difficult for all banks to forecast. It could be that it will be less than seven billion dollars but it could also be more if the market environment deteriorates further,” says Ingrid Matthaeus-Maier, head of KfW, in an interview with the Sueddeutsche Zeitung.
In August 2007, when the waves of the sub-prime crisis first rippled through financial markets, IKB was one of the first lenders to admit to ill-advised investments in conduits.
Following the market crash, other banks became reluctant to lend, so conduits’ parent firms were forced to provide funding.