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New IKB owner lashes out at German politicians

The new owners of German bank IKB Deutsche Industriebank had harsh words on Wednesday for German officials following the sale of a lender that flirted with bankruptcy amid the international financial crisis.

Published: 27 August 2008 17:20 CEST

Karsten von Koeller, the German head of Texas distressed debt specialist Lone Star Fund, told the daily Die Zeit in an interview to appear Thursday that German Finance Minister Peer Steinbrück had initially floated a price of €800 million ($1.18 billion).

Steinbrück is vice-president of IKB’s supervisory board, but von Koeller said that price was not close to the true value of a company that specialises in loans to small- and medium-sized businesses.

The sum was floated “by political figures who had certainly not looked closely at the bank’s financial situation,” von Koeller said.

According to press reports, Texas-based Lone Star paid between €100 million and €150 million for IKB, which had to be bailed out several times with a combination of public and private funds.

IKB faced huge losses on investments connected with the U.S. market for sub-prime mortgages and required massive financial support, mainly from state development bank Kreditanstalt für Wiederaufbau, or KfW.

KfW had initially bought a stake in IKB in 2001 to prevent a foreign investor from acquiring part of the bank, postponing by seven years what finally took place this month.

Von Koeller said the market was now reclaiming its rights and added: “The true drama is that this cost taxpayers around €10 billion.”

Germany’s liberal FDP party has called for a probe to determine the full cost of the IKB debacle.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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