Lone Star finds new companion in IKB

Kreditanstalt für Wiederaufbau is ridding itself of subprime loans on Thursday. The German state bank agreed to sell its subprime-battered IKB Deutsche Industriebank AG to Lone Star Funds, which will also take on the bulk of the lender's assets.

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KfW said Lone Star would pay a sum in the low "three-digit millions" for its 91% IKB stake and assume €3.3 billion ($4.9 billion) of the target's questionable loans. KfW will take on the remaining €1.3 billion of the bank's shaky portfolio.

In addition, KfW said it would be willing to pump an additional €720 million into the bank if additional investments fail.

KB stockholders welcomed the announcement with the shares trading 8.2%, or €0.22, higher in afternoon trade at €2.90. Just a year ago, the shares traded at €15.

KfW expects the deal to close in October. - Andrew Bulkeley in Berlin

Dealscape: Lone Star to buy IKB (subscription required)

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