Germany's biggest banks, facing as much as US$1.3 billion in bad loans after builder Philipp Holz-mann AG collapsed, are stepping up efforts to rescue Kirch Holding GmbH to minimize their losses, investors said.
Commerzbank AG said Friday it's among a group of banks that may agree to buy a stake in Kirch's film business, KirchMedia GmbH, throwing a lifeline to a company that needs US$1 billion next month to pay back loans and buy out investors.
Banks can't afford a second high-profile failure, investors said. Kirch has US$5.7 billion in debt. It also owns the country's largest television broadcaster, Europe's biggest film library, and the rights to sports events such as World Cup soccer.
"The banks will try and keep the company alive," said Helmut Hipper, who helps manage 60 billion euros (US$52 billion) at Union Investment GmbH in Frankfurt. "The commitment to Holzmann wasn't that great in the end. With Kirch, it's different."
German banks and representatives of Rupert Murdoch and Italian Prime Minister Silvio Berlusconi, who controls Italy's biggest commercial broadcaster, meet in Munich today to try and save Kirch, the Financial Times reported, without citing sources.
The rescue proposal would cut founder Leo Kirch's personal 72 percent stake in KirchMedia to a minority, the FT said. Banks will also ask Berlusconi's Mediaset SpA and Fininvest SpA and Murdoch's News Corp to back an 800 million-euro capital increase to keep KirchMedia in business, the paper said.
At Holzmann, Deutsche Bank AG, the biggest creditor and the largest shareholder, will likely have to pick up the lion's share of the bill. Dresdner Bank AG, by contrast, has an exposure of less than 10 million euros.
A Kirch failure would endanger loans of 100 million euros or more for at least eight banks, according to Bayerische Landesbank Girozentrale, the No. 1 creditor, including Lehman Brothers Holdings Inc, which is also a Kirch shareholder and the Munich-based media company's main banking adviser.
BayernLB has 1.9 billion euros in loans outstanding. Dresdner has at least 460 million euros in Kirch loans. HVB Group, the country's second-largest bank, has 450 million euros in loans to two Kirch units, it said Thursday.
"Keeping Kirch in business is necessary for the banks to avoid big writedowns, especially for HVB," said Olaf Conrad, who helps manage US$13 billion at Trinkaus Capital Management.
German banks are under pressure as bad loan charges mount and slumping markets crimp profit. Commerzbank's 2001 profit dropped 93 percent. HVB's fell 35 percent. Deutsche Bank's earnings slumped 96 percent. Earnings woes are likely to continue this year as corporate bankruptcies rise, analysts have said.
Injecting fresh cash in return for a stake in KirchMedia, which owns more than 15,000 hours of programming, may be a step toward a Kirch rescue. Kirch would get fresh cash, while the banks would have a collateral against the loans.
KirchMedia also counts Saudi Prince Alwaleed bin Talal as an investors. Capital Research and Management Funds and Rewe Beteiligungs Holding GmbH, a German retailer, own a stake.
Alwaleed paid about 191.7 million euros in 1999 for a 3.2 percent stake in 1999. News Corp's Murdoch last month wrote off the value of his stake, saying he's concerned the company that Leo Kirch, 75, built from scratch, may go bust.