German authorities are investigating allegations that some of the top managers of the troubled IKB Deutsche Industriebank AG were involved in insider trading, according to media reports on Saturday.
The biggest shareholder of the bank, the state-owned KfW development bank, said last week that it had formed a banking pool with other lenders to protect IKB after it was battered by the US subprime lending crisis.
According to a report in Focus magazine, Duesseldorf prosecutors are now looking into whether two former board members, an executive committee member, and three other bankers were involved in insider trading at the bank.
According to the magazine, the bank's worth has sunk from 2.9 billion euros (US$4.28 billion) at the start of the year to some 700 million euros today.
suspicion
"There is the suspicion that there was possible insider trading," prosecutor Arno Neukirchen was quoted by the magazine as saying.
Neither Neukirchen nor other prosecutors in Duesseldorf were available Saturday for comment.
As part of the investigation, 10 private homes were searched on Wednesday, Focus reported.
The regional newspaper Rheinische Post, citing sources in the prosecutor's office, reported that some of the residences belonged to four former board members and a currently active manager at the bank.
IKB's problems sprang from its Rhineland Funding investment vehicle's apparent inability to cover its funding needs because of exposure to US subprime real estate loans, made to borrowers with weak credit histories.
risk shield
In the past week, KfW said it had raised its risk shield for IKB by 2.3 billion euros to 4.8 billion euros on the basis of new information regarding the valuation of risks covered by Rhineland Funding and because of a "dramatic worsening" of markets' assessment of default risks in the subprime segment.
Later, it said it and a pool of other lenders had stepped in to cover additional risks estimated at US$520 million.
KfW spokesman Michael Helbig said on Thursday that the banking pool agreed IKB should be sold. He said work would continue on a concept for the sale process, but would not elaborate.
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