Dresdner Bank bails K2 out with $1.5 billion
Germany’s Dresdner Bank has extended $1.5 billion to one of its affiliated specialist investment funds, K2, to allow it to repay debt, the latest in a series of such bailouts amid a global credit crunch.
The funds were offered “with the intention of facilitating the repayment in full of all senior debt of K2,” Dresdner Bank said in a statement late Tuesday. Dresdner, owned by insurance giant Allianz, had said in February that it would have to support K2, what is known as a ‘structured investment vehicle’ (SIV) that has been badly mauled by the collapse of the US market for high risk, or subprime, mortgages.
Details of the aid were not provided at the time. K2 holds assets worth an estimated $19 billion. Dresdner said in February that the support measure would not affect its own capital base. Several major banks, including the US giant Citigroup, have had to cover the losses, running to billions of dollars, at such SIVs as the US property sector has gone from bad to worse.
SIVs are specialist funds set up to buy longer-term, higher-yielding assets but use short-term finance raised in the money markets to do so. As the credit markets have dried up due to the US property sector collapse, these funds have found it increasingly difficult to finance their business and meet their short-term loan obligations, forcing some to fail.