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Private equity: Lone Star shines through gloom

Private equity company Lone Star is fast becoming the biggest beneficiary of the banking woes caused by the credit crisis.

In August, Merrill Lynch announced the sale of $30.6 billion of US CDOs to Lone Star funds for an average price of 22 cents on the dollar (see Banking: It’s time to sell off or shape up, Euromoney, September 2008). And just weeks later, the German government approved a sale of development bank KfW’s 90.8% stake in corporate lender IKB Deutsche Industriebank to Lone Star for an "adequate, positive purchase price". As part of the deal, Lone Star will assume €3.3 billion of IKB’s questionable loans, and KfW will take on the remaining €1.3 billion of the portfolio.

One source says that the price paid for IKB by Lone Star was in the low hundreds of million dollars, which makes the purchase a steal for the private equity firm. German finance minister Peer Steinbrueck had hoped for €800 million. Bruno Scherrer, head of European investments at Lone Star, said the decision by KfW to accept its offer was "a great success" for the firm, and reportedly estimates that it will take two years to work out the problem assets, leaving Lone Star with a solid German financial lender.

Criticism of the German government has been voiced by opposition parties who claim that, after more than €8 billion of rescue attempts, the government has now virtually given the bank away.

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