German Banks Step Up Efforts to Rescue Kirch

The country’s biggest banks, facing as much as $1.3 billion in bad loans after construction firm Philipp Holzmann collapsed last week, stepped up their efforts to rescue media company Kirch Holding and minimize their losses.

Representatives of German banks including Commerzbank and Deutsche Bank and investors including Rupert Murdoch’s News Corp. and Italian Prime Minister Silvio Berlusconi met in Munich during the weekend to try to reach an agreement on how to inject more funds into KirchMedia, Kirch’s film library business.

Banks cannot afford a second high-profile failure, investors said. Kirch, which has $5.7 billion in debt, owns the country’s largest television broadcaster, Europe’s biggest film library and the rights to sporting events such as World Cup soccer.

Commerzbank said Friday that it was among a group of banks that might agree to buy a stake in KirchMedia, throwing a lifeline to a company that needs $1 billion next month to repay loans and buy out investors.

The rescue proposal discussed by creditors and shareholders would cut founder Leo Kirch’s personal 72% stake in KirchMedia to a minority, the Financial Times said Saturday, without citing sources. Banks also would ask Berlusconi’s Mediaset and Fininvest and Murdoch’s News Corp. to back a $700-million capital increase to keep KirchMedia in business, the newspaper said.

In the wake of Holzmann’s filing for bankruptcy protection on Thursday, Deutsche Bank, the biggest creditor and the largest shareholder, probably will have to pick up the lion’s share of the bill. Dresdner Bank, by contrast, has an exposure of less than $8.6 million, according to newspaper reports.

A Kirch failure would endanger loans of $86 million or more for at least eight banks, according to Bayerische Landesbank Girozentrale, the No. 1 creditor, including Lehman Bros. Holdings Inc., which also is a Kirch shareholder and the Munich-based media company’s main banking advisor.

“Keeping Kirch in business is necessary for the banks to avoid big write-downs, especially for HVB,” said Olaf Conrad, who helps manage $13 billion at Trinkaus Capital Management.

German banks are under pressure as bad-loan charges mount and slumping markets crimp profit.

Injecting fresh cash in return for a stake in KirchMedia, which owns more than 15,000 hours of programming, might be a step toward a Kirch rescue and would give the banks collateral against their loans.