Is Lone Star, the US private equity group, up to the challenge of taking on IKB? The stricken German bank was facing an “existential crisis”, according to its majority shareholder, KfW, a state-owned development bank.

Lone Star is paying a few hundred million euros for IKB, brought to its knees by a disastrous foray into structured credit. It is buying a bank that has been given a scrub, but is hardly pristine. KfW has pumped in more than €7bn, but IKB still retains some CDO exposure. Here the risks look manageable. The CDOs have been written down by about half and Lone Star, which has just bought nearly $31bn of CDO exposure from Merrill Lynch, must judge itself a better manager of such residual risk.