Lone Star, the US private equity firm, has bought IKB, Germany's biggest victim of the US sub-prime mortgage meltdown.

KfW, the German state bank that is IKB Deutsche Industriebank's biggest shareholder, agreed to the deal yesterday, following a board meeting in Berlin, according to Peer Steinbrueck, Germany's Finance Minister and deputy chairman of KfW's supervisory board.

Michael Glos, the board chairman, who is also Germany's Economy Minister, added: "Basically everything is within the target figures. We're high and dry."

Lone Star is to acquire 90.8 per cent of IKB for an undisclosed amount.

Moody's, the credit rating agency, placed IKB's long-term rating under review for a possible downgrade after the announcement. The agency said that the deal meant that IKB would no longer benefit from KfW's "very strong and proven support" or the unconditional government guarantee that stood behind KfW.

IKB was a little-known regional lender until it hit the headlines last year for losing billions of dollars on investments in US sub-prime mortgage-backed investments. The bank had to be rescued three times, mainly with assistance from KfW, at a cost of more than €8 billion (£6.35 billion).

In March IKB told investors to expect little or no annual profits for “the next financial years."

Texas-based Lone Star is best known for its attempts to extricate itself from South Korea, where it owns 51 per cent of Korea Exchange Bank (KEB). HSBC agreed to buy the stake for $6.3 million (£3.37 million) last September but the purchase has been delayed while Lone Star fights a legal action by Korea's financial regulators, which accuse it of manipulating stock prices during its acquisition of KEB.

HSBC said this month that it was still keen to complete the deal.