FGIC sues German bank IKB for fraud

NEW YORK, March 11 (Reuters) - Bond insurer FGIC Corp has sued German bank IKB Deutsche Industriebank AG (IKBG.DE: Quote, Profile, Research), alleging that the bank fraudulently left it exposed to about $1.9 billion in potential liabilities.

FGIC unit Financial Guaranty Insurance Co and its UK unit alleged IKB and its affiliates fraudulently convinced it to assume the risk of potential losses on an IKB off-balance-sheet structured investment vehicle, according to a complaint filed in New York State Supreme Court on Monday.

It said it was induced to enter into a commitment agreement in June last year, under which it could be obligated to take on credit exposure of the IKB affiliate.

"IKB and its affiliates made repeated false representations about IKB's financial health, IKB's risk management prowess, and IKB's ability to provide liquidity support to that off-balance-sheet vehicle," it said in the complaint.

Germany's IKB is one of the highest-profile German casualties of the U.S. mortgage crisis. State bank KfW has helped pump capital into the bank, but IKB's losses continue to mount.

A spokeswoman for IKB declined to comment. A FGIC spokesman referred a request for comment to the filed complaint.

FGIC also named Calyon Credit Agricole CIB, an affiliate of French banking company Credit Agricole SA (CAGR.PA: Quote, Profile, Research), as a defendant over the enforceability of the commitment agreement.

It said Calyon had repeatedly demanded that it confirm that its commitment agreement was a valid and binding contract.

FGIC is seeking to void its commitment agreement for fraud and enjoin its enforcement, according to the complaint. It is also seeking damages.

FGIC's owners include mortgage insurer PMI Group Inc (PMI.N: Quote, Profile, Research) and private equity firms Blackstone Group LP (BX.N: Quote, Profile, Research), Cypress Group and CIVC Partners LP. (Reporting by Paritosh Bansal, additional reporting by Dan Wilchins, editing by Gerald E. McCormick)