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UPDATE 3-Erb Group collapses, seeks new owner for Volcafe

(adds creditor banks' reaction, background)

By Knut Engelmann

ZURICH, Dec 5 (Reuters) - Switzerland's Erb Group collapsed under two billion Swiss francs ($1.55 billion) of debt, hurt by soured German real estate deals, and said on Friday it seeks a new owner for the world's second largest coffee trader, Volcafe.

The failure of the secretive family-controlled group shook up Switzerland's business world and prompted the country's top banks, UBS and Credit Suisse , to warn that provisions against outstanding Erb loans would hurt results.

"We never saw it coming," the head of one of Switzerland's top commodity trading houses told Reuters, asking not to be named. "We've known the Erbs for years, and now this?"

Swiss-based Volcafe, which accounts for almost 15 percent of the world's coffee trading, said it was not affected by its parent group's troubles. Bank Lombard Odier Darier Hentsch was asked to find a buyer for Erb's 80 percent stake in Volcafe.

Volcafe added it had some $175 million in equity and could draw on bank facilities worth more than $400 million. "Volcafe thus enjoys very ample liquidity to meet all existing and future commitments," it said in a statement.

But the future of much of the rest of the sprawling Erb Group looked far more bleak after Erb put three of its holding companies -- including the one that owns most of Volcafe -- into creditor protection and a fourth one declared bankruptcy.

Erb runs some 80 individual operating companies, from used and new car dealerships to financial services firms and kitchen, window, and door makers. It has some 4,900 employees and the group had 2002 sales of around 4.5 billion francs.


Hans Ziegler, appointed as Erb's chief executive in October after the death of family patriarch Hugo Erb in July, told a media conference most of the operating companies were doing well and would now be put on the block to raise cash and save jobs.

He said some 2.5 billion francs that were transferred from Erb's Uniinvest Holding to German real estate holding CBB -- of which Erb owned just under 50 percent -- had to be written off.

"The group as a whole is in a tense liquidity situation and is confronted with outstanding liabilities of 2.0 billion francs, which makes it impossible to continue existing in today's structure," Erb said in a statement.

Sources said financial giants UBS and Credit Suisse have several hundreds of millions of francs in exposure to Erb.

Spokespeople for both banks declined to specify their exposure, but told Reuters they expected a negative effect on their groups' fourth quarter results from provisions made against those loans. Both said the effects would not be large.

A source at UBS said the bank's exposure to the group had been cut by about half over the past five years amid mounting worries over the health of the Erb Group.

Bankers close to the case said the lack of financial transparency at the secretive group had become a growing concern over recent years. Erb's Ziegler said he had uncovered a complex web of financial interdependencies between the different parts of the Erb empire that was almost impossible to unravel.

Markets had widely expected Volcafe to survive Erb's troubles, after Reuters reported on Tuesday that the coffee trader was seen as one of the soundest parts of the group.

"Volcafe ringfenced itself pretty well and therefore it's not going to be affected by all the trouble in the parent company but they have to sell," a London coffee trader said.

The news had little impact on LIFFE coffee prices. Benchmark January inched up $1 to $690 per tonne.

(Additional reporting by Begona Quesada in London)

($1=1.290 Swiss Franc)