FRANKFURT (Bloomberg) — Dresdner Bank AG, Germany's third-largest bank, agreed to rescue its $18.8 billion structured investment vehicle, joining Citigroup Inc. and HSBC Holdings Plc in bailing out funds crippled by the collapse of the sub-prime mortgage market.

Dresdner, a unit of Munich-based Allianz SE, will provide a credit line to enable the K2 fund to repay all of its senior debt, spokesman Ulrich Porwollik in Frankfurt said in a telephone interview. Dresdner will cut the size of the fund, which has been reduced from $31.2 billion since July, according to an e-mailed statement.

The bank is the last of the world's biggest financial institutions to put capital at risk salvaging a SIV from the seven-month freeze in credit markets. Banks including Citigroup, HSBC, Bank of Montreal and WestLB AG have disclosed plans to support their SIVs with $140 billion of assets.

"This is a potential threat to Dresdner Bank," said Thilo Mueller, managing director of MB Fund Advisory in Frankfurt. "There is little liquidity for some of these assets and with comparative assets continuing to fall, you need to book further write-downs."

SIVs, which use short-term borrowing to buy higher-yielding assets, have shrunk by $100 billion from $400 billion since August, according to Moody's Investors Service.

"Allianz plans to exit K2 and the SIV business in general," chief financial officer Helmut Perlet said yesterday in an interview. "The SIV business has no future."

The fund, which Allianz expects will be wound down by year-end, is unlikely to cause a "major negative hit" if the assets are taken on to Dresdner's books because the company has the "financial strength to sit out parts of the valuation declines", Perlet said.

Allianz's banking division, which is mostly Dresdner, wrote down more than 1.3 billion euros ($1.9 billion) on structured investment products, contributing to a 52-percent decline in fourth-quarter profit announced yesterday. Europe's biggest insurer earned 665 million euros, missing the 729 million-euro median estimate of 12 analysts surveyed by Bloomberg.

Allianz, which has fallen 19 percent this year, rose 1.91 euros, or 1.61 percent, to 120.27 euros at 4:25 p.m. in Frankfurt trading.

K2, named after the world's second-highest mountain in the Himalayas, was started in 1999 by Paul Clarke and Alan Harley, who previously helped manage Europe's first SIVs at Citigroup.

The fund has no "direct exposure" to securities backed by sub-prime or mid-prime debt, the mortgages made to US homeowners with poor or limited credit histories. K2 also doesn't contain collateralised debt obligations based on asset-backed notes, the statement said. CDOs are securities packaged from mortgage bonds and other assets.

The SIV bailouts avert the risk of forced sales of assets by the funds. Concern that fire sales by SIVs would further roil credit markets prompted US Treasury Secretary Henry Paulson to begin talks on setting up an $80 billion rescue fund last year.