I noted a difference between the two configs.  The v4.10-rc3 config has
the KVM module built in.  However, the v4.10-rc2 config has KVM built in
for the config file, but was still set to module in the annotations
file.

I fixed the annotations file and built a Xenial test kernel.

The test kernel can be downloaded from:
http://kernel.ubuntu.com/~jsalisbury/lp1735420/

Can you test this kernel and see if it resolves the bug?

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https://bugs.launchpad.net/bugs/1735420

Title:
  Avoid creation of /dev/kvm in Xenial KVM virtual machines on s390x

Status in Ubuntu on IBM z Systems:
  Triaged
Status in linux package in Ubuntu:
  Triaged
Status in linux source package in Xenial:
  Triaged

Bug description:
  Since nested virtualization with KVM is not supported on s390x, please 
disable this in Xenial - in case it's doable with reasonable effort.
  (I think it was already disabled for later Ubuntu releases ... was also 
discussed on IRC)

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