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Kaupthing Completes the Financing of the Acquisition of NIBC and Reduces Exposure to Structured Credit

(PRWEB) November 27, 2007 -- Kaupthing Bank (http://www.kaupthing.com) ("Kaupthing") has completed the financing of its acquisition of NIBC and is announcing that its exposure to structured credit will be reduced and that the Bank expects to make a charge in the fourth quarter of EUR 85 million. Kaupthing is also providing an update on its funding and liquidity position.

* Kaupthing plans to issue new share capital in total of up to 210 million shares.

* A consortium of shareholders led by J.C. Flowers & Co ("the Sellers" of NIBC) will receive 140 million of these shares at the average price of SEK 105.67.

* Kaupthing plans to sell the remaining 70 million shares in a rights issue following the closing of the NIBC transaction. The Sellers and Exista have agreed in principle to underwrite the rights issue.

* The acquisition of NIBC is fully financed.

* Kaupthing expects the acquisition to be closed in January 2008.

Structured credit exposure

* Kaupthing has signed agreements to reduce its exposure to asset backed securities (ABS) from EUR 1.6 billion to EUR 450 million. The restructuring process is expected to close in mid December.

* Simultaneously the Bank plans to terminate the related EUR 1.3 billion liquidity line and will then have no such contingent liabilities in relation to its structured credit exposure.

* Kaupthing has no direct exposure to US sub-prime assets or CDOs containing such assets. Furthermore Kaupthing has decreased its indirect exposure, related to the funding provided to the Sellers of NIBC, to USD 136 million.

* Kaupthing expects to make a charge in the fourth quarter of EUR 85 million due to losses on its structured credit exposure.

Update on funding and liquidity

* Kaupthing (Parent) has only EUR 1.7 billion of long-term debt maturing in 2008 and the Group has EUR 3.7 billion.

* Kaupthing (Group) as well as the parent company had more than 420 days of secured liquidity as of 15 November 2007 - expected cash payment to the Sellers of NIBC is taken into account in secured liquidity.

Financing of the NIBC acquisition

The board of directors of Kaupthing will seek approval at a shareholders' meeting to issue and sell 70 million shares in the first quarter of 2008 in a rights issue. The Sellers and Exista have agreed in principle to underwrite the rights issue. The Sellers will also receive 140 million shares in Kaupthing instead of the 110 million previously agreed at the average price of SEK 105.67. Also, the cash payment to the Sellers will be reduced to EUR 1,392 million from EUR 1,625 million. The Sellers of NIBC have agreed to a lock-up period ending on 31 December 2008 for 110 million of the 140 million shares.

After the share issue the Sellers will become the second largest shareholder in Kaupthing with a share of approximately 15.9%.

Kaupthing is awaiting regulatory approval from the Dutch and Icelandic financial authorities, and the Bank expects the acquisition to be closed in January 2008.

Structured credit exposure and charge in fourth quarter

Kaupthing has taken actions to limit its exposure towards structured credit. In this regard, Kaupthing has sold part of its ABS portfolio and has signed an agreement to restructure the remainder. Simultaneously the plan is to terminate the EUR 1.3 billion liquidity line.

Subsequently Kaupthing has no direct exposure to US sub-prime residential mortgage-backed securities (RMBS). Kaupthing has an indirect exposure as the Bank funded the sub-prime portfolio divested by NIBC to the Sellers with a senior loan facility. A part of the amended agreement with the Sellers of NIBC is that the loan amount will be decreased from USD 236 million to USD 136 million collateralized with a portfolio of assets with an unchanged total face amount of USD 689 million. As a result of that transaction, NIBC does not have any US sub-prime exposure.

After the completion of the above restructuring the remaining ABS exposure at Kaupthing will amount to EUR 450 million, thereof EUR 250 million in credit-linked loans and EUR 200 million in AAA rated ABS, mostly in collateralized loan obligations (CLOs). The portfolio referred to in the credit-linked loans is a diverse highly rated portfolio of ABS mostly limited to CLOs and high yield collateralized debt obligations (HY-CDOs), but excluding all sub-prime RMBS, CDO squared or CDOs of sub-prime RMBS. All underlying assets are rated A or higher with 86% rated AA or higher.

The above assets are the ABS assets that New Bond Street Asset Management ("NBSAM") manages on behalf of Kaupthing. In addition to this NBSAM manages a portfolio of corporate synthetic CDOs with a total exposure of EUR 300 million and a portfolio of floating rate notes (FRN) issued by financial institutions totalling EUR 1.2 billion. NBSAM is an FSA regulated asset management company that makes credit investments on behalf of Kaupthing and also manages assets for third party investors.

As a result of the restructuring and the recent unfavourable development in the credit markets Kaupthing expects to make a charge of EUR 85 million in the fourth quarter 2007.

Liquidity and funding of Kaupthing

Kaupthing is committed to its liquidity policy of maintaining sufficient secured liquidity to repay all maturing obligations for at least 360 days and at the same time maintain a stable level of business without accessing the capital markets. The secured liquidity of the Bank consists of cash, high grade international repo-able bonds and back-up facilities with a maturity of over one year and without MAC clauses. As of 15 November Kaupthing Bank had more than 420 days of secured liquidity. The cash payment due to the Sellers of NIBC is taken into account when the Bank's liquidity position is calculated.

The secured liquidity of NIBC calculated the same way is more than 720 days and pro-forma combined secured liquidity of Kaupthing group and NIBC is more than 600 days.

Kaupthing funds itself through the parent company and its two self-funded subsidiaries: FIH in Denmark and Kaupthing Singer & Friedlander in the UK. Kaupthing (parent) has EUR 1.7 billion of long-term debt maturing in 2008 and the Group has EUR 3.7 billion. In comparison Kaupthing (parent) had as of 15 November raised close to EUR 6 billion in long-term financing since the beginning of the year. As part of the financing of the NIBC acquisition Kaupthing has also issued USD 400 million in Tier 1 subordinated bonds and sold them to investors in Asia.

In raising the funds, Kaupthing has, in line with its strategy of diversification of its funding base, been using a variety of funding sources, public issues and private placements including bilateral lending. Kaupthing has furthermore not experienced an increase in funding costs from 2006.

For further information please contact:

Hreidar Már Sigurdsson, CEO at +354 444 6101

Jónas Sigurgeirsson, Chief Communication Officer, at +354 444 6112

About Kaupthing Bank

Kaupthing Bank (http://www.kaupthing.com) offers comprehensive commercial and investment banking services to individuals, companies and institutional investors. The Bank is a leading player in all the main areas of the Icelandic financial market, and in addition to Iceland, the Bank's key markets are Denmark and the United Kingdom. The Bank focuses on the growth and development of its international activities and aims to be one of the leading investment banks in northern Europe.

Kaupthing Bank operates in twelve countries with its headquarters located in Reykjavík. The Bank's main subsidiaries are FIH Erhvervsbank in Denmark, Kaupthing Singer & Friedlander in the United Kingdom, Kaupthing Bank Sverige, Kaupthing Bank Luxembourg, Kaupthing Bank Oyj in Finland, Norvestia Oyj in Finland, Kaupthing New York, Kaupthing Asset Management in Switzerland and Kaupthing Norge in Norway. The Bank also has activities in the United Arab Emirates (Dubai) and Qatar and operates a branch in the Faroe Islands. As of 30 September 2007 the number of full-time equivalent positions was 3,190 at Kaupthing Bank and its subsidiaries. www.kaupthing.com

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