Iceland’s Kaupthing Bank Cancels NIBC Acquisition Skip to content

Iceland’s Kaupthing Bank Cancels NIBC Acquisition

Kaupthing Bank announced yesterday that it has decided to cancel the takeover of Dutch bank NIBC because of instable financial markets. The Icelandic Financial Supervisory Authority (FME) had not yet approved of Kaupthing’s plans.

Regulatory submissions have been withdrawn and the share purchase agreement terminated, and Kaupthing is no longer entitled to a proposed rights issue in the first quarter of 2008, as reported in the Wall Street Journal.

Last August, Kaupthing agreed to purchase NIBC for EUR 3 billion (USD 4 billion) from a group of shareholders, led by J.C. Flowers & Co. The plan was to issue new share capital to fund the acquisition, up to 210 million shares of which NIBC’s current shareholders would receive 140 million shares.

Since August, Kaupthing Bank’s funding costs have increased rapidly in the recessing credits markets and reporters have speculated whether the FME would block the NIBC deal or else request that Kaupthing raise additional funding to protect its own balance sheet.

According to the Wall Street Journal, Kaupthing Bank has suffered severe blows from the recent credit crisis. Its shares have dropped by 30 percent in value over the past three months and the bank’s five-year credit default swaps (CDS) spreads have jumped from 300 basis points to nearly 590 basis points in one month, thus making it more expensive for the bank to take out loans.

Another factor which may have affected the NIBC deal is that the Central Bank of Iceland did not allow Kaupthing Bank to adopt the euro as its operational currency on January 1, 2008, as the bank had expected.

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