THE biggest bank in Iceland, Kaupthing, last night mounted a strong defence of its financial position in the face of heightened fears over its future.

The institution, which counts some of Britain’s best known entrepreneurs among its clients, including property tycoon Robert Tchenguiz and the Candy brothers, the developers of luxury homes, has been seen as a potential high-profile victim in the economic crisis engulfing Iceland.

Last Monday, the government in Reykjavik rescued the country’s third-largest bank, Glitnir, by acquiring a 70% stake. It has denied that it may have to rescue Kaupthing as well, although it is working on a wider bailout plan for the Icelandic economy.

It is believed to be in talks with the central bank and various pension funds about staging a deal. An announcement about a rescue could come as early as today.

Last night, Sigurdur Einarsson, Kaupthing’s chairman, leapt to the defence of the lender, insisting it was well placed to deal with the crisis.

“Over the years we have built a strong and well diversified bank — Kaupthing has a great franchise,” he said.

“We have some of the strongest capital ratios in European bank sector \ and a good liquidity position and a loan to deposit ratio of around 50%.

“We’ve got good asset quality and a highly diversified loan portfolio. In fact, 70% of our business is outside Iceland. Kaupthing has and continues to manage its business prudently and, with our strong fundamentals, we are naturally concerned when we hear malicious rumours and sensationalism about Kaupthing being reflected irresponsibly.

“We ask people to look at the facts, not rumour and innuendo.”

Kaupthing has built up a strong presence in the UK. It has helped Tchenguiz to build sizeable stakes in J Sainsbury, the supermarket, and Mitchells & Butlers, the pubs operator, through financial instruments called CFDs (contracts for difference). If both stakes were sold it would realise substantial losses. Last week, Kaupthing began closing clients’ CFD accounts to reduce its leverage.

The bank’s other UK deals include financing the purchase of the former Middlesex Hospital, which the Candys plan to turn into deluxe apartments. This property’s value has also fallen.

Kaupthing is a key player in the British high street, through its support of Baugur, the Icelandic retail conglomerate that owns store groups such as Iceland, Hamleys and House of Fraser.

The bank is a shareholder in the Baugur-backed vehicle Mosaic, which owns a number of female fashion chains.

Separately, bosses at the retail chains backed by Baugur are to seek fresh reassurances that their businesses will be unaffected by the crisis in Iceland.

They are due to get together with Baugur executives at a strategy day in central London on Tuesday. Although it has been planned for some time, the retailers will discuss the impact of the situation in Iceland. Baugur has already insisted its UK assets would not be affected.

This weekend Gunnar Sigurdsson, chief executive of Baugur, said: “The situation is not going to affect Baugur. What is happening in Iceland will not flow into the UK high street and will not lead to a forced sale of assets.”

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