The Government seized control of Kaupthing Singer & Friedlander (KSF), the UK arm of Kaupthing, the beleaguered Icelandic bank, yesterday, threatening one of the oldest names in the City and putting 700 jobs at risk.

Acting on a recommendation by the Financial Services Authority, the regulator, the Treasury plunged the British financial services group into administration after it was deemed unable to honour its obligations to customers.

Although the merger that created KSF was cemented only in 2005, Singer & Friedlander was an asset manager and lender to small and medium-sized businesses in Britain for more than 100 years.

The Treasury invoked new banking powers to transfer KSF's £2.5billion of retail deposits to ING Direct, the Dutch bank, but cast doubts over the future of Kaupthing's UK asset management unit and its broking division. ING, which took responsibility for 160,000 bank depositors with Kaupthing Edge, the internet operation, did not offer new employment to 700 staff. As at the end of last year, KSF employed 817 in the UK, according to its most recent annual report. However, about 100 employees have lost their jobs since then.

Armann Thorvaldsson, the chief executive of KSF, told staff in an internal memo circulated yesterday that the board had no choice but to put the Icelandic bank's British business into administration. Glitnir and Landsbanki, the Icelandic banks, have been taken into public ownership over the past week. “I am personally gutted that it has come to this, especially in light of the fact that our problems have arisen out of association rather than any fundamental problems with the business,” Mr Thorvaldsson wrote.

Ernst & Young, called in to take control of swaths of KSF's British assets, declined to comment, beyond confirming that it had been hired.

The future ownership of Kaupthing Singer & Friedlander Capital Markets, the broking business that counts Asos, the internet retailer, as a client, is in doubt. KSF owns a 67 per cent stake in the broking unit, which acts for more than 30 FTSE 350 companies and employs 75 staff, many of whom are shareholders. City sources said that management was considering trying to buy the majority stake from the administrator and emphasised that it remained a going concern.

“We think we have a case under the shareholder agreement to buy the holding,” an insider said.

The Treasury said of the administration: “This is the right course of action to protect savers, ensure financial stability and safeguard the interests of the taxpayer.”

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