Question marks are hanging over the future of some of Britain’s biggest high street names, including Hamleys, Karen Millen and House of Fraser, after the economic crisis hit an unlikely corner of the world more than 1,000 miles from the West End.

The Icelandic Government was forced to nationalise Glitnir, the country’s third-largest bank, and the ripple effect threatens to engulf nearly 20 high street brands.

There were fears last night that they may have to be auctioned off in a fire sale by Jon Asgeir Johannesson, the billionaire owner of Baugur, the vehicle used to snap up a host of retailers in the US and Britain over the past decade.

Yesterday Mr Johannesson was forced to put one of his smaller investment companies, Stodir, into administration. Stodir had a 32 per cent stake in Glitnir. The bank was nationalised with a near £500 million cash injection from the Icelandic Government as panicking savers rushed to pull out their money.

One City expert said: “What we have seen today could trigger yet another domino effect. We just don’t know if it will be contained in Iceland, or spill over on to the high street.”

A fire sale would be another huge blow to the high street at a time when many are fighting to survive until Christmas in the teeth of the worst retail slowdown since the 1970s.

MFI is expected to close nearly 100 stores, and cut hundreds of jobs, despite a proposed managed buyout at the furniture retailer.

Mr Johannesson has become a household name in Iceland after taking the reins of his family-controlled Baugur Group 20 years ago. As a child he followed his father around supermarkets in Reykjavik. His grandfather asked him at the age of 6 if he planned on becoming a millionaire, Mr Johannesson replied: “I’m going to become a billionaire.”

His success in the past two decades has been an extraordinary rags to riches story. From only one store – a discount supermarket in Reykjavik docks – he has transformed Baugur into a sprawling empire with total sales of nearly £10 billion by acquiring dozens of retailers on both sides of the Atlantic.

The company’s portfolio of retailers reads like a who’s who of the high street, including House of Fraser, Goldsmiths the jewellers, Hamleys, Whistles, Oasis, Karen Millen and the Iceland supermarket chain. It was linked with a bid for Saks, the famous New York department store, earlier this year.

Baugur also owns shares in Woolworths, French Connection and Debenhams. It lost an estimated £100 million on these investments alone last year as all three retailers fell on the London Stock Exchange.

Analysts believe that although none of Baugur’s retail companies is based in Iceland, it will find it impossible to escape the carnage in the country’s economy and the credit squeeze on banks around the world.

Most of Baugur’s acquisitions have been financed by debt and the cost of servicing the money it has borrowed is thought to have soared. It could also find it far harder to tap credit markets for cash as liquidity on financial markets dries up.

Speculation about the state of Baugur’s financial situation has grown all year. It has begun to sell off some of its worst performing businesses, including MK One, the fashion retailer, and Julian Graves, the health and natural foods chain.

Mr Johannesson also scrapped a £40 million bid for Moss Bros, the struggling menswear retailer. At least some of the financing was going to come from Glitnir.

The company has insisted repeatedly that it is not in any danger. In April Gunnar Sigurdsson, the chief executive of Baugur, insisted that the group was in good health and was looking to grow not only in Britain but also in the US, China and India.

Mr Sigurdsson said: “There has been a lot written about Iceland and Baugur recently, with people drawing conclusions about the difficulties we may be facing. They are way off the mark. We have a great portfolio of brands and are very well placed in the market.”

However, one industry figure told The Times yesterday that there were serious doubts over Baugur’s ability to keep its empire intact.

She said: “When Baugur was buying everything up there was a feeling that perhaps everything was undervalued and everyone else, private equity firms, were missing out. But now there’s a feeling that perhaps the private equity firms knew what they were doing, and Baugur got it wrong.”

What Baugur owns

Food Iceland, Whittard of Chelsea

Department stores Illum, House of Fraser, Magasin du Nord, SOUK

Fashion Mosaic, Coast, Karen Millen, Oasis, Odille, Principles, Shoe Studio, Warehouse, Whistles, Jane Norman, All Saints, Matthew Williamson

Other investments Debenhams, French Connection, Moss Bros, Woolworths, Saks

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