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Hitt og þetta 27. apríl 2006

(IFN) Kaupthing Bank reports record 1Q results, up by 69%

Reykajvik/Stockholm (IFN) Iceland's largest bank, Kaupthing Bank, Thursday posted a 69% rise in first-quarter net profit, boosted by the consolidation of Singer & Friedlander in the U.K., the sale of Baugur Group and significant gains in commission income and trading.

The banks also said the uncertainty in the Icelandic equity and currency markets had so far not hurt its operations or asset quality.

The local markets have functioned properly, it said, and its operations have handled the effects of market fluctuations. Kaupthing added that management didn't expect any negative effects from the uncertainty in the future should the volatility continue.

It said, however, that its bond spreads on the secondary market have widened recently and that if spreads don't narrow in coming months, it could lead to increased funding costs.

Net profit attributable to main shareholders was ISK18.8 billion (EUR1=ISK92.7) for the three months, up from ISK11.09 billion, in the same quarter a year earlier.

First-quarter net interest income was at ISK10.48 billion, up from ISK7.5 billion.

Analysts at Landsbanki had forecast a net profit of ISK16.64 billion and net interest income of ISK10.77 billion.

"I am satisfied with these results, as we achieved record earnings during the quarter," Kaupthing Chief Executive Hreidar Mar Sigurdsson said in a statement.

"These figures clearly reflect the bank's solid income base. Net interest income covers nearly all the bank's operating expenses, and the 35.4% cost-to-income ratio is most satisfactory," the CEO added.

"Activities outside Iceland are flourishing and our position in northern Europe is becoming increasingly robust," Sigurdsson said.

The CEO added that "we are placing more emphasis on communicating with the international investor community."
"These figures clearly reflect the bank's solid income base. Net interest income covers nearly all the bank's operating expenses, and the 35.4% cost-to-income ratio is most satisfactory," the CEO added.

"Activities outside Iceland are flourishing and our position in northern Europe is becoming increasingly robust," Sigurdsson said.

The CEO added that "we are placing more emphasis on communicating with the international investor community."
At 0715 GMT, Kaupthing shares were up SEK1, or 1.3%, to SEK80.50 on the Stockholm stock exchange.

Net gains on financial assets at fair value totaled ISK11.440 billion in the quarter.

Including dividend income of ISK1.61 billion, its net financial income rose 99% to ISK13.51 billion, which it attributed to "significantly better conditions on the Nordic financial markets" and the sale of Baugur, an international investment company.

The bank said it faces a total market risk of ISK68.6 billion in listed shareholdings, of which around 38% are on the Iceland stock exchange.

Kaupthing also said it reduced its holdings in unlisted shares in the quarter to ISK35.5 billion from ISK41.6 billion at the end of 2005. It also published a list of its four largest unlisted shareholdings, representing about 58% of the value of its unlisted shareholdings.

The company said it holds a 29% stake in the telecommunications company Siminn and a 19% stake in the Exista holding company - both in Iceland - and 23% of the shares in LD Equity in Denmark and 9% in the Somerfield supermarket chain in the U.K.

Kaupthing had previously said it would dissolve its cross-ownership in Exista by the end of 2006. Later this year, the Kaupthing board will propose that shareholders be paid extra dividends in the form of Exista shares. Exista currently holds a 21.1% stake in the Kaupthing.

Kaupthing's holdings, and also the equities held by Iceland's other two main banks - Glitnir Banki Hf. (GLB.IC) and Landsbanki Islands Hf. (LAIS.IC) - attracted major international attention after Fitch Ratings Agency gave a negative outlook on the country's sovereign debt Feb. 21.

Merrill Lynch and Danske Bank followed with reports raising additional concerns about massive current account deficits, the stability of the banks' balance sheets and rising refinancing costs on maturing debt.

Kaupthing, which saw its share price shoot up to ISK1,003 in February, has plummeted in the wake of the reports. The shares are now down about 20% from the February peak.

The bank said the short-term outlook for its operations is in general favorable, with a strong investment- banking pipeline and where the prospects in its markets "are for most parts supportive of the bank's business model and product offering." Kaupthing's investment-banking and capital-markets units in Denmark have shown continued progress, it said, adding that it had recruited two strong teams of professionals there.

Its capital-market operation in the U.K. has also developed, and the integration of Singer & Friedlander is going to plan, it said.

It also said it performed well above its long-term objective of at least 15% annual return-on-equity in the quarter, and said it is likely to reach its ROE objective in the near future.

It noted, however, that its operations, like those of similar companies, are contingent upon uncertainties, such as developments of financial markets and other factors that aren't under the bank's control.
Sources: Dow Jones; Viðskiptabladid; www.kaupthing.net
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Icelandic Financial News (IFN) is available on Factiva, a joint venture between Reuters and Dow Jones Newswires, FT.COM, LexisNexis, Comtex, Gale and Thomson via the Nordic Business Report.