According to the newspaper, the firm has risked over-extending itself through an aggressive expansion programme - and finds itself exposed in the harsher financial climate following the onset of the credit crunch.

Recent deals made by the bank include the part-acquisition of UK supermarket Somerfield and backing for the Shard of Glass, a proposed 300 metre tower in London.

Kaupthing also lends money to celebrity chef Gordon Ramsay's several restaurants, fashion chain Karen Millen, ultra-luxury property developers the Candy brothers and real estate powerbroker Robert Tchenguiz.

However, citing un-named "insiders", the report adds that the bank has "significantly eased back" on lending following its credit crunch worries.

Last quarter, Kaupthing declared a loss totalling just under $60 million - despite its having largely avoided dealing in the toxic sub-prime securities which have caused big write-downs at other banks.

Commenting, Alexandre Birry at credit ratings firm Fitch said: "Kaupthing has been subjected to negative marketing sentiment…our focus is on long-term trends.

"They have been growing [prior to the crunch] in capital markets and investment banking. Obviously the outlook [in these sectors] is weaker."

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