Kaupthing Buys Netherlands' NIBC

Reykjavik, Iceland - 16 August 2007

Icelandic lender Kaupthing Bank said Wednesday it bought the Dutch merchant bank NIBC Holding NV for 2.99 billion euros ($4.06 billion) to diversify and strengthen its operations.

NIBC is presently owned by a consortium of shareholders led by J.C. Flowers & Co. LLC, Kaupthing said in a statement. Those shareholders will retain the company's so-called U.S. sub-prime mortgage portfolio, valued at about 391 million euros ($521.4 million) at June 30.

Kaupthing said that by buying NIBC - which offers finance, banking and investment management to corporate clients, financial institutions and institutional investors - it will become stronger among banks offering financial services to small- and medium-sized enterprises.

It will fund the deal by selling 110 million new shares worth 115.38 Swedish kronor ($16.74) each for a total value of 1.36 billion euros ($1.85 billion) and paying 1.63 billion euros ($2.22 billion) in cash from existing resources, an issue of unidentified securities and the issue of 40 million new shares through a rights issue.

"The envisaged transaction offers a good strategic fit with Kaupthing's focus on being a one-stop financial shop for small/mid-sized corporates in northern Europe," said Fitch Ratings. "It complements Kaupthing's existing franchise based mainly in Iceland, Scandinavia, the U.K. and Luxembourg by adding a strong foothold in the Benelux and a presence in the German market.

Fitch also said it viewed favorably the decision to transfer the U.S. subprime portfolio from NIBC to a separate entity controlled by NIBC's current shareholders.

The transaction is subject to approval by Dutch and Icelandic regulatory authorities and is expected to be completed by early 2008.

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