The Icelandic Stock Exchange has halted share trading in five other major financial institutions including bank Kaupthing as the government drafted plans to deal with a growing economic crisis in the country.
Kaupthing has significant links to Birmingham including an investment in Bath Street-based Mitchells and Butlers, while its Kaupthing Singer & Friedlander subsidiary is building a major presence in the region with Trevor Foster as managing director of banking and regional chairman Paul Bassi.
They declined to comment on the situation.
Iceland’s government is currently wrestling with the fallout from the global financial crisis that has led to a series of bank collapses in recent weeks.
One of the country’s big three banks, Glitnir, was nationalised last week but retail investor Baugur insisted its roster of UK high street businesses, including House of Fraser, Debenhams, Woolworths, Iceland, Moss Bros and French Connection, was not under threat from the banking crisis engulfing the country.
Glitnir and Kaupthing both have links with some of Baugur’s and other UK retail investments, and the financial crisis has led to speculation that forced sales could be on the cards as the troubled banks protect their shareholders.
Baugur recently divested itself of any Icelandic assets, leaving its portfolio based mainly in the UK with investments also in Scandinavia and the US. The group said the “vast majority” of its funding came from international banks.
A statement from the group said: “The situation in Iceland has no direct impact on the operational businesses in which Baugur is invested.
“Baugur is just one of a consortium of shareholders in each business and has no operational relationship with these companies. At the same time the vast majority of funding for these companies is through international banks.
“These businesses are performing well and the portfolio is generating strong cash flows, which is key in markets like this. Our operational assets are strong.”
Baugur added: “What is happening in Iceland will not flow into the UK high street as some people have tried to speculate and will not lead to a forced sale of assets.”
Iceland’s banking sector now dwarfs the rest of the economy, leaving the country heavily exposed to the global credit squeeze as it has heavy investment in external markets.
The economic problems during the credit crisis have seen the country’s interest rates running at 15.5 per cent - around twice what they were three years ago - and inflation roaring ahead at 13.6 per cent - more than five times the 2.5 per cent target.
An estimated 150,000 UK savers are thought to hold money with Icelandic banks, mainly through Kaupthing Edge, the retail arm of Kaupthing, and Icesave, which is part of Landsbanki.
Kaupthing chairman Sigurdur Einarsson stressed that the bank remained financially sound.
He said: “Over the years we have built a strong and well-diversified bank - Kaupthing has a great franchise.”