Kaupþing banki hf. - Company Announcement

- Kaupthing completes the financing of the acquisition of NIBC and reduces exposure to structured credit

Kaupthing Bank ("Kaupthing") is today announcing the completion of the
financing of its acquisition of NIBC. Kaupthing is also announcing that its
exposure to structured credit will be reduced and that the Bank expects to make
a charge in the fourth quarter of EUR 85 million. Kaupthing is also providing
an update on its funding and liquidity position. 

Financing of the acquisition of NIBC

- Kaupthing plans to issue new share capital in total of up to 210 million
shares. 
- A consortium of shareholders led by J.C. Flowers & Co ("the Sellers" of NIBC)
will receive 140 million of these shares at the average price of SEK 105.67. 
- Kaupthing plans to sell the remaining 70 million shares in a rights issue
following the closing of the NIBC transaction. The Sellers and Exista have
agreed in principle to underwrite the rights issue. 
- The acquisition of NIBC is fully financed.
- Kaupthing expects the acquisition to be closed in January 2008.

Structured credit exposure

• Kaupthing has signed agreements to reduce its exposure to asset backed
securities (ABS) from EUR 1.6 billion to EUR 450 million. The restructuring
process is expected to close in mid December. 
• Simultaneously the Bank plans to terminate the related EUR 1.3 billion
liquidity line and will then have no such contingent liabilities in relation to
its structured credit exposure. 
• Kaupthing has no direct exposure to US sub-prime assets or CDOs containing
such assets. Furthermore Kaupthing has decreased its indirect exposure, related
to the funding provided to the Sellers of NIBC, to USD 136 million. 
• Kaupthing expects to make a charge in the fourth quarter of EUR 85 million
due to losses on its structured credit exposure. 

Update on funding and liquidity

• Kaupthing (Parent) has only EUR 1.7 billion of long-term debt maturing in
2008 and the Group has EUR 3.7 billion. 
• Kaupthing (Group) as well as the parent company had more than 420 days of
secured liquidity as of 15 November 2007 - expected cash payment to the Sellers
of NIBC is taken into account in secured liquidity. 

Financing of the NIBC acquisition 
The board of directors of Kaupthing will seek approval at a shareholders'
meeting to issue and sell 70 million shares in the first quarter of 2008 in a
rights issue. The Sellers and Exista have agreed in principle to underwrite the
rights issue. The Sellers will also receive 140 million shares in Kaupthing
instead of the 110 million previously agreed at the average price of SEK
105.67. Also, the cash payment to the Sellers will be reduced to EUR 1,392
million from EUR 1,625 million. The Sellers of NIBC have agreed to a lock-up
period ending on 31 December 2008 for 110 million of the 140 million shares. 

After the share issue the Sellers will become the second largest shareholder in
Kaupthing with a share of approximately 15.9%. 

Kaupthing is awaiting regulatory approval from the Dutch and Icelandic
financial authorities, and the Bank expects the acquisition to be closed in
January 2008. 

Structured credit exposure and charge in fourth quarter
Kaupthing has taken actions to limit its exposure towards structured credit. In
this regard, Kaupthing has sold part of its ABS portfolio and has signed an
agreement to restructure the remainder. Simultaneously the plan is to terminate
the EUR 1.3 billion liquidity line. 

Subsequently Kaupthing has no direct exposure to US sub-prime residential
mortgage-backed securities (RMBS). Kaupthing has an indirect exposure as the
Bank funded the sub-prime portfolio divested by NIBC to the Sellers with a
senior loan facility. A part of the amended agreement with the Sellers of NIBC
is that the loan amount will be decreased from USD 236 million to USD 136
million collateralized with a portfolio of assets with an unchanged total face
amount of USD 689 million. As a result of that transaction, NIBC does not have
any US sub-prime exposure. 

After the completion of the above restructuring the remaining ABS exposure at
Kaupthing will amount to EUR 450 million, thereof EUR 250 million in
credit-linked loans and EUR 200 million in AAA rated ABS, mostly in
collateralized loan obligations (CLOs). The portfolio referred to in the
credit-linked loans is a diverse highly rated portfolio of ABS mostly limited
to CLOs and high yield collateralized debt obligations (HY-CDOs), but excluding
all sub-prime RMBS, CDO squared or CDOs of sub-prime RMBS. All underlying
assets are rated A or higher with 86% rated AA or higher. 

The above assets are the ABS assets that New Bond Street Asset Management
("NBSAM") manages on behalf of Kaupthing. In addition to this NBSAM manages a
portfolio of corporate synthetic CDOs with a total exposure of EUR 300 million
and a portfolio of floating rate notes (FRN) issued by financial institutions
totalling EUR 1.2 billion. NBSAM is an FSA regulated asset management company
that makes credit investments on behalf of Kaupthing and also manages assets
for third party investors. 

As a result of the restructuring and the recent unfavourable development in the
credit markets Kaupthing expects to make a charge of EUR 85 million in the
fourth quarter 2007. 

Liquidity and funding of Kaupthing
Kaupthing is committed to its liquidity policy of maintaining sufficient
secured liquidity to repay all maturing obligations for at least 360 days and
at the same time maintain a stable level of business without accessing the
capital markets. The secured liquidity of the Bank consists of cash, high grade
international repo-able bonds and back-up facilities with a maturity of over
one year and without MAC clauses. As of 15 November Kaupthing Bank had more
than 420 days of secured liquidity. The cash payment due to the Sellers of NIBC
is taken into account when the Bank's liquidity position is calculated. 

The secured liquidity of NIBC calculated the same way is more than 720 days and
pro-forma combined secured liquidity of Kaupthing group and NIBC is more than
600 days. 

Kaupthing funds itself through the parent company and its two self-funded
subsidiaries: FIH in Denmark and Kaupthing Singer & Friedlander in the UK.
Kaupthing (parent) has EUR 1.7 billion of long-term debt maturing in 2008 and
the Group has EUR 3.7 billion. In comparison Kaupthing (parent) had as of 15
November raised close to EUR 6 billion in long-term financing since the
beginning of the year. As part of the financing of the NIBC acquisition
Kaupthing has also issued USD 400 million in Tier 1 subordinated bonds and sold
them to investors in Asia. 

In raising the funds, Kaupthing has, in line with its strategy of
diversification of its funding base, been using a variety of funding sources,
public issues and private placements including bilateral lending. Kaupthing has
furthermore not experienced an increase in funding costs from 2006. 

For further information please contact:
Hreidar Már Sigurdsson, CEO at +354 444 6101
Jónas Sigurgeirsson, Chief Communication Officer, at +354 444 6112 or
ir@kaupthing.com