MP Fjárfestingarbanki hf. - Financial Statement Release

- MP Bank's results for the first half of 2009

The operations of MP Bank hf. during the first half of 2009 resulted in a loss
of 412 million ISK. MP Bank started its commercial banking activities in May.
Preparation and initial costs of those activities were high while revenue
generation will start to be significant in the 2nd half of the year. Net
interest income was only 48 million ISK or considerably less than 1% on an
annualized basis, while in the same period the year before it was ISK 762
million. Fee income decreased by 23% from the same period last year and
amounted to ISK 444 million compared to ISK 578 million during the first half
of 2008. Net impairment charges were ISK 192 million but were ISK 45 million
one year ago. The bank has now total reserves of ISK 2,263 million, out of
which ISK 1,723 are reserves against loan impairments. That is 15.6% of the
total portfolio of loans to clients. During the period a final write off was
made of ISK 166 million on irrecoverable loans and claims. 

Loss due to associated companies was ISK 72 million during the reporting period
but returned a profit of ISK 83 million the year before. The loss stems from MP
Pension Funds Baltic which is a pension fund company operating in Lithuania,
50% owned by MP Bank. The progress of the company is going according to plan
but no expenses are capitalized as goodwill. The associated company Hraunbjarg
was delivered to shareholders of MP Bank as a special dividend so its results
are no longer calculated in the accounts of the bank. 

The equity of the bank was ISK 5,294 million ISK and total assets ISK 56,720
million. The capital ratio as calculated under the law on financial
institutions (CAD ratio) was 17.5% but the minimum legal requirement is 8%. 

The liquidity of the bank was very strong at the end of the reporting period.
Claims on the Central Bank of Iceland, holdings of Icelandic government bonds
and deposits in foreign banks amounted to a total of ISK 35 billion. Deposits
increased substantially during the reporting period due to the increase in
commercial banking operation or from ISK 8.6 billion at the end of 2008 to ISK
31 billion on June 30th. 

The operational loss during the first half of 2009 reflects the cost of
entering into new operations and adjustments to new conditions on the Icelandic
financial market. Those conditions were extremely adverse during the reporting
period. The Central Bank of Iceland lowered its deposit rate significantly down
to 9.5% which led to decreased interest income for MP Bank. At the same time
the Central Bank kept its benchmark refinancing rate at 12% or 2.5% higher than
the deposit rate. 

In spite of the large increase in deposits MP Bank scaled back its loan
portfolio during the period. The Icelandic economy has far from recovered from
the collapse of Kaupthing bank, Landsbanki and Glitnir bank last fall. With a
clearer outlook the bank can restart lending programs and thereby increase its
profitability. 

MP Bank became the largest broker and market maker of government issued bonds
in the Iceland Stock Exchange during the period, which is a large step in the
history of the bank. It is extremely important that the government has good
access to credit markets at favorable rates during the period of high budget
deficit. During the first half of the year MP Bank had slight losses from this
important function but in the long run it will most like become profitable
again. 

The currency restrictions imposed by Icelandic authorities in late 2008 hamper
the activities of MP Bank severely. After the collapse of the three large banks
it has not been possible for the bank to reduce its currency exposure to the
Icelandic krona through hedging activities. MP Bank has a branch in the EU
located in Vilnius, Lithuania, which has foreign denominated assets which no
longer can be hedged. During the reporting period MP Bank paid off all its
loans from non‐Icelandic entities and is not accepting deposits outside of
Iceland. 

The first half of 2009 was a period of difficult and challenging adjustment for
the operations of MP Bank, especially during the first months of the year. Mr.
Gunnar Karl Guðmundsson became the new CEO of the bank on June 1st. 2009.
Commercial banking activities have however started very well and client inflows
have been far higher than expected. It is the opinion of the Board of MP Bank
that the operational results of the bank will improve during the 2nd half of
the year. 


Further information:

Gunnar Karl Guðmundsson, CEO tel. +354‐8583260

Margeir Pétursson, Chairman of the Board, tel. +354‐5403230


A copy of the Interim Financial Statement for the first 6 months of 2009 can be
accessed on the bank´s website, www.mp.is

Attachments:

press release 6 months 2009.pdf

mpb financial stmnts 06-2009.pdf