Íslandsbanki hf. - Company Announcement

Islandsbanki hf. : treatment of goodwill

Reykjavik,  20 December 2011:  As a  part of the  merger of Íslandsbanki hf. and
Byr hf., Íslandsbanki plans to make fair value adjustments to assets from Byr in
the  opening  balance  sheet  of  the  combined entity. The resulting difference
between assets and liabilities from Byr will result in  goodwill, which is based
on  the expected impact of the  merger on the future cash  flow of the bank. The
Board  of Directors of Íslandsbanki hf.  has decided to write  off nearly all of
the  goodwill  associated  with  the  merger.  This  is  in line with the Bank's
ambitions  of minimising intangible assets on  its balance sheet. This write-off
will  result in a charge to the income  statement in the fourth quarter of 2011
and therefore impact the earnings in that period.

The  one-off charge will  not impact the  Bank's cash flow  or liquidity and the
total  capital ratio will remain  well above the 16% limit  set by the Icelandic
Financial Supervisory Authority. The write-off is in line with the Bank's merger
plans which are expected to bring about substantial cost and income synergies.

Further information:

Sigrún  Hjartardóttir, Head of  Investor Relations, phone +354 844-4748, e-mail:
sigrun.hjartardottir@islandsbanki.is


[HUG#1572634]