Kaupþing banki hf. - Company Announcement

Kaupthing Bank turns to the Icelandic FSA

Statement from Sigurdur Einarsson, Executive Chairman of Kaupthing
Bank:"When the board of directors reviewed the position of the bank at a
meeting on 25 and 26 September, the bank was performing well and it
appeared that the third quarter results would be good. Deposits had
increased by an average of almost ISK 4 billion a day for the
previous six months. The bank's liquidity position was therefore
strong and there were plans to start buying back bonds issued by the
bank. The liquidity position of Kaupthing Singer & Friedlander, the
bank's UK subsidiary, was also good - probably the best of any bank
in the United Kingdom.

Kaupthing had for a long time been preparing for a downturn in the
markets, especially in Iceland since it had been clear for several
years that the Icelandic krona was too strong. In order to counteract
this possible downturn, Kaupthing had hedged its equity by
transferring it into foreign currencies, decelerated the growth of
corporate loans in Iceland and cut back its market share in that
area. Kaupthing had not marketed loans in foreign currencies.
Furthermore, it had increased the inflation indexed assets in its
portfolio in Iceland and massively raised the proportion of deposits
in its funding.

At the same time, dark clouds began to form in the international
financial markets and trust between financial institutions quickly
decreased. Banks became more reluctant to lend money to each other
and retracted previous credit lines. On the morning of 29 September
news emerged of the difficulties at Glitnir Bank and the authorities
announced their plans to acquire a 75% stake in the bank. This
triggered a series of events which nobody predicted or was able to
control. This had an effect on the Icelandic economy and the króna
went into freefall. Credit rating agencies downgraded their credit
ratings for the Icelandic state and the Icelandic banks, and foreign
investors unleashed a landslide in which they tried to get rid of
Icelandic assets, regardless of how solid they were.

After British depositors withdrew their deposits from Icesave,
Landsbanki's deposit account in the United Kingdom, the Icelandic
Financial Supervisory Authority assumed control of Landsbanki. In the
wake of this news, there was a significant increase in the outflow of
deposits from Kaupthing Edge in the United Kingdom, despite the
fundamental difference between Kaupthing Edge and Icesave that
Kaupthing Edge was guaranteed by the British compensation scheme and
Icesave by the Icelandic scheme.

After the British chancellor of the exchequer stated that Iceland did
not intend to honour its obligations to British depositors, the
Financial Services Authority in the UK transferred Kaupthing Edge
from the bank's subsidiary, Kaupthing Singer & Friedlander. Kaupthing
Singer & Friedlander was subsequently placed into administration and
Kaupthing Bank's creditors pointed out that this situation
represented an event of default according to the parent company's
loan agreements and was therefore a technical default. It did not
matter that the parent company had sufficient liquidity and its
position was solid."

Kaupthing Bank has now requested that the Icelandic Financial
Supervisory Authority, in accordance with the provisions of the new
Act no. 125/2008, which was passed into law because of the unusual
circumstances in the financial market, assume the power of Kaupthing
Bank shareholders' meeting. Furthermore, the entire board of
directors of the bank has resigned.

The Icelandic FSA has appointed a winding-up committee which now
wields all the authority of the board of directors. The aim of these
actions is to ensure adequate activities of the bank in Iceland and
the stability of the Icelandic financial system. The bank's branches
in Iceland will be open as usual, and it is hoped that the bank's
clients will be inconvenienced as little as possible by these
changes.

While the winding-up committee is in control of the bank, the bank
may not be made subject to enforcement, preliminary seizure or
insolvency proceedings. Call notices to the bank's creditors will not
be issued.


For further information please contact:
Jónas Sigurgeirsson, Chief Communications Officer, tel. +354 444 6112
or ir@kaupthing.com
David Gunnarsson, Deputy Head of Investor relations, tel. +
354-444-7334