The Wall Street Journal-20080131-Kaupthing Drops NIBC Deal

Return to: The_Wall_Street_Journal-20080131

Kaupthing Drops NIBC Deal

Full Text (182  words)

STOCKHOLM -- Iceland's Kaupthing Bank HF called off its planned acquisition of NIBC Holding NV because market conditions have made it difficult to finance the deal, its chief executive said.

In August, Kaupthing agreed to buy the non-listed Dutch rival for 3 billion euros ($4.43 billion) from a consortium of shareholders led by J.C. Flowers & Co. Since the deal was announced, though, Kaupthing's funding costs have risen sharply due to the turbulence in global credit markets.

"We thought that the synergies that we planned to achieve would be challenging to get through in these market conditions," Hreidar Mar Sigurdsson, Kaupthing's chief executive, said in an interview.

Kaupthing's five-year credit default swap spreads, which measure the cost of insuring against default on its debt, have risen sharply amid market jitters over the bank's risk profile. Before Kaupthing canceled the deal, yields receivable by the parties that issue the swaps, incurring the risk of paying Kaupthing's creditors should it default, were about 5.9 percentage points higher than on government securities.

Mr. Sigurdsson said that the decision was made in agreement with J.C. Flowers.