Kaupthing Bank agreed to buy NIBC for about $4.1 billion
Kaupthing Bank (the largest bank in Iceland) agreed to buy NIBC for about €3 billion ($4.1 billion) in cash and shares but leaving behind the Dutch merchant bank's money-losing U.S. subprime portfolio.
Kaupthing Chief Executive Hreidar Mar Sigurdsson said on the 15th of August that owning NIBC would help expand its business in the Benelux region and Germany. The deal requires approval by regulatory authorities, which NIBC said it expected in the fourth quarter of this year.
NIBC, which is owned by a group led by private equity firm JC Flowers, announced a €137 million loss on its U.S. asset-backed securities portfolio last week. NIBC said the portfolio was worth €390 million in total. Sigurdsson said Kaupthing made an initial approach to NIBC's owners in mid-June and that due diligence began in July.
Icelandic banks have been expanding overseas in recent years, looking to broaden income streams and deposit bases and reduce exposure to the volatile economy of the remote North Atlantic island and particularly Icelandic shares. After digesting recent acquisitions including corporate bank FIH in Denmark and broker and asset manager Singer & Friedlander in Britain, CEO Sigurdsson said last month the bank was ready for more, pointing to the Benelux countries, the Baltic states and northern Germany as natural areas of expansion.
NIBC had been considering an initial public offering but shelved the plans earlier this month. Kaupthing said it would issue new shares worth €1.36 billion to the sellers. The cash part of the deal, €1.625 billion, will be financed by a rights issue of 40 million shares, issuance of Tier 1 hybrid instruments and cash on hand.
NIBC also reported its first half results on Wednesday, reporting a 98 percent decline in net profits to €3 million compared with the first six months of 2006. It said the subprime losses were largely responsible for the drop.
NIBC's managing board chairman Michael Enthoven, who is due to join Kaupthing's senior management, said JC Flowers would manage the subprime portfolio and that the Dutch lender now had no further exposure to the segment.