Page last updated at 12:16 GMT, Monday, 29 September 2008 13:16 UK

Iceland nationalises Glitnir bank

The Icelandic government has taken control of the country's third-largest bank, Glitnir, after the company faced short-term funding problems.

The government has bought a 75% stake in the bank for 600m euros ($860m; 478m) to ensure stability of the bank during the current financial turmoil.

Glitnir is expected to operate as normal and the government said it did not intend to hold the stake for long.

It is the first Icelandic banking nationalisation of the current crisis.

Without this intervention Glitnir would have ceased to exist within the next few weeks
David Oddsson, Icelandic central bank governor

The rescue plan follows meetings between Glitnir and the Central Bank of Iceland to discuss a solution to the bank's problems after the deterioration of its funding position.

The government's offer was put on the table on Sunday night and accepted at a board meeting on Monday.

Central bank governor David Oddsson told a news conference: "Without this intervention Glitnir would have ceased to exist within the next few weeks. It's as simple as that."

'Turbulent markets'

Glitnir's chief executive, Larus Welding, who was appointed to the post in May 2007, will remain in his role.

"The board and management of Glitnir have diligently worked at securing the bank's funding in the past months' turbulent markets but unfortunately the bank saw adverse development in the past few days," Mr Welding said in a statement.

The bank's chairman, Thorsteinn Mar Baldvinsson, added: "I have emphasised increasing efficiency in the bank's operations.

"I am sorry that we were not able to solve this as we had initially planned."

News of the takeover sent the Icelandic crown plunging to a fresh record low against the euro.

Iceland's banks and its economy have been under pressure since a sharp slide in the country's currency this year.

Many banks took on large foreign debts to finance overseas expansion, and the crown's weakness increases the amount they must now pay to service their debt.

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