NETHERLANDS/ICELAND - Iceland's Kaupthing Bank has agreed to buy NIBC for €3bn, less than a week after the Dutch merchant bank announced massive losses in its sub-prime portfolio.

NIBC announced last Thursday in its preliminary results it has seen profits evaporate because of massive losses on asset-backed securities related to the US subprime mortgage market, and called off its plans for an initial public offering (IPO) (see earlier IPE story: NIBC drops IPO plans).

Kaupthing, Iceland's largest bank and the seventh-largest in the Nordic region, today said the move would increase its reach outside its home market. The bank has already acquired operations in the UK and Denmark.

Hreidar Már Sigurdson, chief executive officer of Kaupthing, commented in a statement: "The proposed acquisition is a natural next step in Kaupthing's strategy of growth and diversification."

He added both his bank and NIBC have similar business models.

Ravi Sinha, managing director of NIBC's owners J.C. Flowers & Co (JCF), said: "We expect that this transaction will improve NIBC's ability to compete and prosper in its core markets."

NIBC, with €9.3bn assets under management (AUM), announced in a statement its US sub-prime portfolio will be transferred prior to the completion to a company controlled by JCF, run by former Goldman Sachs partner, Chris Flowers.

Flowers bought the bank in 2005 from the two largest Dutch pension funds, ABP and PGGM, subsequently planning a €1.5bn IPO.

Standard & Poor's Ratings Services, which put NIBC's 'A-' long-term counterparty-credit rating on negative credit watch last week, refused to revise its outlook today, stating it "continues to explore various issues with management".

S&P added: "NIBC's new ownership is currently considered unlikely to result in higher ratings on the bank."

This acquisition is expected to be completed around the end of this year, pending regulatory approval.

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