ICELAND - Iceland's Kaupthing Bank has denied its deal with US buyout firm JC Flowers to buy Dutch investment bank NIBC for €3bn is in jeopardy of being blocked.

News broke this morning suggesting Iceland's financial regulator FME is considering blocking the NIBC acquisition, following concerns about Kaupthing's financial strength.

IPE understands Kaupthing, Iceland's largest bank, expects the purchase will be finished "very soon", even though the completion of was planned for late 2007.

A spokeswoman for FME also told IPE: "Kaupthing's application regarding the acquisition of NIBC is being processed within FME. This has not been concluded and hence no decision has been taken."

She denied the regulator is unfavorable towards the deal, stressing it is an "ordinary process".

A spokesman for NIBC said: "We have no other knowledge other than the Icelandic central bank is examining the application."

Kaupthing announced the planned purchase last August, less than a week after the Dutch merchant bank was one of the first to reveal massive losses in its sub-prime portfolio.

NIBC said last year in a statement its US sub-prime portfolio would be transferred prior to the completion to a company controlled by JCF, run by former Goldman Sachs partner, Chris Flowers. (See earlier IPE story:Iceland's Kaupthing buys sub-prime victim)

Flowers bought the bank in 2005 from the two largest Dutch pension funds, ABP and PGGM, and subsequently planned a €1.5bn IPO, but this was called off following the sub-prime losses.

Elsewhere, it has emerged JC Flowers, which earlier this month also bought a stake in Friends Provident, and US alternative asset managers Cerberus are believed to be back in the race for besieged UK lender Northern Rock.

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