Kaupthing has taken the initiative recently to reassure the market about the strength of the Icelandic bank. Do you think the recent speculation about the systemic failure of the Icelandic economy is overblown?

Yes, I believe so. This has definitely been overblown recently. The Icelandic economy is fairly sound. The debt of the government is almost non-existent; there is no unemployment.

What people have been focusing on primarily is the debt as a percentage of the GDP. But this is not the right thing to look at. You have to have the other parts of the equation ­ the assets. Iceland is a fairly small economy, but has a big asset base outside Iceland. So, if you take the net foreign debt as a
percentage of GDP, you would have a totally different picture.

Kaupthing’s share price has fallen significantly and bond spreads have widened considerably. Do you think the market has just got it wrong?

Yes, I believe partly the market has got this wrong. You’re absolutely right that our share price has dropped significantly from its peak in the beginning of February. But, to put it into context, the share price is still up around 8% or 9% from the
beginning of this year. So there is no collapse of the share price.

On the bond issue, on the widening of the spreads, you’re right there. That surprised us somewhat. We obviously have not got our message through to the fixed income market. We are doing a lot of roadshows to the equity investors to broaden our shareholder base and, frankly, we’ve been quite successful there.

Looking at the scale and the size of the loans made by Iceland’s biggest banks, they’re three times the size of deposits. Are there any concerns over this over-leveraging of the banks?

Well, I can only speak for Kaupthing, and then I would like to emphasise that we don’t view ourselves as an Icelandic bank. We view ourselves as a northern European bank since the bulk of our income is outside Iceland. And, as I said before, the UK is our biggest market. And the bulk of our balance sheet is outside Iceland as well.

But you’re absolutely right. We are not a savings bank. We are not predominantly a retail bank. We are a wholesale investment bank. And, for a bank of our type, it is quite natural to have a limited deposit base. Our deposits, as a percentage of our total lending, are 31% today and we have a goal of getting that above 40% before the end of this year. And we are, I must say, well on our way. The deposit base has grown significantly since the beginning of this year.

How do you justify the size of Kaupthing’s trading gains, which surely must be unstable profits?

Over the past 12 years we had trading gains, or net financial income, accounting for 20% to 25% of our total revenues. Even if you take all these revenues out of the revenue base for last year, you would still have a return on equity above 15%, which is quite interesting. And another way of answering it is that our net interest income covers all the costs of the bank. So we are not dependent on the net financial income.

Having said that, we definitely have a track record of 12 years of net financial income. And the net financial income comes from the currency trading, the fixed income trading, the equity trading and the kind of private equity type of investments that the bank does.