SOURCE: Glitnir

August 01, 2006 09:17 ET

Glitnir Bank Six Months Results of 2006

REYKJAVIK, ICELAND -- (MARKET WIRE) -- August 1, 2006 --



ISK 20.1 Billion (EUR 235 m) in Profit after Tax

45.5% Return on Equity

Record After-tax profit ISK 11.0 billion in Q2

Highlights from the Glitnir banki hf. financial statements for the first 6 months of 2006:


  * Second quarter 2006 was a record profit for Glitnir with
    after-tax profit of ISK 11.0 billion as compared to ISK 9.1
    billion in Q1 2006. After-tax profit was ISK 20.1 billion the
    first 6 months, as compared to ISK 10.5 billion in the first 6
    months 2005.
  * Pre-tax profit for the second quarter was ISK 13.1 billion as
    compared to ISK 11.2 billion in Q1 2006. Pre-tax profit in the
    first six months of 2006 was ISK 24.3 billion, as compared to ISK
    12.3 billion in the first half of 2005.
  * Fees and commissions amounted to ISK 5.9 billion in Q2 2006,
    growing from ISK 5.6 billion in Q1 2006. Fees and commissions
    nearly tripled between years were ISK 11.5 billion for the first
    half of 2006 as compared to ISK 3.9 billion in the first half of
    2005.
  * Net interest income for Q2 was ISK 11.5 billion, up by 45% from
    ISK 7.9 billion in Q1 2006. Net interest income increased between
    years in the first six months by 100% to ISK 19.4 billion.
  * During the first half of 2006, 42% of the Bank's pre-tax profit
    was generated outside Iceland or ISK 10.3 billion out of ISK 24.3
    billion. For the first time, Corporate and Investment banking is
    the largest contributer of profit with 24% of 1H pre-tax profit.
    Norway has 13% of pre-tax profit for the period.
  * EPS for Q2 amounted to ISK 0.76 and EPS for the first 6 months
    was ISK 1.42.
  * After-tax ROE in the first 6 months was 45.5%, as compared to 37%
    for the same period in 2005. After-tax ROE for the period,
    excluding trading gains in equities and the sale of Sjova, was
    38% on an annualized basis.
  * Total assets grew by ISK 187 billion or 10% over second quarter,
    to ISK 2,023 billion. This growth reflects the devaluation of the
    ISK. Excluding the devaluation and the inflationary effects there
    is a small decline in Q2 of about 2%. Loan growth measured in ISK
    was 13% in Q2 and real growth 2%.
  * International bond issues came to EUR 1.9 billion in the first
    half of the year. Refinancing need for 2006 amounts to EUR 600
    million that has therefore already been met. Long term funding to
    date amounts to EUR 2.4 billion.
  * Book equity was ISK 126 billion at the end of Q2, up 48% from the
    end of last year. The CAD ratio was 13.7% with Tier 1 ratio at
    9.1%.


Bjarni Ármannsson, CEO. "This result, which is the best in Glitnir's history, clearly underlines the strengths of the Bank. After a record first quarter, the Bank is performing even better in the second quarter. In the first half of the year, dominated by volatile market conditions, return on equity was 45.5% on an annual basis and all the Bank's profit units showed good results. This is due to the great work of our employees and the clear strategy of diversifying the bank's sources of income in order to reduce the sensitivity of its operations to intermittent instability in individual markets. The main emphasis is on growth in the bank's areas of strength, both by organic growth and through acquisitions of companies that fit well into the bank's strategy. I am particiluarly pleased with the success that has been achieved in integrating current operations and organic growth with the companies acquired by the bank in recent months. In the short term our emphasise is on strong liquidity position and capitalisation, while the Icelandic economy and the perception of it internationally regains balance. Many exciting challenges lie ahead in the markets where Glitnir operates and prospects for the second half of the year are positive."


For further information please contact:

Bjarni Ármannsson    Tómas Kristjánsson    Vala Pálsdóttir
CEO                  CFO                   Head of Investor Relations
Tel: +354 440 4005   Tel: +354 440 4656    Tel: +354 844 4989 or
                                           vala.palsdottir@glitnir.is

The accounts of the Bank are available on its website: www.glitnirbank.com.

1. Consolidated performance

1.1. Highlights from the profit and loss account

Profit

Glitnir's pre-tax profit was ISK 24,296 million in the first half of 2006 and ISK 13,115 million in Q2. Pre-tax profit for the first 6 months grew by 97% from ISK 12,326 million in the corresponding period of 2005. After-tax profit in the first 6 months of 2006 was ISK 20,112 million, including ISK 11,014 million in Q2 2006, as compared to ISK 7,519 million in Q2 of 2005.

Earnings per share came to ISK 0.76 in the second quarter and ISK 1.42 in the first six months. This represents an increase of 71% from ISK 0.83 per share in the first two quarters of 2005.

Performance and economic value added

Return on equity (ROE) after taxes amounted to 45.5% for the first six months, as compared to 37% in 1H 2005. After-tax ROE for the period excluding trading gains on equities and the sale of Sjova was 38% on an annualized basis.

Consolidated EVA was ISK 14,541 million, as compared to ISK 6,500 million in the first six months of 2005. EVA (Economic Value Added) represents the adjusted earnings net of taxes and the opportunity cost of invested capital. The Bank estimates the required rate of return on the Bank's shares in the market at 12.5%. EVA is measured for all the Bank's profit centres and stated in the sections concerning the respective units.

Income

Net interest income amounted to ISK 19,399 million in the first six months of 2006, an increase of 100% from ISK 9,721 million for the same period in 2005. Net interest income for the second quarter amounted to ISK 11,477 million as compared to ISK 5,256 million in Q2 2005.

The net interest rate margin was 2.3% in the first half of 2006 and 2.5% in the second quarter, as compared to 1.7% in Q2 2005.

Net fees and commissions were ISK 11,542 million in the first six months, an increase of 199% from ISK 3,858 million for the same period in 2005. Net fees and commissions totalled ISK 5,916 million in Q2 2006 compared to ISK 2,198 million in Q2 2005. Net fees and commissions totalled ISK 8,773 million for the whole year 2005.

Dividend income was ISK 516 million the first half of 2006, as compared to ISK 397 million for the same period in 2005, an increase of 30%.

Net revenue from financial assets held for trading and trading financial liabilities were ISK 2,887 million, slightly short of the results for 1H last year. The net effect of derivatives was ISK 1,860 million, gains on equities were ISK 1,465 million and losses on bonds ISK 438 million.

Net revenue from financial assets, designated at fair value through profit and loss, was ISK 1,317 million during 1H 2006. The effect of hedge accounting was negative by ISK 91 million, and the net result of currency items was positive by ISK 64 million.

Other operating income was ISK 219 million in 1H 2006 and ISK 172 million in the second quarter. Other operating income amounted to ISK 514 million in 1H 2005.

Expenses

Salaries and salary-related expenses were ISK 6,949 million for the first six months and ISK 3,608 million in Q2. Salaries and salary-related expenses were ISK 4,540 million in 1H 2005. Average number of full-time employees in 1H 2006 was 1,292 compared to 1,259 in 1H 2005.

Depreciation of property and equipment amounted to ISK 294 million in the first half of 2006, a 19% increase from the first six months of 2005.

Other operating expenses came to ISK 5,283 million, increasing by ISK 2,131 million, or 68%, from 1H 2005. Expenses from non-current assets were ISK 21 million.

In all, operating expenses amounted to ISK 12,547 million in the first two quarters of 2006, as compared to ISK 7,962 million for the same period in 2005.

Other items

Impairment losses on loans and receivables were ISK 2,778 million in the first six months of 2006. Of this figure, general provisions were ISK 1,555 million and specific provisions were ISK 1,223 million. Impairment losses on loans in the first two quarters of 2005 amounted to ISK 1,066 million.

The Bank's share in the profit of associates was ISK 1,326 million, as compared to ISK 191 million in 2005 which is explained by the fact that Sjóvá counted as an associate the first 4 months of 2006. Net gains on non-current assets held for sale were ISK 2,444 million in the first half of 2006, as compared to ISK 3,300 million in 2005.

The cost-income ratio for the period was 35%, as compared to 36% for the same period in 2005.

Calculated income tax is ISK 4,184 million for the first six months of 2006, compared to ISK 1,769 million last year.

1.2. Highlights from the balance sheet

Assets

Total assets were ISK 2,023 billion at the end of the second quarter, up by 37% or ISK 551 billion from year-end 2005. Of this figure, total assets of BNbank at the end of June were ISK 587 billion and Glitnir Bank, previously KredittBanken, ISK 65 billion.

Cash and balances with the Central Bank were ISK 10 billion at the end of Q2, as compared to ISK 21 billion at year-end 2005.

Total lending grew by 36% over the first six months, to ISK 1,603 billion. Approximately 40% of lending at the end of June was to customers outside Iceland. Loans to parties other than credit institutions were ISK 1,472 billion, growing by ISK 413 billion, or 39%. Excluding the effect of the devaluation of the ISK the growth is 15%.

Financial assets held for trading were ISK 21.9 billion, up by 43% in the first six months. Total bond assets were ISK 67.8 billion, of which ISK 64.4 billion were used in hedging against derivatives, leaving the net bond position at ISK 3.4 billion. Equities were ISK 71.5 billion, of which ISK 58.4 billion were used in hedging against derivatives, leaving the net position of trading equities at ISK 13.1 billion. The largest part of the position is in Norwegian equities.

Financial assets designated at fair value through P&L were ISK 160 billion. Interest rate risk is hedged with interest rate derivatives, which are also designated at a fair value.

Financial assets available for sale were valued at ISK 3.6 billion, similar as at the beginning of the year. Derivatives used for hedging amounted to ISK 2.9 billion, up from ISK 2.4 billion at year-end 2005.

Investments in associates were ISK 4.3 billion, down by ISK 3.8 billion in first half of 2006, which is mainly explained by the sale of the remaining shares of Sjóvá in Q2 and investment in Máttur.

Property and equipment was ISK 2.3 billion, up by 16% over the first six months of 2006. Intangible assets increased by 55% to ISK 16.8 billion.

Deferred tax assets increased from ISK 268 million from year-end 2005 to ISK 287 million at the end of Q2 2006.

Non-current assets held for sale totalled ISK 312 million at the end of Q2, a decrease of 44% over the first 2 quarters of 2006.

Other assets at the end of Q2 came to ISK 608 million, which represents a decrease of 6% in the first six months.

Liabilities and equity

Deposits were ISK 451 billion, including ISK 64 billion in deposits from credit institutions.

Total borrowings grew by 36%, to ISK 1,343 billion at the end of Q2, including subordinated loans of ISK 94.8 billion.

Derivatives used for hedging were ISK 18.6 billion, up by ISK 11.4 billion over the first half 2006.

Tax liabilities at the end of Q2 amounted to ISK 7.9 billion.

Other liabilities decreased from ISK 26.2 billion at the beginning of the year to ISK 23.2 billion at the end of Q2.

Book equity was ISK 125.8 billion at the end of Q2, an increase of ISK 41.0 billion over the first six months. This includes the equity increase from one billion new shares issued in January and 130 million new shares issued as a dividend payment in March, both at ISK 18.60 per share. Unhedged position in foreign subsidiaries result in 7.3 billion gain directly in equity on 1H 2006.

Due to the adoption of IFRS, the Bank's own shares, formerly included to the trading book, are now deducted from book equity. This change has no impact on the calculation of the CAD ratio.

The Bank's CAD ratio at the end of June was 13.7%, of which Tier 1 was 9.1%. The depreciation of the ISK in the first half lowered the CAD ratio by about 0.3%.

Assets under management amounted to ISK 400 billion at the end of the second quarter, growing by 16% in the first six months.

2. Liquidity and funding

The parent company's international long term funding in the first half of the year amounted to EUR 1.9 billion, equivalent to ISK 185 billion. BNbank's long term funding amounted to NOK 5.8 billion, equivalent to ISK 71 billion. By comparison, the parent company's funding in the first half of 2005 amounted to EUR 2.3 billion and BNbank NOK 2.7 billion. Total funding of the parent company in 2005 amounted to EUR 6 billion and EUR 2.1 billion in 2004.

The highlights in the 2nd quarter were a USD 500 million yankee subordinated bond issue and two syndicated loans - a EUR 200 million revolving credit facility for the parent company and a EUR 225 million syndicated term loan for BNbank. Following private placement activity in July however, the parent's international long term funding to date amounts to EUR 2.4 billion.

It is Glitnir Bank's policy to cover all maturing debt of the parent over a period of 6 months with immediately available funds. After taking liquid assets into account, the Bank's policy is to cover all maturing debt over a period of 12 months. As of the end of the 2nd quarter, immediately available funds covered 107% of maturing debt over the next 6 months. Immediately available funds exceed EUR 2 billion. By adding liquid assets, 112% of maturing debt over the next 12 months were covered. Funding activity in the third quarter to date has been executed with the further strengthening of liquidity and extension of the maturity profile as prime objectives.

Capitalisation remains strong, with Tier 1 and CAD ratios at the parent level standing at 9.1% and 13.7% respectively at end of Q2 2006. The bank will continue to maintain capitalisation well above its prudential long term targets for the foreseeable future.

3. Key figures

4. Performance of profit units

All profit units of the Bank were profitable in the first six months of 2006. Commercial Banking in Iceland had a profit before tax of ISK 2,809 million. The pre-tax profit of Commercial Banking in Norway was ISK 3,224 million. Corporate and Investment Banking had a profit of ISK 5,741 million before tax. The pre-tax profit of Capital Markets was ISK 4,442 million. Treasury had a profit of ISK 3,496 million before taxes. Profit from other activities was ISK 4,584 million, which is explained by the share in associates' profits and other items not allocated to profit units.

Operating expenses of support functions and head office expenses are fully allocated to the profit units.

Over the past 20 months, Glitnir has grown significantly. The group has made substantial investments through targeted acquisitions. Most of these investments have been made in Norway simultaneously, sizeable franchises have been opened in London, Copenhagen, Luxembourg and, most recently, in Halifax, Canada.

The Bank has expanded its services in several markets over the last year, with acquisitions and new appointments that have allowed the bank to work in closer proximity to its customers and markets and consolidate its range of products and services. During the first half of 2006 42% of the Bank's pre-tax profit was generated outside Iceland. Commercial banking in Norway, which entered the consolidated accounts in December 2004, now accounts for 13% of 1H pre-tax profit and Corporate and Investment Banking which has mainly been built up in the past 18 months now accounts for 24%.

4.1. Commercial banking Iceland

Commercial Banking in Iceland provides banking services to private and corporate customers; the business unit comprises Retail Banking, Asset Management, Private Banking, Asset-based Financing and Corporate Banking.

The acquisition of 19% share in the credit card company Kreditkort hf., Mastercard Iceland, was finalised during the quarter. The investment brought Glitnir's holdings in the company to 54%. At the same time, Glitnir sold its 18% share in Greiðslumiðlun hf., VISA Iceland. The agreement was approved by the Competition Authority in July, and there for Kreditkort hf. will be part of the consolidated accounts from July 1st and the profit realised on the sale of shares in Greiðslumiðlun, ISK 900 million, will be recognised in the accounts in the third quarter.

In spite of the significant rise in interest rates during the quarter demand for loans remained high. Nevertheless, interest hikes on housing loans have served to curb the demand for those loans, and, for example, property lending amounted to ISK 1 billion in June as compared to the peak figure of ISK 4 billion last autumn. In spite of a low default rate, among the lowest rates recorded, provisions for losses are substantial for the quarter, largely as a result of the general provision resulting from the lending growth and increased specific provisions.

Pre-tax profit at Commercial Banking in Iceland was ISK 1,393 million in Q2, as compared to ISK 1,345 million in Q2 2005. Net operating income was ISK 5,219 million in Q2 and operating expenses ISK 2,754 million. For the first half of 2006 net operating income was ISK 10,131 million, operating expenses ISK 5,322 million, impairment losses totalled ISK 2,086 millions and profit before tax ISK 2,809 million.

Loans and receivables in Commercial Banking in Iceland were ISK 602 billion at the end of Q2. Loans in Retail Banking were with ISK 250 billion, Corporate Banking ISK 278.5 billion, Asset-Based Financing ISK 44.6 billion and Asset Management and Private Banking ISK 29.4 billion. Domestic deposits in Commercial Banking at the end of the second quarter were ISK 144 billion, increasing by 13% from ISK 127 billion at year-end 2005.

The total pre-tax profit of Retail Banking for the first half of 2006 was ISK 703 million; Corporate Banking had ISK 1,039 million in profit, Asset-Based Financing ISK 515 million and Asset Management and Private Banking ISK 553 million

Total EVA for Commercial Banking was ISK 386 million in Q2 2006, bringing EVA for the first half of the year to ISK 867 million. The total number of full-time employees was 634 at the end of second quarter.

Retail banking

Retail Banking provides financial services to individuals and households as well as small and medium-sized enterprises through Glitnir's branches across the country, over the Internet and through the Glitnir call centre.

The loan portfolio increased in the quarter, but at a slower pace than in the preceding quarter. The demand for new housing loans slowed down considerably in the second quarter, as compared to the first quarter. In the past 12 months realignment of the branch network has taken place, Glitnir has closed 4 branhces and in June the Bank sold its branch in Siglufjordur, a town in northern Iceland, to the local savings bank. The branch network now consists of 24 branches.

Pre-tax profit in the second quarter was ISK 274 million. Net operating income of Retail banking amounted to ISK 2,874 million, while operating costs amounted to ISK 1,952 million. The total six months pre-tax profit was ISK 703 million in 2006, as compared to ISK 1,555 million in the previous year.

Asset-based financing

Glitnir's asset-based financing service assists customers in leasing or buying cars, equipment and commercial property. The demand for vehicle financing and equipment financing was brisk in the quarter and above expectations.

New financing amounted to ISK 5.5 billion in the second quarter, which represents an increase of 16% from the second quarter in the preceding year.

Pre-tax profit in the second quarter was ISK 281 million. Net operating income of Asset-based financing amounted to ISK 461 million in the second quarter, while operating costs amounted to ISK 172 million. The total six months pre-tax profit was ISK 515 million in 2006, as compared to ISK 333 million in the previous year.

Asset Management and Private Banking

Asset Management offers investment management services to individuals and institutional investors. It offers a wide variety of mutual and investment funds, which are marketed to institutional and retail clients, as well as retail brokerage services for individuals.

Private banking services consist of customised financial advice and financial services to high net worth investors. Asset management and securities brokerage, commercial banking services, financing and tax consultancy are key factors of the service, which is provided from Iceland and Luxembourg.

Assets under management in Asset Management and Private Banking amounted to ISK 375 billion at the end of the second quarter, as compared to ISK 337 billion at the beginning of the year. Assets under management have increased by 10% since the beginning of the year.

Profit before taxes in the second quarter amounted to ISK 266 million. Net operating income of Asset Management and Private Banking amounted to ISK 664 million in the second quarter, while operating costs amounted to ISK 397 million. The total six months profit was ISK 552 million in 2006, as compared to ISK 295 million in the previous year.

Corporate banking

Corporate Banking is responsible for relations with, and services to, large and medium-sized Icelandic enterprises and municipalities, providing these customers with comprehensive financing and risk advisory services.

There is still significant demand for loan capital, but the growth in lending in excess of projections is largely a result of exchange rate and inflation factors, as restraint in lending restricted growth in Corporate Banking. The interest margin has been increasing as a result of market conditions and default has been insignificant at Corporate Banking.

The Corporate Banking loan portfolio stood at ISK 229 billion at the end of Q2, which corresponds to a 27% increase from year-end 2005. Part of this increase is explained by loans transferred from other profit centers but most of it is explained by the devaluation of ISK. Actual increase is less than 3%. Pre-tax profit in the second quarter was 571 million. Net operating income of Corporate Banking amounted to ISK 1,220 million in the second quarter, while operating costs amounted to ISK 233 million. The total six months pre-tax profit was ISK 1,039 million in 2006, as compared to ISK 359 million in the previous year.

4.2. Commercial banking Norway

Commercial Banking in Norway provides banking services to private and corporate customers; the business unit comprises BNbank, Glitnir Bank and Glitnir Securities. Glitnir also owns 50.1% of Union Group. Glitnir entered Norway in August 2004 with the acquisition of KredittBanken, now Glitnir Bank, followed by the acquisition of BNbank. In recent months Glitnir Securities and UNION Group have become part of the Group. In May Glitnir announced that it had acquired the Swedish brokerage firm Fischer Partners. Since the acquisition was completed in July, Fischer Partners will be a part of the group's consolidated accounts in the third quarter.

Glitnir's operations in Norway have shown favourable trends over the last 18 months. Since Glitnir acquired KredittBanken, now Glitnir Bank, in August 2004, the Bank's balance sheet in Norway has grown from approximately ISK 36.1 billion to ISK 706.8 billion. Fee income from advisory and brokerage services has increased significantly, to ISK 2.8 billion in the first half of 2006.

Glitnir expects a substantial increase in revenue from fees and commissions in 2006 in Norway. In Glitnir Securities, recruitment of staff with a proven track record is expected to contribute to the building of a strong corporate advisory unit in Oslo and to strengthen institutional brokerage activities. At the same time, Glitnir acquired Fischer Partners in Sweden and 50.1% of the shares in UNION Gruppen. The acquisition of Fischer Partners which also has a strong position in the Norwegian and Nordic markets is expected to produce synergies for Glitnir by consolidating both Glitnir's general position and its fees and commissions revenues in Norway. The UNION partnership makes Glitnir one of the largest players in the Norwegian real estate sector, both with regard to merger and acquisition services and mortgage financing of properties.

With regard to traditional banking, BNbank and Glitnir Bank have directed their main focus towards sound banking practices, with particular emphasis on their respective areas of strength; i.e. the mortgage loans segment for BNbank and the offshore supply segment for Glitnir Bank.

Pre-tax profit from Glitnir's commercial banking activities in Norway was ISK 2,183 million in the second quarter of 2006, as compared to ISK 1,280 million in the corresponding period of 2005. Net operating income was ISK 4,247 million in the second quarter and operating expenses were ISK 2,001 million. For the first half of 2006 net operating income was ISK 6,445 million, operating expenses ISK 3,161 million and profit before tax ISK 3,224 million.

Total EVA for Commercial Banking Norway was ISK 819 million in Q2, bringing EVA for the first half of the year to ISK 1,306 million.

The total pre-tax profit of BNbank for the first half of 2006 was ISK 1,537 million; Glitnir Bank showed ISK 454 million in profit, Glitnir Securities ISK 435 million, and Union Group ISK 773 million. The total number of full-time employees was 159 at the end of June.

BNbank

BNbank is a commercial bank which specialises in mortgage loans for both the corporate and retail markets. BNbank entered Glitnir's consolidated figures as of April 1st 2005.

BNbank's pre-tax profit amounted to ISK 896 million in the second quarter. Net operating income for the period was ISK 1,419 million, while operating expenses were ISK 512 million and impairment expenses were ISK 11 million. The total six months profit was ISK 1,537 million in 2006, as compared to ISK 1,119 million in the previous year.

BNbank had a loan growth of 1.4% in the first half of 2006, evenly split between the retail market and the corporate market. The Norwegian housing and commercial real estate markets have performed well and BNbank's customers' financial position is strong. BNbank pays strict attention to credit quality, and the level of non-performing loans remains very low. Loans in default for more than 3 months represent 0.09% of gross loans. In recent quarters, margin pressure has characterised the Norwegian mortgage loan markets and as a result, BNbank has experienced somewhat lower margins in its loan portfolio.

At June 30th, BNbank had 98 full-time employees.

Glitnir Bank ASA

Glitnir Bank, previously KredittBanken, is a West Norway regional bank which also serves national and international markets in the niche focus areas of seafood and offshore supply vessels.

Glitnir Bank returned a pre-tax profit of ISK 204 million in the second quarter, while net operating income was ISK 469 million and operating expenses were ISK 227 million. The total six months profit was ISK 454 million in 2006, as compared to ISK 260 million in the previous year. Impairment expenses were positive ISK 35 million.

Glitnir Bank's strong profit growth is mainly due to increased lending, improved net interest margin and an increase in other revenues. In the second quarter Glitnir Bank's loan portfolio grew by NOK 453 million, corresponding to an increase of 11.4%, to NOK 4,406 million. The quality of the portfolio has also improved. In addition, Glitnir Bank has initialised loans for Glitnir Group amounting to NOK 2.2 billion.

During the second quarter Glitnir Bank strengthened its position as one of the leading players in offshore and supply ship financing. The bank's project finance team in Oslo, which focuses on the commercial real estate market in the Oslo region, also experienced very high activity.

In second quarter the bank also started to focus more closely on loans and other products to private customers. All the bank's primary areas currently experience solid growth, and the loan portfolio has shown a particularly positive development.

Glitnir Factoring, a subsidiary of Glitnir Bank, continues its high growth through first half 2006. The flow of invoices through the company's invoicing system was NOK 1,004 billion in second quarter 2006, a 21.5% increase over second quarter 2005. Glitnir Factoring's turnover in second quarter 2006 was NOK 7.8 million, a 17.8% increase over second quarter 2005. The turnover for first half 2006 was NOK 15.5 million, an increase of 22.7%over the corresponding period 2005. For first half 2006, Glitnir Factoring produced a profit of NOK 3.7 million, an increase of 61.3% over the corresponding period 2005.

The bank's total number of full-time employees at June 30th was 56.

Glitnir Securities

Glitnir Securities objectives are to provide brokerage services and portfolio and trading advice, enabling customers to maximize their stock market returns. The company's main focus is medium-sized and large private clients and selected institutions.

Glitnir Securities returned a pre-tax profit of ISK 231 million for the second quarter, while net operating income was ISK 714 million in the second quarter and operating expenses were ISK 483 million. The total six months pre-tax profit was ISK 435 million in 2006.

A favourable Norwegian market contributed to similarly good results for Glitnir Securities in the first half of 2006. Although the OSEBX is down 10% since the end of the first quarter, customer activity and stock market interest remained high throughout the second quarter.

During the quarter Glitnir Securities has consolidated its management group by appointing a number of new officers.

Glitnir Kapitalforvaltning returned a pre-tax profit of ISK 43 million in the second quarter, while net operating income was ISK 86 million and operating expenses were ISK 43 million.

At the end of the second quarter Glitnir Securities and Glitnir Kapitalforvaltning had 54 employees.

UNION Group

UNION is Norway' largest and leading commercial real estate brokerage, a leading niche-focused investment bank and a fast-growing manager of commercial real estate funds and syndicates. UNION devotes its extensive transaction experience and industrial expertise to providing advisory services for medium to large professional and institutional clients, including financial investors, industrial investors and entrepreneurs

UNION showed a pre-tax profit of ISK 773 million in the first six months of 2006, with net operating income amounting to ISK 1,468 million and operating expenses to ISK 695 million.

The results in Q2 reflect the firm's normal seasonal business cycle, good markets and high activity in all of the firm's business areas. As of June 30th 2006 UNION has a strong transaction portfolio, justifying a positive outlook for the second half of 2006.

UNION Eiendomskapital already has ISK 35.6 billion of assets under management in real estate (real estate fund).

At the end of June 2006 UNION Group employed a total of 26 full-time employees.

Fischer Partners

Glitnir announced in May that it had acquired Fischer Partners Fondkommission AB. Fischer Partners, based in Stockholm, is a leading Nordic brokerage. The acquisition will provide Glitnir with a solid platform in the Nordic securities brokerage sector, while also consolidating the bank's position in Norway. In the first half of 2006 Fischer Partners was the 5th largest brokerage house in the Nordic region, with a 5.1% of the overall Nordic market, excluding Iceland.

The high volume in the Scandinavian markets during the second quarter contributed to good revenue growth for Fischer Partners. Fischer Partners' pre-tax profit in the first six months was SEK 26.1 million, compared with SEK 19.1 millions in the same period 2005.

As with its Norwegian acquisitions, Glitnir intends to develop further Fischer Partner's core expertise. Plans include strengthening the company in key areas and establishing close cooperation in various fields with Glitnir Securities and Glitnir's other capital markets activities in Norway. As at June 30th the total number of full-time employees at Fischer Partners was 75.

The agreement was concluded on July 4th and therefore the company will form a part of Glitnir's consolidated accounts from the third quarter of 2006.

4.3. Corporate and Investment Banking

Corporate and Investment Banking (CIB) comprises of Corporate Finance, Equity Investments, International Corporate Banking, Leveraged Finance, Private Banking and Project Finance. CIB operates branches in Copenhagen, London, a bank in Luxembourg and an office Reykjavík and recently opened an office in Halifax and is preparing to open an office in Shanghai, China. At the end of June the Corporate and Investment Banking team comprised 130 people.

Glitnir provides comprehensive banking services to companies in Iceland and Norway and offers a wide range of specialised financing and advisory services in Northern Europe and North America. In line with the bank's general strategy, special emphasis is placed on providing global services for niche market segments, such as the seafood industry and energy sector.

Corporate and investment banking (CIB) is a major driver of growth for Glitnir, producing 16% of the bank's profit in 2005 and 24% of the bank's profit in the first six months of 2006. The objectives for the CIB unit is to create an atmosphere for securing sustainable growth, ensure that the bank moves closer to markets and customers, create a total product focus across units, provide new equity solutions, extend product units to offices, broaden niche segments and products and recruit the best talents for international growth.

The UK accounts for a third of the bank's corporate and investment portfolio and comprises the largest geographical market, followed by Iceland, Denmark and Norway. With regard to industries, real estate and seafood comprise the largest segments, followed by investment companies and other financial institutions, food sector and other industries.

CIB generated a pre-tax profit of ISK 2,303 million during the quarter, relatively evenly distribution between the main business units. Net operating income was ISK 3,627 million in Q2 and operating expenses ISK 1,160 million, resulting in a 32% cost-income ratio. CIB was the Bank's most profitable unit during the first half of 2006, with net operating income was ISK 8,810 million, operating expenses ISK 2,434 million and profit before tax ISK 5,742 million. Impairment losses amounted to ISK 163 million during the quarter with the quality of the portfolio remaining stable in all lending units. EVA for Q2 amounted to ISK 1,625 million, bringing EVA for the 1H to ISK 4,160 million.

The loan portfolio was ISK 362 billion at the end of June, up from 259 billion from year-end 2005. The net interest margin was ISK 4,223 million and the average margin was 2.4%, which is the same as for Q1 06. During the quarter, exposure to financial institutions in Northern Europe region has been reduced significantly, while increasing growth and support to strategic sectors. As part of this, Project financing will be more focused towards energy projects in the future.

The unit has shown major progress in fees generation over the first half of 2006. Total fees were ISK 1.2 billion in Q2, with advisory fees at ISK 1.1 billion. Fees and commissions represented 38% of income during the first six months, even though the second quarter was lower than the first due to fluctuations in advisory fees. This was partly offset by an increase in other fees. The pipeline is strong for the second half though advisory fees are expected to remain tight in 3rd quarter.

Corporate and Investment Banking handles trading and investments in listed and unlisted equity. The unit had trading loss in Q2 of ISK 575 million, compared to trading gain in Q1 of ISK 530 million. The trading loss in Q2 was offset by ISK 552 million dividend payments from other assets at fair value resulting in a total ISK 22 million loss on equity instruments in Q2.

Leveraged finance continues to show strong results, with several successful deals completed in the quarter.

4.4. Capital Markets


Capital Markets provides brokerage and funding for institutional investors and corporate clients in securities, foreign exchange and derivatives. The business unit which is based in Reykjavik consists of four departments; FX brokerage, securities brokerage, derivatives and FX managed accounts. The figures for the bank's brokerage businesses in Oslo and Stockholm, Glitnir Securities and Fischer Partners respectively, are included in the figures for Commercial Banking Norway and therefore not part of the figures for Capital Markets presented here.

While market volume was a bit lower from a highly active Q1, the Q2 volume in the domestic bond and equity markets was up 89% and 75% respectively from the same quarter last year. Following a very good first quarter in overall volume, first half growth was quite healthy and created good operating conditions for the business unit. Turbulence in the currency market stimulated high FX volume and a number of bond issues were underwritten and sold for corporates, financials and municipalities. The bank's market share on the Icelandic Stock Exchange during the first half was 21% in equities and 26% in bonds. During the first half of the year there was a substantial increase in the Bank's market share, going from 18% in Q1 to 26% in Q2 in equities and from 22% in Q1 to 30% in Q2 in Bonds. This market share together with good volume returned solid revenue growth.

Net operating income in Q2 2006 was ISK 2,790 million, up by 180% from the same quarter last year. Cost was up 95% from Q2 2005 to ISK 430 million and up 54% from Q1 2006, which drove profit before tax in Q2 to ISK 2,360 million, which represents a 205% growth from the ISK 774 million profit before tax in Q2 2005 and 13% growth from Q1, 2006. First half net operating income was ISK 5,152 million which corresponds to 205% growth from last year. First half cost was up 65% between years to ISK 710 million, and profit for the six months 2006 was therefore ISK 4,442 million, up 254% from last year's first half.

Total EVA for Capital Markets was ISK 1,914 million in Q2, bringing EVA for the first half of the year to ISK 3,600 million. The total number of full-time employees was 29 at the end of the second quarter.

The results of a business unit like Capital markets rests on e.g. overall market volume, price volatility and market share and therefore fluctuate with the financial markets.

4.5. Treasury

Treasury consists of Interbank Markets and International Funding and is a part of the Finance Division. The two units are responsible for the Bank's funding, asset and liability management as well as managing the bank's exposure in currencies and interest rates. The Bank's bond trading book is managed by Interbank Markets.

Pre-tax profit returned by Treasury was ISK 2,989 million in the second quarter, as compared to ISK 1,515 million in Q2 2005. Net operating income was ISK 3,077 million in Q2 and operating expenses were ISK 88 million. For the first six months of 2006 net operating income was ISK 3,663 million, operating expenses ISK 167 million and profit before tax ISK 3,496 million

EVA for Q2 was ISK 2,404 million, bringing EVA for the first half of the year to ISK 2,767 million.. There were 6 employees in the unit at the end of June.

4.6. Other operations

Profit from other operations was ISK 1,888 million for the second quarter of 2006. Other operations include income and expenses which are not allocated to profit units. Other operating income net of operating expenses includes net gains on non-current assets held for sale, ISK 2.4 billion, that is explained by the sale of remaining shares of Sjóvá, losses on equity trading, and other cost not allocated to profit units.

5. Prospects for the year 2006

The second quarter results underline the strengths and the resilience of the Bank's business model. In the first half of the year, dominated by volatile market conditions, return on equity was 45.5% on an annual basis and all the Bank's profit units showed good results. The main emphasis is on growth in the bank's areas of strength, both by organic growth and through acquisitions of companies that fit well into the bank's strategy. Integration of acquired businesses and organic growth have developed well in the last quarters. In the third quarter, two new companies will join the consolidated accounts, Fischer Partners in Sweden and Mastercard, Iceland.

The international operations of the Bank are performing very well and fees and commissions income nearly triples between years. Corporate and Investment Banking is a major driver of growth for the Bank, playing an increasingly important role in the Bank's revenues and profit generation.

In the second quarter the Bank strengthened its liquidity position and CAD ratio even further and will continue to maintain capitalisation well above its prudential long term targets for the foreseeable future. Prospects in Glitnir's markets are generally positive and the Bank will further work on consolidating its position and continue to develop its operations, both in the home markets and internationally.

6. Publication of financial reports for 2006

The proposed publication dates of the financial reports of Glitnir hf. in 2006 are as follows:

3rd quarter, 31 October 2006

Annual Results, 30 January 2007

7. Presentation of second quarter 2006 results

Glitnir will host the following presentations and conference calls in relation to publishing Q2 2006 results on August 1st and 2nd. An English version of the presentation will be available on www.glitnir.is as of August 1st.

International telephone conference

Glitnir will host a telephone conference in English at 2 p.m., local time (3 p.m. UK), Tuesday August 1st. Bjarni Ármannsson, CEO, will present the results and answer questions. To participate, call + 44 (0)20 7162 0125 (UK), +47 215 63122 (Norway) or + 1 334 323 6203 (USA), no later than ten minutes in advance. Bjarni Ármannsson, CEO, Tómas Kristjánsson, CFO, and Vala Pálsdóttir, Head of Investor relations, will participate.

Presentation for shareholders and market participants in Reykjavík, Iceland

Bjarni Ármannsson, CEO, will present Glitnir's second quarter results for 2006 to shareholders and market participants on Wednesday, August 2 nd, at 8.30 a.m. at Glitnir's headquarters at Kirkjusandur in Reykjavík. Bjarni Ármannsson will present the results and answer questions. The house opens at 8.15 a.m. with breakfast for guests.

Presentation for shareholders and market participants in London, UK

Tómas Kristjánsson, CFO, will present Glitnir's second quarter results for 2006 to shareholders and market participants on Wednesday, August 2nd, at 9 a.m. at Glitnir's offices at Lothbury 41, London EC2R 7HF. Tómas Kristjánsson will be joined by Frank O. Reite, managing director of Commercial banking in Norway. Frank O. Reite will discuss recent development in Norway and future outlook in the Nordic region.

8. Group profit and loss account by quarter


9. Consolidated balance sheet

10. Key figures


11. The effect of the adoption of international financial reporting standards

Glitnir has prepared its financial statements in accordance with International Financial Reporting Standards (IFRS) from 1 January 2005. Figures for 2004 have been restated in accordance with the new standards.

12. Reporting in Norway

When comparing this financial report on Glitnir's activities in Norway with the reports published by it's subsidiaries in Norway, there will be differences since those reports are based on Norwegian accounting practices (NGAAP). Under NGAAP, pre-payment premiums are amortised over the term of the loans. According to International Financial Reporting Standards (IFRS), premiums of this kind must be allocated to P&L at the time of realisation. Under IFRS there is also a requirement to mark-to-market interest rate derivatives. BNbank has separated a loan portfolio featuring interest rate characteristics (volume and duration) that resemble the derivatives portfolio, and this loan portfolio is mark-to-market as well. This is the principal reason for the difference between IFRS figures and NGAAP figures.

13. Profit and loss account and key figures

It should be noted that BNbank is included in the Bank's consolidated figures from 1 April 2005 and that Sjóvá insurance was part of the Bank's consolidated figures until 31 March 2005. Sjóvá was an associate from the second quarter of 2005 until May 1st 2006, when the Bank sold its remaining shares in Sjóvá.



                Kirkjusandi - 155 Reykjavík - Iceland
               Tel: +354 440-4000 - Fax: +354 440-4001
           ID-No. 550500-3530 - E-mail: glitnir@glitnir.is
The full Q2 report including tables, the presentation of the Q2 results and the Glitnir Consolidated Financial Statements are available on the following links:


Glitnir Presentation Q2 results 2006 -- http://hugin.info/133924/R/1066784/180282.pdf

Glitnir Q2 report 2006 -- http://hugin.info/133924/R/1066784/180281.pdf

Attachments:

Glitnir Consolidated Interim Financial Statements -- http://hugin.info/133924/R/1066784/180283.pdf


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