Prospectus Landsbanki Íslands hf. November 2005

This is an unauthorized translation of the Icelandic original prospectus. In the event of any discrepancies the original Icelandic version shall prevail.

Contents

1 Declarations...... 3 1.1 Issuer’s Statement ...... 3 1.2 Declaration by the Issue Co-ordinator ...... 3 1.3 Declaration by the Auditors...... 4

2 Notice to Investors...... 5

3 General Information...... 6

4 Risk ...... 10 4.1 Equity investment risk...... 10 4.2 Managing Landsbanki’s risk...... 10 4.3 Counterparty risk ...... 11 4.4 Market Risk...... 15 4.5 Operational Risk...... 18 4.6 Mismatch of assets and liabilities...... 21 4.7 The Economic Outlook and its Impact on Landsbanki’s Operations ...... 23

5 Share Capital and Shareholders ...... 26 5.1 Share capital...... 26 5.2 Shareholders ...... 27

6 Merger of Landsbanki and Burðarás hf...... 29

7 History, organisation, Board of Directors and employees ...... 31 7.1 An overview of Landsbanki’s history ...... 31 7.2 Organisation ...... 33 7.3 Board of Directors ...... 40 7.4 Employees ...... 40 7.5 Auditors...... 44

8 Activities and Operating Environment ...... 45 8.1 Strategy and objectives ...... 45 8.2 Divisions ...... 46

9 Outlook and Future Vision ...... 57

10 Performance and Balance Sheet...... 59 10.1 Nine-month interim financial statements 2005 ...... 59 10.2 Annual Results 2002-2004 ...... 69

11 Annexes...... 74

Landsbanki Íslands hf. Prospectus, November 2005 2 1 Declarations

1.1 Issuer’s Statement The Board of Directors and CEOs of Landsbanki Íslands hf., Id. No. 540291-2259, Austurstræti 11, 155 Reykjavík, Iceland, hereby declare that, to the best of their knowledge, the information in this prospectus both accords fully with the facts and no important items have been omitted which could affect evaluation of the issuer or its securities.

Reykjavík, 11 November 2005,

______On behalf of the Board of Directors, Björgólfur Guðmundsson, Id. No. 020141-7199, Chairman of the Board of Directors of Landsbanki Íslands hf.

______Halldór J. Kristjánsson, Id. No. 130155-4569, Sigurjón Þ. Árnason, Id. No. 240766-3109, CEO, CEO, Landsbanki Íslands hf. CEO, Landsbanki Íslands hf.

1.2 Declaration by the Issue Co-ordinator Corporate Finance of Landsbanki Íslands hf., Id. No. 540291-2259, Hafnarstræti 5, 155 Reykjavík, hereby declares that in preparing this prospectus it has gathered the data which in its estimation was necessary to provide a true and fair picture of Landsbanki Íslands hf. and its securities. To the best of our knowledge no important items have been omitted which could effect the evaluation of the issuer or the securities for which listing is sought.

Reykjavík, 11 November 2005,

______Bjarni Þórður Bjarnason, Id. No. 110469-5869, Head of Corporate Finance, Landsbanki Íslands hf.

Landsbanki Íslands hf. Prospectus, November 2005 3 1.3 Declaration by the Auditors We the undersigned, PriceWaterhouseCoopers hf., Id. No. 690681-0579, Skógarhlíð 12, 105 Reykjavík, have audited and endorsed without reservation the annual financial statements of Landsbanki Íslands hf. for the years 2002, 2003 and 2004. We have also examined the group interim financial statements for the period 1 January to 30 September 2005. Our examination was carried out in accordance with international auditing standards. Such an examination is limited to questioning employees and analysing the various items of the accounts; it does not involve such extensive actions as an audit intended to result in an opinion on the accounts as a whole. Our responsibility is limited to providing an opinion on the interim financial statements based on our examination. Our examination did not reveal anything to indicate otherwise than that the interim financial statements give a true and fair picture of the Bank’s performance during this period, its balance sheet as of 30 September 2005 and changes to its financial structure occurring during the period, in accordance with IAS 34 (Interim Financial Reporting). We confirm that other information contained in this prospectus concerning the accounts of Landsbanki Íslands hf. accords with the financial statements referred to.

Reykjavík, 11 November 2005, On behalf of PriceWaterhouseCoopers hf.

______Hjalti Schiöth, Id. No. 141261-4289 Vignir Rafn Gíslason, Id. No. 140467-5379

Landsbanki Íslands hf. Prospectus, November 2005 4 2 Notice to Investors

This prospectus has been prepared by the Corporate Finance section of Landsbanki Íslands hf., in co- operation with the Bank’s Board of Directors, senior management and auditors. The prospectus is published in connection with two increases in Landsbanki’s share capital which took place recently. The former increase, of ISK 800,000,000 nominal value, was listed on the Iceland Stock Exchange Ltd. (ICEX) on 18 April 2005. The latter increase, of ISK 2,120,677,803 nominal value, was approved by a shareholders’ meeting of Landsbanki Íslands hf. on 15 September 2005, and listed on ICEX on 3 October 2004 Since the total increase amounts to more than 10% of Landsbanki’s total share capital in the space of 12 months, the company must issue a prospectus as provided for in subparagraph a, Point 3 of Article 1 of Annex IV to Regulation No. 434/1999. Listing of new share capital in Landsbanki Íslands hf. is carried out as provided for in Act No. 34/1998, on the Activities of Stock Exchanges and Regulated OTC Markets, and the ICEX Rules for Issuers of Securities Listed on the Iceland Stock Exchange Ltd. Purchase of equities is inherently a risk investment, based on expectancy of future profit. This prospectus may not in any way be regarded as a promise of successful operations or a return on funds by Landsbanki Íslands hf. Investors are advised to acquaint themselves thoroughly with this prospectus, together with its annexes. The information presented in this prospectus reflects its date of issue. Landsbanki Íslands hf. is listed on the ICEX Main List and complies with ICEX rules on on- going information disclosure. Investors are advised to follow the news announcements and notifications which may be published in the ICEX News System concerning the Bank once the prospectus has been issued. Each investor must base a decision on investment in shares of Landsbanki Íslands hf. on his/her own examination and analysis of the information presented in the prospectus. Investors are advised to study their legal position, including taxation issues which may be relevant to their transactions in Landsbanki’s shares. Investors are urged especially to acquaint themselves well with the discussion of risk provided in Chapter 4 of this prospectus. In this prospectus the words “Landsbanki”, “the Bank” and “the Company” all refer to the group Landsbanki Íslands hf. unless otherwise indicated by the wording or context. Upon the publication of this prospectus, Landsbanki Íslands hf. and the holding company Landsbanki eignarhaldsfélag hf. owned treasury shares totalling ISK 932,535,812 nominal value, of which 388,740,453 shares are the object of forward contracts. The Bank’s net holding in treasury shares is ISK 543,795,359 nominal value. or the equivalent of 4.93% of its total capital. Attention is drawn to the fact that the issue co-ordinator, Corporate Finance of Landsbanki Íslands hf., is part of Landsbanki's Securities Division. Any information not included in this prospectus cannot be regarded as having been approved by Landsbanki Íslands hf. or the issue co-ordinator, Landsbanki’s Corporate Finance.

Landsbanki Íslands hf. Prospectus, November 2005 5 3 General Information

Issuer Landsbanki Íslands hf., Id. No. 540291-2259, Austurstræti 11, 155 Reykjavík, tel. +354 410 4000, website: www.landsbanki.is Activities The purpose of the Company, as provided for in Article 3 of its Articles of Association, is to operate a commercial bank, pursuing any and all activities permitted under the Act on Financial Undertakings. Landsbanki operates in accordance with the Limited Companies Act, No. 2/1995. Various other Acts apply to the Bank’s activities, such as Act No. 161/2002, on Financial Undertakings; Act No. 33/2003, on Securities Transactions; Act No. 30/2003, on Undertakings for Collective Investment in Transferable Securities (UCITS) and Investment Funds; Act No. 34/1998, on the Activities of Stock Exchanges and Regulated OTC Markets; Act No. 98/1999, on Deposit Guarantees and an Investor- Compensation Scheme; Act No. 131/1997, on Electronic Registration of Title to Securities; and Act No. 36/2001, on the Central Bank of Iceland. Landsbanki is subject to surveillance by the Financial Supervisory Authority (FME), as provided for in Act No. 161/2002, on Financial Undertakings, and Act No. 87/1998, on Official Supervision of Financial Activities. Listing of share capital All of Landsbanki’s issued share capital is listed on the ICEX Main List. The ticker code in the ICEX trading system is LAIS and a trading lot, i.e. the smallest number of shares required for consideration in price formation, is 10,000 shares. There are no plans for applying for a listing of Landsbanki’s shares on any stock exchange other than ICEX. The de-materialised shares in Landsbanki Íslands hf. are registered with the Icelandic Securities Depository Ltd. (ISD) The code is LAIS and their ISIN number is IS0000000156. This prospectus is published in connection with two increases in Landsbanki’s share capital which took place in 2005. The former increase in share capital of ISK 800,000,000 nominal value was offered for sale to Landsbanki’s shareholders in proportion to their shareholdings as of end of trading on 11 March 2005. The purpose of the share capital increase was to strengthen the Bank’s equity position following its high growth the previous year and support its continuing growth this year. It was decided that ISK 100,000,000 nominal value of the new share capital would only be offered to shareholders holding ISK 100,000 or less nominal value as of 11 March 2005. The objective of this measure was to reinforce Landsbanki’s shareholder group and offer shareholders with the smallest holdings an opportunity to boost their position. The increase was registered on ICEX on 18 April 2005. The latter share capital increase was turned over to shareholders of Burðarás hf. in connection with the split up of Burðarás hf. into two parts which were subsequently merged with Straumur Investment Bank Ltd. and Landsbanki Íslands hf., respectively. Shareholders in Burðarás received shares totalling ISK 2,120,677,803 nominal value in Landsbanki Íslands in exchange for their shares of ISK 2,940,400,149 nominal value in Burðarás. The exchange ratio for shares in Landsbanki was thus 0.72122. The additional share capital was listed on ICEX on 3 October 2005.

Landsbanki Íslands hf. Prospectus, November 2005 6 Co-ordinator of the ICEX listing Corporate Finance of Landsbanki Íslands hf., Id. No. 540291-2259, Hafnarstræti 5, 155 Reykjavík, tel. +354 410 4000, website: www.landsbanki.is Total Share Capital Landsbanki’s total share capital amounts to ISK 11,020,677,803 nominal value, all of which has been paid in full. The share capital is divided into shares in the amount of ISK 1 and multiples thereof. Authorisation for share capital increase The Company’s Board of Directors was authorised to increase its share capital in stages, by up to ISK 1,200,000,000 nominal value with subscriptions for new shares. Shareholders waived their pre- emptive rights, as provided for in Article 34 of Act No. 2/1995, on Limited Companies, to new shares issued in accordance with Article 4 of the Company’s Articles of Association. The Board of Directors was entrusted with determining the details of the price and terms of payment for such an increase. The authorisation was valid until 21 March 2007. The Board of Directors may decide to have subscribers pay for the new shares in part or in full by other means than cash payment. Treasury shares Upon the publication of this prospectus, Landsbanki Íslands hf. and the holding company Landsbanki eignarhaldsfélag hf., this is a subsidiary of the Bank, owned treasury shares totalling ISK 932,535,812 nominal value, of which 388,740,453 shares are covered by forward contracts. The Bank’s net holding in treasury shares is ISK 543,795,359 nominal value. At Landsbanki’s AGM on 5 February 2005, a motion was approved authorising the Board of Directors to purchase or accept as collateral own shares amounting to up to 10% of Landsbanki’s share capital. The authorisation must be exercised within 18 months from its approval by the AGM. Pursuant to this authorisation, the Bank may acquire treasury shares of up to ISK 1,102,067,780 nominal value. The purchase price of the shares shall not be higher than 10% above nor lower than 10% below the current listed share price on ICEX. The CEOs were also authorised to take further decisions on the implementation of such transactions. Dividends Landsbanki’s AGM of 5 February 2005 approved the payment of a dividend of 20% on the nominal value of share capital for the year 2004. Payment of the dividend was made on 9 March 2005. A decision on the payment of dividends and the date of such payment is taken at the Bank’s AGM. According to Article 7 of Landsbanki’s Articles of Association, dividends shall be paid to those parties registered in the shareholders’ register at the end of the day of the AGM, unless the Company is notified of the assignment of the dividend upon the transfer of shares. Dividends are deposited in the bank accounts specified by shareholders as their accounts for dividend payment and which are linked to their VS accounts. Act No.14/1905, on the Limitations of Liabilities and Other Claims, shall apply concerning the lapse of dividends which are not collected. Rights All shares in Landsbanki are in a single class and confer equal rights. No special rights are attached to any shares; each ISK 1 share in the Bank gives one vote. A shareholders’ meeting may decide on increases in share capital, either by new subscriptions or through the issue of bonus shares. When share capital is increased, shareholders are entitled to

Landsbanki Íslands hf. Prospectus, November 2005 7 subscribe for new capital in proportion to their shareholdings. If any shareholders do not exercise their rights in full, other shareholders shall be entitled to additional subscriptions. The provisions of Act No. 161/2002, on Financial Undertakings, provisions of the Limited Companies Act, No. 2/1995, and provisions of other Acts, as appropriate, shall apply to winding up or mergers with other companies or institutions. Concerning other rights, reference is made to the Bank’s Articles of Association, which are appended to this prospectus; to Act No. 161/2002, on Financial Undertakings; and to the Limited Companies Act, No. 2/1995. Transfer and title No restrictions are placed on dealings with Landsbanki’s shares. Shares in the Bank may be mortgaged unless otherwise indicated by law. Current legislation shall apply to transfer of shares. Changes in share ownership, whether resulting from a sale, gift, inheritance, estate settlement or execution, must always be notified to the Bank’s office as soon as effected; the register of shares shall be revised accordingly. Once a shareholder has made full payment for his/her shares in the Bank, the Icelandic Securities Depository (ISD) will issue the shareholder with an electronic share certificate and register title to the shares, granting the shareholder full rights as provided for in the Bank’s Articles of Association. A print-out from ISD of holdings in Landsbanki’s shares shall be deemed a fully valid register of shares. The register of shares shall be regarded by the Bank as fully valid proof of title to shares; any bonus shares, announcements of meetings and all notifications shall be sent to the party currently recorded in the register as the owner of the respective shares. The Bank shall bear no responsibility for payments or notifications which may go astray as a result of failure to notify the Bank of changes in ownership or residence. To have access to their de-materialised shares registered with ISD, shareholders must have a custody account with an account operator which has concluded a membership agreement with ISD and entrust their shares in the Company to the custody of this account operator. The custody account keeps track of the shareholder’s securities assets, trading and dividends. Rights to de-materialised securities must be recorded with ISD if they are to enjoy legal protection against appropriation measures and disposal by contract. Negotiable securities may not be issued against the rights registered in de-materialised securities, nor may they be transferred; such transactions are invalid. Recording of right to title to de-materialised securities by ISD, following the final entry by ISD, gives the registered owner legal authority to the rights to which he/she is registered owner. The priority of conflicting rights shall be determined by the time the request of an account operator for their registration was received by ISD. Taxes Taxation of Landsbanki’s shares depends upon current tax legislation. Landsbanki’s shares are subject to stamp duty and are stamped upon issue. Landsbanki is obliged to withhold financial income tax on dividends, as provided for in the second paragraph of Article 3 of Act No. 94/1996, on Capital Income Tax. Shares in Landsbanki fulfil the conditions of the fifth paragraph of Point 1, Section B of Article 30 of Act No. 90/2003, on Income Tax and Net Worth Tax, concerning deduction of purchase price of shares originally purchased prior to 31 December 2002.

Landsbanki Íslands hf. Prospectus, November 2005 8 Litigation Landsbanki is not engaged in litigation or arbitration which could substantially affect the financial position of the Bank. It should be pointed out that in June 2005, the Bank Employees’ Pension Fund initiated proceedings against Landsbanki Íslands hf., and alternatively, the Ministers of Finance and Commerce, on behalf of the Icelandic State, concerning guarantees for the pension obligations of the Bank’s employees. Landsbanki does not consider the pension fund to have a lawful claim on the Bank, as a final settlement was concluded with the pension fund in 1997. Cost The cost resulting from two increases in share capital, its listing on ICEX and registration with ISD, and payment of stamp duty amounts to ISK 6.1 m. This cost is paid by the Bank. Net cash flow Net cash flow from the increase to the Bank’s share capital on 18 April 2005 was ISK 11.4 (billion) bn. There was no net cash flow from the latter share capital increase approved by a shareholders’ meeting on 15 September 2005, since the shares were used for payment for shares in Burðarás hf. Information and Documents The prospectus, together with other documents cited, can be obtained from the issue co-ordinator and from the issuer: Corporate Finance Division, Landsbanki Íslands hf., Austurstræti 5, 155 Reykjavík, tel. +354 410 4000, website: www.landsbanki.is

Landsbanki Íslands hf. Prospectus, November 2005 9 4 Risk

The discussion provided here is not an exhaustive survey of the risk involved in investment in Landsbanki’s shares. Investors are advised to make their own independent examination of those factors which may apply specifically to their investment in Landsbanki’s shares. Landsbanki operates under those Acts and Regulations applicable to financial undertakings and is regulated by the Financial Supervisory Authority (FME). The Bank’s operating license is subject to compliance with the Acts and Regulations governing the Bank and its operations, and any breach of those laws or regulations may be subject to serious penalties, liability for damages, or the revocation of license. Landsbanki’s most recent credit rating was issued by Moody’s Investors Service in March 2005. The agency upgraded the Bank’s deposit and senior debt ratings from A3 to A2 with stable outlook. Ratings in this category range from AAA to C3. At the same time Moody’s confirmed the Bank’s C rating for financial strength, and altered its outlook from positive to stable. Ratings in this category range from A to E. Lastly, the agency confirmed Landsbanki’s short-term credit rating of Prime-1, which is the highest rating given for short-term obligations. Fitch Ratings has also rated Landsbanki’s credit. On 26 November 2004, Fitch confirmed its rating of Landsbanki in June 2002. Fitch awards Landsbanki a long-term credit rating of A. Ratings in this category range from AAA to D. The Bank received a short term credit rating of F1, which is the highest short term credit rating awarded. The Bank’s individual rating is C. Individual ratings are given on a scale of A to E. The Bank’s support rating is 2, with ratings in this category given on a scale of 1 to 5, 1 being the highest possible rating. Fitch evaluates the Bank’s outlook as stable.

4.1 Equity investment risk Equities are, generally speaking, a riskier investment than bonds. The risk results in particular from the fact that prices of shares fluctuate more than bonds prices. Investments in shares are, however, on average more gainful than investments in bonds as a long-term investment. The return takes two forms: firstly, there is the change in the value or market price of the shares in question and, secondly, owners of limited-liability companies can expect to receive dividends on their shareholdings. By spreading their equity assets through purchases in a number of enterprises of varying types, investors can substantially reduce the risk involved in investment in individual companies. Various risk factors influencing the equity market as a whole will remain, however, such as general interest rate rises, foreign exchange rates, political risk and economic prospects.

4.2 Managing Landsbanki’s risk The business of banking involves risk, and the role of Landsbanki’s risk management is to ensure that this is kept within acceptable limits. Risk is defined as uncertainty concerning the Bank’s future performance, assessed for each of its risk categories. In the Bank’s own policy, risk is defined as "the measurable probability of a loss or of less-than-expected profit“. Risk management is aimed at protecting the Bank's financial strength and maintaining its good reputation. In practice, it follows several main principles: safeguarding the Group’s financial solidity; defining administrative risk; independent risk assessment; and the development of methods of assessing and measuring risk. Landsbanki protects its financial solidity by requiring adequate reward for the risk it takes.

Landsbanki Íslands hf. Prospectus, November 2005 10 This involves regular evaluation of the Bank's risk appetite, for instance, by reviewing risk limits. The Board of Directors lays down the general framework for risk-taking. Bank management ensures transparent and efficient risk management by placing it in the hands of four permanent committees: the Credit Committee, Asset and Liability Committee (ALCO), Operations Committee and Asset Management Committee. The most important of these are the Bank's Credit Committee, which takes decisions on its lending activities and ALCO, which deals with questions concerning Securities and Treasury. Internal Audit ensures that the Bank’s finances and financial management comply with Acts and Regulations and with decisions taken by the Board of Directors. The internal auditor also ensures that monitoring of accounting and financial management is satisfactory and that the Bank's general system of internal checks and controls is effective. In addition, within the Bank, specific departments supervise the Bank’s risk taking and ensure that the risks involved are in line with the Bank’s strategy. The Bank’s Credit Control division assesses the Bank’s credit risk on an on-going basis, and Risk Management evaluates the risk exposures of Securities and Treasury. Branch Management provides back-up for decision making in the Bank’s branch network by co-ordinating projects and procedures for the branches and compiles and publishes the Branch Manual. The role of middle management is to ensure that risk management strategies are implemented, procedures are properly documented and updated, and that the Bank’s employees adhere to its regulations and procedures. Responsibility for operational risk within the Bank’s subsidiaries rests with the Managing Directors of those subsidiaries and for the parent company with the Managing Directors of each division. Risk monitoring involves ensuring that total risk is always kept within defined and acceptable limits, and that the Bank possesses the technology and expertise to assess and limit its overall risk level. Landsbanki measures its risk exposure according to the varying nature of the risk, i.e. counterparty risk, market risk, operational risk and risk arising from a mismatch of assets and liabilities.

4.3 Counterparty risk Counterparty risk refers to a situation where the counterparty is unable to make full payment of amounts when due. Provisions are made to an impairment fund (credit loss provisions) to cover possible losses. Every effort is made to manage counterparty risk diligently, to respond to substantial economic fluctuations or changing conditions in a specific industrial sector which could negatively affect the Bank's asset portfolio. Landsbanki manages counterparty risk by setting limits for acceptable risk towards individual borrowers or groups of borrowers, specific regions or industrial sectors. Such risk factors are under constant surveillance and are reviewed at least once each year. Counterparty risk is managed by evaluating the capacity of new borrowers to meet their commitments, regularly assessing that of current borrowers, and altering credit authorisations as necessary. Risk is also managed in part by requiring collateral or other guarantees from enterprises and individuals.

Loans The Board of Directors sets the general framework of the Bank’s credit policy. The CEOs subsequently set detailed working rules, including maximum obligations for individual clients and connected parties. The CEOs endorse lending authorisations of branch managers and other authorised lenders. Credit risk control is a key factor in Bank management and one aspect of the

Landsbanki Íslands hf. Prospectus, November 2005 11 task of managing credit composition and individual loans. The accompanying table gives a breakdown of lending as of 30 September 2005 as compared to the situation at the beginning of that year.

Lending 30.9.2005 1.1.2005 Change Financial institutions 58,162 67,107 -13.33% National and local government 5,261 3,131 68.03% Corporations 619,259 439,952 40.76% Households 220,175 112,444 95.81% Provisions for credit losses -11,189 -8,359 33.86% Total lending 891,668 614,275 45.16%

Provisions as ratio of total lending 1.24% 1.34%

All amounts are MISK

In the estimation of Landsbanki’s management, the quality of its loan portfolio in general has improved in recent years, and sufficient provisions have been made to cover credit losses on risk loans. The positive development witnessed from 2002 to the end of Q3 of 2005 was primarily the result of positive macroeconomic trends, GDP growth and increased purchasing power; efforts directed specifically at collection and elimination of problem loans; more stringent and effective rules on credit; and effective credit control. By providing credit to enterprises and individuals with varying credit ratings, Landsbanki seeks to achieve an acceptable interest margin, taking write-offs into consideration. Such risk is not only the result of loans and credit included on the balance sheet, as the Bank also provides guarantees. Credit Control evaluates the Bank’s credit risk in each case by, for instance, evaluating the clients’ capacity to meet their obligations towards the Bank. Credit Control also ensures Breakdown of lending by sector compliance with the Bank’s credit regulations, Financial institutions; so that evaluation of credit applications and Induividuals; 21.6% collateral provided accords with the 14.9% Agriculture; requirements it sets. National and 0.6% local government; Composition of loan portfolio 0.6% Fishing Total lending by Landsbanki Group amounted industry; 8.1% to ISK 891,668 million (m) as of 30 September 2005, increasing by 45.2% from Services; Retail; 9.2% the beginning of the year, when it was ISK 36.5% 614,275 m. Corporate lending was ISK Industry and contractor; 619,259 m, or 69.5% of the total, while 8.5% household lending was ISK 220,175 m, or 24.7% of total lending. The increase is primarily in corporate lending to major clients through Landsbanki’s Corporate Banking division and the Bank’s London branch, as well as in housing mortgages in Iceland.

Landsbanki Íslands hf. Prospectus, November 2005 12 The accompanying figure gives a breakdown of lending by sector as of the end of September 2005. By far the largest individual sector is services, which at the end of September 2005 accounted for over ISK 304 bn, or around 36% of the Bank’s total loan portfolio. The services sector covers a very wide variety of industrial activities, including a variety of holding companies and property administrators. Loans to foreign parties and lending by subsidiaries abroad Lending to foreign borrowers 37% totalled ISK 307 bn at the end 40% of September 2005, or 37% of 27% 30% 22% total lending, as compared to 20% 9% ISK 170 bn at the beginning 10% of 2005, or 27% of the overall 0% portfolio. The accompanying 2002 2003 2004 2005/9 figure shows how the share of foreign borrowers in the Bank’s loan portfolio has increased in recent years.

Provisions to loan-loss account Provisions are made to a fund to cover the risk incurred in Landsbanki’s lending operations. Loans and other obligations are assessed in terms of the risk of loss. Based on this assessment, provisions are made for credit losses and expensed against the relevant balance sheet item. Provisions to cover credit losses are determined by applying an impairment test to loans which fulfil specific requirements indicating an increased risk. The evaluation takes into consideration the future cash flow of individual loans or loan portfolios. If this proves to be less than the payback value of the loan on the date of calculation, the difference is expensed as a provision against credit losses. Assessment involves, firstly, a detailed examination and assessment of the risk parameters of all loans by the Bank exceeding a specified amount. Secondly, all the Bank’s other lending is divided into buckets with the same or similar risk parameters. In this manner, the quality of all the Bank’s loans is regularly evaluated and provisions to cover credit losses determined.

Provisions for credit losses and final write-offs Provisions for credit losses during the first nine months of 2005 amounted to ISK 4,521 m or 0.66% of outstanding loan stock at the end of the period. Contributions for the same period in 2004 amounted to ISK 3,317 m, or 0.91% of outstanding loans at the end of September 2004. Final write-offs during the first nine months of 2005 were ISK 1,691 m, as compared with ISK 2,450 m during the same period the previous year. The following table shows provisions for credit losses and contributions to the fund from 2002 to the end of Q3 of 2005.

Provisions for credit losses 2002 - 2005 30.9.2005 30.9.2004 2004 2003 2002 2001

Balance at beg. of period 8,359 7,700 7,700 6,622 4,829 3,698 Contributions during period 4,521 3,317 4,484 4,787 3,364 2,322 Final write-offs -1,691 -2,450 -3,825 -3,709 -1,571 -1,191 Balance at end of period 11,189 8,567 8,359 7,700 6,622 4,829 Provisions for credit losses as a ratio of period 0.66% 0.91% 0.73% 1.47% 1.33% 117%

All aomunts MISK

Landsbanki Íslands hf. Prospectus, November 2005 13 Provisions for credit losses were equivalent to 1.25% of loans and guarantees granted at the end of June 2005, and 1.34% of this same figure at year-end 2004. Provisions were 2.25% and 2.96% of loans and guarantees granted at the end of 2003 and 2002 respectively.

Default developments At the end of September 2005, total defaults on loans granted by Landsbanki amounted to ISK 5,929 m, or around 0.9% of its total lending. At year-end 2004, total loans in default (one day or more overdue) were around 1.1% of total Group loans, as compared to 3.4% at year-end 2003 and 4.9% at year-end 2002. Defaults have been decreasing in the past two years, both in absolute terms and as a percentage of total loans outstanding. Defaults vary depending on the type of loan and the nature and location of the branch. Defaults are highest, for example, for Landsbanki branches in the capital region on loans to households and small businesses, and proportionally lowest for Corporate Banking on exchange rate-linked loans to large corporations. Lower defaults can be partly attributed to positive economic developments and, in part, to extensive efforts to eliminate bad credit problems. The summary below shows Landsbanki’s default situation and how this has developed since 2000. Defaults are classified according to length of time in arrears.

Defaults as a ratio total lending

6.0%

5.1%

5.0% 4.9%

4.0% 4.0% 3.6% 3.4% 3.4% Total defaults 3.2% 3.0% 30 days or longer 90 days or longer 2.5% 2.4% 2.3% 2.0%

1.8% 1.1% 1.0% 0.7% 0.8% 0.6% 0.7% 0.4% 0.0% 2000 2001 2002 2003 2004 9/2005

Derivatives Counterparty risk from derivative contracts is managed by the Bank's Securities and Treasury division as part of customers' credit authorisations, at the same time as they monitor possible risk of market movements. Risk from derivative contracts is assessed as a credit equivalent, comprised of the market value of the contract and assessed future risk. The Bank has concluded forward contracts, options and currency and interest rate swaps. A forward contract implies the Bank’s promise to buy or sell currency, market bonds or market equities at a specified date and price. Options give counterparties the right to buy or sell specific currencies at a pre-determined price and at a specific time in the future. Interest rate and currency swaps involve exchange of payments, taking into account the development of interest rates and currencies Through counteractive measures, the Bank has limited the risk arising from the above contracts. The

Landsbanki Íslands hf. Prospectus, November 2005 14 credit equivalent of such contracts, calculated according to rules on assessing the risk-weighted asset base, was ISK 12,404 m at the end of September 2005. The following is a summary of off-balance-sheet forward contracts and swaps as of 30 September 2005.

Derivatives breakdown

Market value 30 Sep. 2005 Market value 1 Jan. 2005 Assets Liabilities Assets Assets Currency swaps: Forward contracts 4,927 7,038 3,501 3,193 Options bougth and sold 2,731 3,376 2,694 3,147 7,658 10,414 6,195 6,340 Interest rate swaps: Interest rate swaps (IRS): 1,124 1,388 535 621 FX interest rate swap 1,086 1,410 147 197 2,210 2,798 682 818 Equity contracts: Forward contracts 1,584 3,250 1,607 918 Options bought and sold 817 - 219 1 2,402 3,250 1,826 918

Total derivatives 12,270 16,462 8,702 8,077

Hedging derivatives Interest rate swaps (IRS): 3,869 940 2,084 1,235 FX interest rate swaps 1,608 1,001 2,846 347 5,477 1,941 4,930 1,582

All amounts MISK

Netting arrangements The Bank further reduces its risk of loss on derivative contracts through netting arrangements with counterparties. Netting arrangements reduce counterparty risk in the event of default on payment, as in such an event all claims on the counterparty are foreclosed and settled by netting.

Credit-related commitments Credit-related commitments ensure that financing is available to clients as required. Guarantees, which irrevocably commit the Bank to make payment to a third-party should a client fail to fulfil his/her obligations, involve the same credit risk as loans. Import guarantees and documentary credits are secured by the goods shipments they cover, thus representing a lower risk than direct loans. Unused credit lines represent a commitment to increase loans or guarantees. The Bank could conceivably suffer losses equivalent to the total amount of unused credit lines due to counterparty risk. Landsbanki monitors the duration of credit lines, since long-term obligations generally imply a greater credit risk.

4.4 Market Risk Market risk results from interest rate, FX and securities exposures, all of which involve risk due to market movements. The Bank analyses Value-at-Risk (VaR) to assess the market risk of exposures and estimates maximum loss based on expectations of various changes in market conditions. The

Landsbanki Íslands hf. Prospectus, November 2005 15 Board of Directors has set the limit for the Group's market risk at 15% of its risk-weighted asset base. ALCO sets detailed limits for authorised market risk positions, which are monitored daily. Daily VaR is an assessment of conceivable loss if positions remain unchanged for one business day with 99% confidence intervals. The daily loss is not to exceed VaR more often than one in every hundred days on average. The actual outcome is checked regularly to verify the accuracy of the predictions and parameters used in calculating VaR. ALCO sets VaR limits for all trading in securities, interest rates, FX, derivatives and portfolios. Policy decisions concerning market risk are taken by ALCO. Day-to-day management of the Group’s market risk is in the hands of Securities and Treasury. Each day, management compare the actual risk with authorisations and VaR. These methods do not, however, exclude exceeding the limits when major market fluctuations occur.

Market risk is comprised of interest Market risk rate risk, equity risk and currency 1.1.2005 - 30.09.2005 1.1.2004 - 31.12.2004 risk. During the period from January Avg. Max. Min. Avg. Max. Min. to September 2005, the Bank’s Interest rate risk 62 142 10 37 84 3 Currency risk 9 72 1 4 27 0 maximum possible losses in Equity risk 904 1,786 511 667 1,662 339 connection with interest rate, Total 975 2,000 522 708 1,773 342 currency and security exposures All amounts MISK amounted to ISK 2,000 m and minimum possible losses were ISK 522 m.

Interest rate risk Landsbanki’s interest rate risk arises from the impact of interest rate changes on the Bank's assets and liabilities. Since a major portion of Landsbanki’s assets and liabilities are interest-rate-related in one manner or another, this is one of the Bank’s most extensive types of risk. Interest rate risk on its market bonds portfolio is evaluated especially and limits set for the total portfolio risk by ALCO. Risk Management is responsible for supervision of overall market bond risk, while day-to-day monitoring is the responsibility of Securities and Treasury. The market bond trading book is managed in line with current expectations on interest rate developments, and the risk it involves closely monitored. The following table gives a summary of Landsbanki's market bond assets as of 30 September 2005 and at year-end 2004, for comparison purposes. Market bonds are marked to market on the balance sheet.

Market bonds 30.9.2005 1.1.2005 Book value Book value Change % Market bonds 60,791 18,529 42,262 228% Forward contracts 28,147 1,785 26,362 1477% Net bond assets 32,644 16,744 15,900 95%

Net bond assets as a ratio of total assets 2.86% 2.27% All amounts in MISK

The Bank has concluded forward contracts and swaps amounting to ISK 28,147 m against its bond assets. These contracts, like the bonds themselves, are marked to market. The Bank’s net bond assets at the end of September 2005 amounted to ISK 32,644 m, or 2.86% of its total assets, as compared to ISK 16,744 m or 2.27% of total assets at the beginning of this year.

Landsbanki Íslands hf. Prospectus, November 2005 16 Equity risk Equity risk is the risk connected with changes in Landsbanki’s equity portfolio as a result of changes in the market value of equities. The Bank’s equity risk arises in proprietary trading and securities trading, which are both part of Securities and Treasury. Proprietary trading handles the Bank’s own investments in listed and unlisted equities, as well as underwriting and market-making of equities. Equities are recognised in the Bank’s accounts either as assets carried at fair value through profit and loss or as trading equities. Assets carried at fair value in profit and loss include those equities which the Bank has decided to hold as an investment for at least one year. Trading equities are all equities other than investment equities. Landsbanki’s equity holdings at the end of September 2005 were recognised at a carrying amount of ISK 117,159 m. On 30 September 2005, the Bank had entered into forward contracts in the amount of ISK 62,850 m against its equity holdings; these contracts are marked to market. The Bank’s net equity assets at the end of September 2005 amounted to ISK 54,309 m, or 4.8% of its total assets, as compared to ISK 26,720 m or 3.6% of total assets at the beginning of this year. The following table shows the Bank's equity assets net of forward contracts as of 30 September 2005 and at the beginning of 2005. Equities

30.9.2005 1.1.2005 Change % Book value Book value

Trading equities 83,183 37,499 45,684 122% Monetary assets carried at fair value through profit and loss 33,976 12,817 21,159 165% Total equities 117,159 50,316 66,843 133% Forward contracts 62,850 23,596 Net equity assets 54,309 26,720

Net equity assets as ratio of total assets 4.8% 3.6%

All amounts in MISK

Currency Risk Changes in the exchange rates of major foreign currencies affect the Bank's financial position and cash flow and constitute currency risk. ALCO sets risk limits for each currency and for total currency exposures, both overnight and within each trading day, which are monitored daily. Currency risk is the risk arising from the impact of exchange rate fluctuations on the Bank’s assets and liabilities in foreign currencies. FX brokering, which is part of Securities and Treasury, manages for instance all the Bank’s currency risk, including its currency balance, with the exception of limited authorisations to FX, Derivatives and Risk Consulting for FX exposures. The Central Bank sets rules on maximum foreign exchange positions of authorised foreign currency brokers. The sum of an individual broker’s open currency exposures may not exceed 30% of equity and subordinated debt included under CAD rules. Its open position in individual currencies may not exceed 15% of equity (20% for USD). These restrictions limit Landsbanki’s overall currency risk. Management of the Bank’s overall currency position, however, can mean considerably lower limits and a more conservative position than described here, in order to minimize its greatest conceivable losses in the case of unfavourable FX market fluctuations. Internal limits, set by ALCO in the Bank’s risk policy, are considerably lower than authorised in the Central Bank’s rules. The basic implication is that FX exposures are not among the Bank’s objectives.

Landsbanki Íslands hf. Prospectus, November 2005 17 4.5 Operational Risk Landsbanki's operational risk arises from direct or indirect losses resulting from the failure or inadequacy of internal processes or systems, employee error or external circumstances. Each Managing Director is responsible for and controls the division’s operational risk. Day-to-day management of operational risk is the responsibility of the department heads. To limit operational risk, Landsbanki uses a quality system, the objective of which is to ensure that the Bank provides first-class service securely, efficiently and economically. Assessment of operational risk seeks to define what could go wrong, how serious the consequences of this would be, what can be done to reduce/eliminate the risk, and whether a system could be established to manage the risk and encourage self-regulation.

Employees Landsbanki has comprehensive guidelines on working procedures and processes, which are accessible to personnel on the company’s Intranet. Their aim is to enable employees to fulfil their tasks satisfactorily and prevent mistakes from occurring. It is the responsibility of the Managing Directors of each division to ensure that their employees acquaint themselves with and follow the relevant guidelines. Both current and former employees of Landsbanki can damage the Bank if they infringe its rules either intentionally or through negligence. While it is difficult to evaluate the damage in each instance, the loss can be both financial or damage to the Bank’s reputation. Landsbanki has well-qualified employees with years of experience of banking and financial markets. The Bank endeavours to hire qualified and well-educated employees. The Bank offers its employees a wide selection of training and continuous education programmes to increase their qualifications and endeavours to treat its employees well. There is always a risk that competitors will manage to attract Landsbanki’s employees. The departure of key personnel can have a negative impact on the Bank’s performance. The role of the compliance officer is to oversee securities transactions by Group employees. The compliance officer also handles cases concerning employees’ misdeeds and their involvement in commercial operations, as well as supervising actions to counteract money laundering and complaints from clients.

Work procedures The risk involved in work processes means losses can occur due to flaws in current working procedures or because there are no documented working procedures. A loss can result from human error or because the current working procedures were not followed. The Bank’s rules and working procedures are maintained in the Employees’ Manual, which employees have easy access to, for instance, on the Intranet. It is intended to ensure that all the main information on work processes is available in one place. Department heads are responsible for the accuracy and recording of their department’s working procedures. They must also see to it that their employees have acquainted themselves with Landsbanki’s rules and working procedures and comply with them.

Operating security of information systems Landsbanki’s information systems comprise a major operational risk, both with regard to their functioning and accessibility. The Bank employs a wide variety of IT systems and in many instances depends upon co-operating partners such as the Icelandic Banks’ Data Centre, telecom operators and Reuters, to mention only a few.

Landsbanki Íslands hf. Prospectus, November 2005 18 In recent months, extensive work has gone into ensuring the security of IT systems. The entire Bank’s hardware has been renewed or overhauled. Network architecture has been redesigned, transmission capacity greatly increased and alternative routes installed. Data backup arrangements have been reviewed and the Bank’s backup centre transferred to the premises of the Icelandic Banks’ Data Centre. A large number of systems have been rewritten or adapted, with a view to increasing operating security. A special Information Security Officer has been appointed, with the task of ensuring that all work processes in the IT Division comply with the Icelandic and international standard ISO/IEC 17799:2000. All work has been undertaken with the positive co-operation of external partners as appropriate. Factors concerning these parties have been included in actions taken by the Bank to increase its operating security. Although natural catastrophes could threaten operating security, attempts are made to limit this risk by ensuring the security of central equipment, its location and distribution between risk areas. It is never entirely possible, however, to eliminate operational risk arising from unexpected events.

External events Various external events, beyond the control of Landsbanki and its management, can have a major impact on the operations, performance and share price of the Bank. Examples of this are natural catastrophes, war, vandalism and terrorist attacks. The Bank has a disaster plan, intended to ensure its capacity to maintain its services and the confidence of its clients, partners and other parties should a serious situation arise.

Legal risk Like other financial enterprises, Landsbanki operates within a complex regulatory framework and a variety of specific regulations apply to its operations. Development is rapid on financial markets, with the result that Acts and Regulations are reviewed regularly. Amendments to legislation can have a major impact on the Bank’s operations, financial situation and performance. In addition, Ministerial Regulations and rules or guidelines issued by the Central Bank and Financial Supervisory Authority or other public authority can have a substantial effect on the Bank’s operating environment. Amendments to other types of legislation, such as laws on taxation, company law, competition law, etc., can also affect the services provided by the Bank. Close watch is kept on impending changes to legislation and rules applicable to Landsbanki, and an assessment made of the most suitable response in each case. The Bank is subject surveillance by public authorities such as the Financial Supervisory Authority. It could be the object of investigation or other action by public authorities, and be required to pay fines or be subjected to restrictions on its operations if such an investigation or action were to reveal violations of rules or laws. The Bank’s operating license is subject to compliance with the Acts and Regulations governing its operations, and any breach of those laws or regulations is subject to serious penalties, liability for damages, or the revocation of license. A central aspect of Landsbanki’s activities is to provide consultation and serve as an intermediary in business transactions. This opens up a risk that the Bank could be sued for damages as a result of its intermediation in business transactions or of incorrect advice or analysis. Landsbanki’s activities abroad have been increasing. Following its acquisition of Kepler Equities in September 2005, the group has activities in 10 countries.

Landsbanki Íslands hf. Prospectus, November 2005 19 Operating abroad, either through the establishment or acquisition of subsidiaries, branches or agencies, or providing cross-border services, requires knowledge of the regulatory framework in those countries where operations are located. There is a risk of liability for damages or penalties from public authorities if activities fail to comply fully with local legislation in each case, resulting in a risk of financial loss and damage to the Bank's reputation. Landsbanki and its subsidiaries are not at present involved in litigations, nor is any such litigation under contemplation, apart from the usual collection actions on outstanding debts and guarantees which are part of the Bank's normal operations. Any suits which have been brought against Landsbanki and its subsidiaries in a court of law or arbitration tribunal are not liable to have a significant impact on the Bank’s operating performance. It should be pointed out that in June 2005, the Bank Employees’ Pension Fund initiated a suit in the Reykjavík District Court against Landsbanki Íslands hf., and alternatively, the Ministers of Finance and Commerce, on behalf of the Icelandic State, concerning guarantees for the pension obligations of the Bank’s employees. Landsbanki does not consider the pension fund to have a lawful claim on the Bank, as a final settlement was concluded with the pension fund in 1997. Landsbanki is not engaged in litigation or arbitration which could substantially affect the financial position of the Bank.

Criminal actions The risk always exists that the Bank could suffer a loss as a result of criminal actions, such as a bank robbery, fraud, money laundering or embezzlement. All of these are risk factors which could cause the Bank extensive damage and affect its performance. Great emphasis is placed on the Bank’s security and access control systems, in addition to which front line employees receive special training in responding to situations which may arise, such as bank robberies. Clear procedures instruct staff to identify evidence of fraud or money laundering. The Bank’s settlement system is intended to prevent misconduct from going unnoticed. Branches and Bank departments are closely monitored by the Bank’s Internal Audit division. To reduce the risk of damage due to criminal actions, the Bank’s security affairs are reviewed on an ongoing basis. In addition, money transportation is insured in accordance with the interests at stake in each instance.

Competition Risk Landsbanki operates on a financial market which has been changing rapidly in recent years, with increased competition and competitors increasing in strength. The Bank’s main competitors are Kaupthing Bank, Íslandsbanki, Straumur-Burðarás Investment Bank, the country’s savings banks and the Housing Financing Fund (HFF), as well as competition from foreign markets. There is always a risk of new entrants to the market, or for smaller competitors to merge and increase their strength. Such competition could develop in individual market sectors, or in the market as a whole. Landsbanki has a strong market share, which it intends to maintain. Landsbanki makes every effort to have its product range, service and prices competitive, and must constantly monitor who its competitors are and what they have to offer. There is always a risk that the Bank could lose its competitive edge that its new products fail to meet the demands of the market or compete with competitors’ products. There is always a possibility that launching of new products could be unsuccessful. All of these are risk factors which could undermine the Bank’s income generation and affect its performance.

Landsbanki Íslands hf. Prospectus, November 2005 20 Image The image and reputation of financial enterprises is among their most valuable assets. The risk of damage to the Bank’s image or reputation is present whenever it is the subject of discussion. Damage to its image or reputation could prompt the Bank’s clients to direct their business elsewhere. This could have a very negative impact on the Bank’s performance and share price. Such damage could result, for instance, from business mistakes, violations of law or regulations, errors of judgement, poor service or products offered.

Insurance Landsbanki has taken a conscious decision to insure itself against specific risks. The Bank holds all mandatory insurance coverage, including fire insurance and mandatory vehicle insurance, plus comprehensive vehicle insurance. The Bank also holds insurance policies provided for in collective bargaining agreements with the Union of Icelandic Bank and Finance Employees, such as life and accident insurance, and insurance stipulated by other wage contracts as applicable. In addition, the Bank has taken out liability insurance against third-party claims, insurance on moveable property and professional liability insurance for its auditor. The Bank also has insurance designed specifically for banking operations, such as Bankers’ Blanket Bond, insurance against computer crime and professional indemnity coverage. In addition, money transportation is insured in accordance with the interests at stake in each instance. It should be borne in mind, however, that despite the insurance policies held by the Bank, there is no guarantee that it will be fully compensated should it need to lodge claims. If the Bank did submit claims under its policies, the premiums it pays could be expected to increase in the future. The Bank’s insurance policies are subject to Icelandic and/or foreign terms and conditions, with the usual exceptions.

4.6 Mismatch of assets and liabilities Mismatch of assets and liabilities is a risk which cannot be classified directly under a single risk factor, but is rather a combination of factors. It applies generally to the Bank’s total on- and off- balance sheet obligations. All Landsbanki’s risk factors can be interrelated. In order to maximise the margin, given a specific risk in the composition of assets and liabilities, all the Bank’s risk factors must be considered. Risk due to asset-liability mismatch is thus intended to cover risk factors which market risk does not cover or which cannot be regarded as purely market risk factors. Mismatch of assets and liabilities includes risk factors arising from, for instance, portfolio risk, indexation risk, and liquidity risk, reserves required by the Central Bank, the duration of individual balance sheet items, large exposures, off-balance sheet guarantees and capital ratio.

Interest rate risk on portfolios Landsbanki's interest rate risk is of two types: On the one hand, risk arising from the impact of interest rate changes on the Bank’s trading book (market bonds and derivative contracts bearing market risk). On the other hand, there is risk resulting from the interest differential created by mismatch in the interest rate basis of the Bank’s other assets and liabilities (referred to as the Bank’s portfolio risk and classified under risk due to mismatch of assets and liabilities). Assets and liabilities in the Bank’s portfolio (lending, deposits and investment bonds) are recognised at purchase price. The portfolio returns the interest rate differential, i.e. the difference between interest income and interest expense, as part of the Bank’s profit. The Bank makes loans at fixed rates of interest, issues fixed interest bank bonds and pays fixed interest on deposits. Portfolio

Landsbanki Íslands hf. Prospectus, November 2005 21 interest rate risk is the risk posed by interest rate changes to this return. Day-to-day management of interest-rate risk is the responsibility of the Bank’s Treasury.

Indexation risk Landsbanki’s indexation risk derives from imbalance in its indexed assets and liabilities, including both on- and off-balance sheet items. Treasury is responsible for the Bank’s indexation risk. At the end of September 2005, Landsbanki’s inflation-indexed assets exceeded its indexed liabilities by ISK 104 bn, or 80% of the Bank’s equity calculated in accordance with CAD rules.

Liquidity risk Liquidity risk is the risk that the Bank might not have sufficient liquid assets to meet its short-term obligations at any given time. Developments on Icelandic financial market have resulted in greater fluctuations than previously, making it more important for the Bank to maintain a strong liquidity position. Landsbanki’s liquidity ratio is governed by the Central Bank’s Rules No. 386/2002, on the liquidity ratio for credit institutions subject to minimum reserve requirements. The Bank's liquidity management is intended to ensure that it always has sufficient liquid assets to meet short-term obligations without limiting its possibilities to take advantage of opportunities on the market. ALCO formulates the Bank’s liquidity management policy, monitors its liquidity and provides advice on the composition of its assets and liabilities. The objective is to minimize fluctuations in the liquidity position and ensure that the Bank always has sufficient access to cover outflows arising from its obligations in the coming month. Treasury is responsible for the Bank’s liquidity management and controls and co-ordinates actions to manage liquidity. Liquidity management involves adjusting any mismatch arising between the duration of deposits and other funding, on the one hand, and lending and other allocation of capital, on the other. Landsbanki has liquid assets primarily on the interbank market, in Treasury bills and other domestic Treasury paper, or secure foreign bonds with a high rating. Treasury bills and other government- backed benchmark securities in ISK can be used in repose with the Central Bank. These transactions are also an important part of the bank’s liquidity management and short-term financing.

Central Bank’s reserve requirements Landsbanki must comply with reserve requirements prescribed by the Central Bank’s Rules No. 906/2003. A specified percentage of the Bank’s balance sheet, as defined in these rules, must be kept in a reserve account with the CB. Reserve requirements apply to commercial banks and savings banks, as well as other institutions and companies authorised by law to accept deposits from the public for custody and investment. The rules apply to the calculation and settlement of minimum reserve requirements of the disposable funds of deposit institutions and other credit institutions at the end of each month.

Duration of individual balance sheet items A risk can arise where a major portion of the Bank’s assets are tied up and it cannot access these assets to use them for other purposes. The Bank’s obligations are of varying duration and it endeavours to ensure a balance between its non-liquid assets and liabilities.

Landsbanki Íslands hf. Prospectus, November 2005 22 Large exposures Clients are defined as large exposures if their total obligations exceed 10% of Landsbanki’s equity, in accordance with FME’s Rules No. 531/2002 on large exposures incurred by financial undertakings. Landsbanki’s management pay special attention to large lending exposures and the Board of Directors is regularly informed of such positions. At the end of September 2005, there were seven clients included in this classification, with total exposures of ISK 155.5 bn, or 119.3% of the equity of Landsbanki Group. According to the Rules, total exposures of parties with obligations exceeding 10% of the Bank’s equity may never exceed 800% of equity. The maximum obligations of individual company groups authorised by the rules is 25% of the Bank's equity. All of Landsbanki’s large exposures were within these limits at the end of June 2005.

Off-balance sheet guarantees Off-balance sheet guarantees provided by Landsbanki amounted to ISK 20.7 bn at the end of Q3 of 2005, as compared with ISK 24 bn at year-end 2004.

CAD capital ratio Calculation of Landsbanki’s capital adequacy ratio (CAD ratio) is governed by Act No. 161/2002, on Financial Undertakings, and Rules on the Capital Adequacy Ratio of Financial Undertakings, No. 530/2003. According to these Rules, subordinated debt and equity, net of the book value of holdings in other financial undertakings, may not be less that 8% of the risk-adjusted asset base. In the case of holdings in financial undertakings amounting to up to 10% of share capital in each individual financial undertaking, the deduction shall, however, be limited to the total amount of holdings and subordinated claims exceeding 10% of the Bank’s equity. The risk-weighted asset base of an undertaking is evaluated with regard for its total assets, off-balance sheet items, foreign-exchange risks and other market exposures, in accordance with detailed rules set by the Financial Supervisory Authority on assessment of risk-weighted asset base. The Financial Administration department calculates the Bank’s risk-weighted asset base. At the end of September 2005, Landsbanki’s capital adequacy ratio, according to CAD rules, was 14.3%, of which 12.9% was Tier 1 capital. At the beginning of 2005, the Group’s capital adequacy ratio was 10.4%, of which 7.8% was Tier 1 capital. It is the responsibility of the Bank’s CEOs to ensure that its capital adequacy ratio according to CAD rules is always above the prescribed minimum.

4.7 The Economic Outlook and its Impact on Landsbanki’s Operations The general economic climate has a major impact on the Bank and its clients. The Icelandic economy is currently experiencing the economic effects of major power-related industrial projects and of structural changes which have greatly altered the financial environment of domestic enterprises and households. Although the economic cycle can be assumed to have reached its peak, the economy appears to be well prepared for the downturn which will unavoidably follow. A temporary contraction, accompanied by a decrease in the ISK exchange rate, inflation spike and drop in purchasing power, is practically assured. There are, however, many external factors, such as prices for marine products, fishing catches, oil prices and foreign interest rates which could influence just how the landing will turn out.

Landsbanki Íslands hf. Prospectus, November 2005 23 GDP growth has risen steadily from 3.5% in 2003 to 6.2% last year, is heading for 7.6% this year and 7.3% next year. Inflation has also increased and is currently 3.5% on an annual basis. The housing market has been a key factor here. The current account deficit is headed for 13.2% of GDP this year, an all-time high during the 60 years for which Iceland has national accounts. Not only have imports of investment goods surged, but private consumption has also increased much more than generally anticipated.

Household purchasing power There have been considerable changes in the Icelandic labour market in recent years, including an increased supply of foreign labour. Traditionally a decline in unemployment and increasing labour market pressure has caused wage drift which gradually fuelled higher inflation. In recent months inflation has fallen substantially. Inflation has also been above the Central Bank’s inflation target for practically all of 2005. Private consumption is fuelled by several interrelated factors. Firstly, purchasing power is high and growing, due to high economic activity, rising wages and tax cuts. Secondly, increased access to housing mortgages, falling interest rates and housing price rises have also meant households have additional possibilities to increase consumption. Household debt has grown in parallel to the increased private consumption. Icelandic households are highly indebted and total debt as a proportion of disposable income has increased steadily for quite some time. In the past year or two Landsbanki’s residential housing mortgages have increased greatly. Should there be a major adjustment in homeowners’ financial situation, due to loss of income, changes in financing costs or a drop in asset prices, this would affect their capacity to repay these mortgages. In October, Landsbanki announced its decision to lower the maximum loan-to-value ratio of its housing mortgages from 90% to 80%. The decision was taken in consideration of the changing housing market situation, where price increases are levelling off. Under such circumstances, even limited upsets can result in substantial difficulties for borrowers, especially since these are inflation- indexed mortgages.

ISK exchange rate The ISK has appreciated steadily since this past summer and the trade-weighted ISK index is now lower than it was in March this year. At that time the index had dropped to its lowest level since the currency was devalued in November 1992. The exchange rate index measures the price of foreign currencies in ISK. A lower index means a stronger ISK. The appearance of ISK Eurobonds from foreign issuers is the newest development on the FX market. At the end of September this issuance was close to ISK 112 bn. The current interest rate differential would appear to have convinced foreign investors that it is worth the risk to bet on the ISK’s continuing strength in the next year or two The main factor which presents a threat to this is the fact that the current account deficit is heading for around 13% of GDP, which should serve to erode confidence in the currency and force a correction, despite the high interest rate differential. As pointed out earlier, in the section on Landsbanki's currency risk, the Bank's currency balance is practically in equilibrium, with the result that exchange rate changes have a negligible impact on the Bank’s outcome. Changes in the exchange rate, however, do affect the Bank’s balance sheet which is in ISK. A weakening of the currency causes a relative drop in equity while an ISK strengthening results in an increase in equity.

Landsbanki Íslands hf. Prospectus, November 2005 24 ISK depreciation causes a rise in the principal and debt service of exchange rate indexed loans to clients. The opposite is true if the ISK appreciates. As a result, large exchange rate fluctuations are likely to affect defaults. Many borrowers, however, have income in foreign currencies which fluctuates in line with the development of their exchange rate indexed loans.

Inflation The inflation outlook is rather negative at the moment, with the latest CPI figures substantially above the CB’s upper tolerance limit. Landsbanki’s economic forecast assumes that inflation will continue above the CB’s 2.5% inflation target for the next two years, hovering in the area of 3-4%. The possibility of it exceeding these limits cannot be excluded. As mentioned in the section on indexation risk, Landsbanki's inflation-indexed assets exceeded its inflation-indexed liabilities at the end of September 2005. Other things remaining equal, increasing inflation will cause an increased interest margin, and have a positive effect on the Bank’s outcome.

Interest rate developments Concerns of the growing expansion and large current account deficit mean that a cut in the policy rate under the present circumstances is out of the question, given the methodology which has determined the CB's course up until now. Monetary policy is, after all, focused more on what lies ahead than on the present situation. In the final analysis, it is the expectations of market players which make the greatest difference in shaping monetary policy. The policy rate can be expected to remain high. Interest rate changes affect Landsbanki’s outcome in two ways. On the one hand, through its interest income and expenses; on the other through trading gains or losses on the Bank’s market bond assets. As mentioned in the section on the Bank’s interest rate risk, Landsbanki’s market bond assets amounted to ISK 32.6 bn at the end of September 2005, after taking forward contracts into consideration. Other things remaining equal, increasing market interest rates will cause trading losses on bonds and have a negative effect on the Bank’s outcome. If the Bank’s fixed interest rate lending exceeds fixed interest rate financing (deposits and bank bonds), an increase in market interest rates, by itself, will result in a lower interest margin while a drop in interest rates has a positive impact on the Bank’s interest margin.

Equity market developments There have been major rises in market equity prices since the beginning of this year and the ICEX-15 index rose by 37% during the first nine months of 2005. These increases are generally attributed to the changes which have taken place in the operations of the companies included in the index, favourable economic conditions and a good supply of money in circulation. Share prices cannot be expected to continue to rise at the same rate. As mentioned in the section on equity risk, Landsbanki’s net equity assets amounted to ISK 54.3 bn at the end of September 2005, or around 4.8% of the Bank’s total assets. Equity price developments thus have a considerable impact on the Bank’s performance.

Landsbanki Íslands hf. Prospectus, November 2005 25 5 Share Capital and Shareholders

5.1 Share capital Landsbanki’s total share capital amounts to ISK 11,020,677,803 nominal value, all of which is paid up. All shares are in a single class and bear equal rights. The Bank owns treasury shares totalling ISK 932,535,812 nominal value, of which 388,740,453 shares are covered by forward contracts, making the Bank’s net holding in treasury shares ISK 543,795,359 nominal value. Treasury shares do not bear voting rights, with the result that active share capital is ISK 10,088,141,991. No loans have been taken with terms affecting the Bank’s share capital. Landsbanki's share capital has been increased twice in the past 12 months. The former increase in share capital of ISK 800,000,000 was offered for sale to Landsbanki’s shareholders in proportion to their shareholdings as of end of trading on 11 March 2005. The purpose of the share capital increase was to strengthen the Bank’s equity position following its high growth in 2004 and continuing growth this year. The latter share capital increase was turned over to shareholders of Burðarás hf. in connection with the split up of Burðarás hf. into two parts which were subsequently merged with Straumur Investment Bank Ltd. and Landsbanki Íslands hf., respectively. Shareholders in Burðarás received shares totalling ISK 2,120,677,803 nominal value in Landsbanki Íslands in exchange for their shares of ISK 2,940,400,149 nominal value in Burðarás. The exchange ratio for shares in Landsbanki is thus 0.72122.

Development of Share Capital

Changes in Landsbanki´s share capital 2002 - 2005 Change (no. Date Explanation of change of shares) Total number of shares 1.1.2001 Position at beginning of 2001 6,845,703,621 28.8.2003 Share capital increase at a share price of 4.8 in exchange for shares in Straumur-Burðarás at the share price of 3.9 344,518,275 7,190,221,896 28.8.2003 Share capital increase, sold to Afl fjárfestingarfélag hf. at a share price of 5.1 309,778,103 7,500,000,000 12.3.2004 Share capital increase, sold in a private offering at a share price of 7.6 600,000,000 8,100,000,000 18.4.2005 Share capital increase, sold to shareholders at price of 14.25 800,000,000 8,900,000,000 3.10.2005 Share capital increase, delivered to shareholders in Burðarás hf. in connection with the latter's merger with Landsbanki 2,120,677,803 11,020,677,803 Total share capital 11,020,677,803 All amounts in MISK Authorisation to increase share capital and purchase treasury shares Landsbanki has an unused authorisation to increase share capital by ISK 1,200,000,000 nominal value. The authorisation is valid until 21 March 2007. Shareholders waived their pre-emptive rights to purchase the additional share capital The above amount is the remaining portion of an authorisation to the Board of Directors approved at Landsbanki’s AGM on 5 February 2005. The AGM approved a motion to raise the Board’s authorisation to increase the Bank’s share capital from ISK 400,000,000 to ISK 2,000,000,000 nominal value by issuing new shares. Shareholders waived their pre-emptive rights to purchase the additional share capital. The Board of Directors was entrusted with determining the details of the price and terms of payment for such an increase. On 11 March 2005, the Board of Directors decided to use part of this authorisation and the Bank’s share capital was increased by ISK 800,000,000. The new shares were sold to Landsbanki’s shareholders at a share price of 14.25. The increase was listed on ICEX on 18 April 2005.

Landsbanki Íslands hf. Prospectus, November 2005 26 At Landsbanki’s AGM on 5 February 2005, a motion was approved authorising the Board of Directors to purchase or accept as collateral own shares amounting to up to 10% of Landsbanki’s share capital. The authorisation must be exercised within 18 months from its approval by the AGM. Pursuant to this authorisation, the Bank may acquire treasury shares of up to ISK 1,102,067,780 nominal value. The purchase price of the shares shall not be higher than 10% above nor lower than 10% below the current listed share price on ICEX. The CEOs were also authorised to take all further decisions on the implementation of such transactions.

Share price Landsbanki’s shares were listed on the ICEX Main List Landsbanki´s share price 2003-2005 on 27 November 1998. As of 25 11 November 2005, the 20 market value of the Bank’s share capital was ISK 251.3 15 bn. The accompanying figure Gengi 10 shows Landsbanki’s share 5 price from the beginning of 0 2003 to November 2005. 1.1.2003 1.3.2003 1.5.2003 1.7.2003 1.9.2003 1.1.2004 1.3.2004 1.5.2004 1.7.2004 1.9.2004 1.1.2005 1.3.2005 1.5.2005 1.7.2005 1.9.2005 1.11.2003 1.11.2004 1.11.2005

5.2 Shareholders

Landsbanki´s ten largest shareholders as shareholders as of 11 November 2005

Name Id. No. Nominal value Share Samson eignarhaldsfélag ehf. 490902-2520 4,426,967,367 40.17% Landsbanki Íslands hf. 540291-2259 647,138,612 5.87% Landsbanki Luxembourg S.A. 691100-9010 550,101,119 4.99% Tryggingamiðstöðin 660269-2079 392,554,998 3.56% Landsbankinn eignarhaldsfélag ehf. 631204-3330 285,397,200 2.59% Fjárfestingarfélagið Grettir hf. 481204-2590 244,284,304 2.22% Arion safnreikningur 411104-9150 220,986,091 2.01% Proteus Global Holding S.A. 520204-9030 217,966,367 1.98% LB Holding Ltd 630600-9010 212,815,949 1.93% Lífeyrissjóður Bankastræti 7 430269-4459 194,546,416 1.77% Total ten largest shareholders 7,392,758,423 67.08% Total other shareholders 3,627,919,380 32.92% Total share capital 11,020,677,803 100.00% Treasury shares 932,535,812 8.46% Total active shares 10,088,141,991 91.54%

When this prospectus was issued, Landsbanki’s shareholders numbered 29,618. The ten largest shareholders owned shares totalling ISK 7,392,758,423 nominal value, or the equivalent of 67.07% of its share capital.

Landsbanki Íslands hf. Prospectus, November 2005 27 There is no knowledge of any agreements between shareholders concerning the exercise of neither votes nor have that shareholders obliged themselves not to sell their shares for a specified period.

Principal shareholders and connections with Landsbanki The holding company Samson eignarhaldsfélag ehf. has a controlling interest in Landsbanki. Samson’s holding amounts to ISK 4,426,967,367 nominal value, or 40.17%. The owners of Samson eignarhaldsfélag ehf. are Björgólfur Guðmundsson, Chairman of Landsbanki’s Board of Directors, and Björgólfur Thor Björgólfsson. Although Samson’s holding in Landsbanki is over 40%, the company is not obliged to make a takeover bid, since its holding was already over 40% when the law concerning mandatory takeover bids was amended, lowering the reference limit for takeover obligations to 40% from the previous 50%. Should Samson’s holding increase to over 45%, or drop below 40% and then increase to over the 40% limit once more, the company could be obliged to make a mandatory takeover bid for Landsbanki. Landsbanki Luxembourg SA is formally registered as one of Landsbanki’s leading shareholders. Landsbanki Luxembourg SA is a wholly owned subsidiary of Landsbanki. Shares registered under Landsbanki Luxembourg are not Landsbanki’s own shares, but are in fact owned by customers of Landsbanki Luxembourg SA. These shares confer voting rights. Landsbanki Luxembourg SA never exercises the voting rights in a limited company except on the instructions of the customers who are the actual owners of the shares. Landsbanki Luxembourg SA does not take equity positions on its own account.

Dividends The Bank’s objective is to pay a dividend equivalent to 30-50% of each year’s profit. A decision on the payment and the amount of dividends is based on an assessment of Landbanki’s current situation, its operating outlook, the development of its capital adequacy and proposed investments. Decisions on the payment of dividends, the date of payment, and the issue of bonus shares are taken at the Bank’s Annual General Meeting (AGM). Dividends shall be paid to those parties registered in the register of shares at the end of the day of the AGM, unless the Bank is notified of the assignment of the dividend through the transfer of shares. Landsbanki’s AGM of 5 February 2005 approved the payment of a dividend of 20% on the nominal value of share capital for the year 2004. Dividends paid for the years 2002-2004

Dividend per ISK nominal value Dividend paid ** % of profit for the year 2004 0.20 1,620,000,000 12.75% 2003 0.10 750,000,000 25.00% 2002 0.10 658,000,000 34.00%

*Dividends for the operating years 2002 - 2004 were disbursed in 2003-2005 **At current prices

Landsbanki Íslands hf. Prospectus, November 2005 28 6 Merger of Landsbanki and Burðarás hf.

Shareholders’ meetings of Burðarás hf., Landsbanki Íslands and Straumur Investment Bank, held on 15 September 2005, approved a motion to merge Burðarás, on the one hand, with Landsbanki Íslands and, on the other hand, with Straumur Investment Bank. The accompanying table shows how Burðarás´s market capitalisation the assets of Burðarás hf. were Burðarás - nominal value of share capital 5,944,495,481 divided between Landsbanki and Share price 16.4 Market cap of Burðarás hf. 97,489,725,888 Straumur Investment Bank. Landsbanki took over ISK 40.3 bn or Division of Burðarás´s 41% of Burðarás’s total market To Landsbanki 41% 40,292,878,251 To Sraumur Investment bank 59% 57,196,847,630 value. Landsbanki made payment to Burðarás’s shareholders with new Shares in Landsbanki delivered to Burðarás´s shareholders 2,120,677,803 shares amounting to ISK Share price 19 2,120,677,803 nominal value valued Market value of Landsbanki´s shares 40,292,878,257 at a share price of ISK 19.

The accompanying table shows the Balance sheet acquired assets and liabilities and equity of Assets Liabilities and equity Burðarás acquired by Landsbanki as Carnegie 10,523 Income tax liability 942 Marel hf. 5,105 a result of the merger. Straumur 2,236 Share capital 2,121 Intrum 1,451 Other equity 38,172 Landsbanki also received shares in Carrera 797 Real estate 478 Landsbanki with a market value of Good will 3,293 ISK 6,155 m and in Straumur Cash 17,354 Investment Bank Ltd. with a market Total assets 41,235 Total liabilities and equity 41,235 value of ISK 8,787 m in return for All amounts MISK its own holding in Burðarás hf. Prior to the merger, Landsbanki owned shares in Burðarás with a market value of ISK 14.9 bn. Those shares in Landsbanki which were acquired as a result of the merger are expected to be sold. The objective of the merger was to form a larger and stronger financial enterprise, which will be better equipped to take on the challenges posed by an altered banking and investment environment, and undertake ambitious international projects. In the estimation of the companies’ Boards, it is important to strengthen the foundations of Icelandic financial enterprises to respond to change in the economic climate and growing international competition. This merger is one of the largest of this type ever in Iceland, in terms of the numbers of shareholders involved, financial strength and equity of the companies involved. The merger will reinforce the Bank's balance sheet, supporting its further expansion, either through organic growth or acquisitions of financial undertakings.

Landsbanki Íslands hf. Prospectus, November 2005 29 Merger balance sheet 30 June

Landsbanki after Landsbanki Landsbanki merger and sale 30.6.2005 after merger Change of treasury shares Change Assets: Cash and deposits with the Central Bank 8,211 8,211 0 14,366 6,155 Lending 828,342 828,342 0 828,342 4,483 trading book assets 119,208 123,737 4,529 123,690 9,472 Monetary assets carried at fair value through profit and loss 16,080 26,155 10,075 25,552 0 Hedging derivatives 6,055 6,055 0 6,055 0 Shares in affiliates 3,696 3,696 0 3,696 478 Fixed assets 4,497 4,975 478 4,975 0 Intangible assets 7,035 10,328 3,293 7,035 0 Non-current assets held for sale 12,508 12,508 0 12,508 17,354 Other assets 16,440 33,794 17,354 33,794 37,942 Total assets 1,022,072 1,057,801 35,729 1,060,013 75,884

Deposits from financial undertakings and the Central Bank 92,755 92,755 0 92,755 0 Customers´ deposits 262,655 262,655 0 262,655 0 Borrowing 521,870 521,870 0 521,870 0 subordinated debt 49,394 49,394 0 49,394 0 Derivative contracts 10,089 10,089 0 10,089 0 Hedging derivative contracts 1,642 1,642 0 1,642 0 3,726 4,667 942 4,667 942 Liabilities included in disposal groups 2,036 2,036 0 2,036 0 Other liabilities 16,885 16,885 0 16,885 0 Total liabilities 961,052 961,993 942 961,993 942

Share capital 8,664 10,460 1,796 10,784 2,121 Retained earnings 50,290 83,281 32,991 85,169 34,879 Landsbanki´s equity 58,954 93,741 34,787 95,953 37,000 Minority interests 2,066 2,066 0 2,066 0 Total equity 61,020 95,807 34,787 98,019 37,000 Total liabilities and equity 1,022,072 1,057,800 35,729 1,060,012 37,942

All amounts MISK

Landsbanki Íslands hf. Prospectus, November 2005 30 7 History, organisation, Board of Directors and employees

7.1 An overview of Landsbanki’s history Landsbanki Íslands was Iceland’s first bank, established by the national government on 1 July 1886 on premises owned by bookseller Sigurður Kristjánsson, on Bakarastígur (now Bankastræti) in the centre of Reykjavík. The purpose of establishing the bank was to provide the monetary basis to encourage industrial progress in Iceland. The nation’s underdeveloped monetary system was stifling its development; money was needed to boost and restructure its stagnant economy. Iceland’s first bank notes were issued by the National Treasury (Landssjóður), which then loaned Landsbanki operating capital. Although Landsbanki was originally intended to provide traditional banking services, it did not have savings or current account business until it merged with the Reykjavík Savings Bank (Sparisjóður Reykjavíkur) in 1887. On 17 August 1899, Landsbanki moved to grand, new premises on the corner of Pósthússtræti and Austurstræti, where the Bank’s head office is still located. In 1900, the Icelandic parliament Althingi approved the establishment of a mortgage department in Landsbanki. Its purpose was to provide long-term financing at low rates of interest against real estate mortgages. The first mortgage was taken out by Ólafur Arinbjarnarson, on 20 July 1900, with his house, Bergstaðastræti 3 in Reykjavík, pledged as collateral. Landsbanki’s first branch opened on 18 June 1902 in Akureyri, North Iceland. This was soon followed by branches in Ísafjörður, in the West Fjords, in 1904, in Eskifjörður, in the East Fjords, and in Selfoss, in South Iceland, in 1918. Further branches followed throughout Iceland. The Bank’s first branch in Reykjavík, Austurbæjarútibú (East End branch), was opened on 20 June 1931, at Klapparstígur 29. In 1927 and 1928, Althingi passed new legislation on Landsbanki Íslands, giving the Bank central banking functions, with exclusive right to issue bank notes. It took over this role from Íslandsbanki, which had been established in 1904 for this purpose. The first notes were issued in 1927, a one hundred krónur note, and the following year 5, 10 and 50 krónur notes appeared. In 1957, Landsbanki was divided into two divisions, the Central Bank and the Commercial Bank, each under separate management. The final separation was enacted in 1961, with the founding of the Central Bank of Iceland, at which point Landsbanki ceased issuing notes. Landsbanki became a limited-liability company on 10 September 1997, following the adoption of a special Act on the Incorporation of the two state-owned banks, Landsbanki Íslands and Búnaðarbanki Íslands. Upon its incorporation, Landsbanki’s share capital was ISK 5,500 m, or 80% of the book value of the Bank’s own equity. The Act provided for the limited company, Landsbanki Íslands hf., to take over all of Landsbanki’s operations as well as its assets and obligations. The transformation proceeded smoothly, with the new company commencing operations on 1 January 1998. In 1999, the Icelandic state sold 15% of its holding in a public offering and in May 2001 Althingi approved the sale of the state’s entire remaining holding in Landsbanki. Another 20% of the Bank’s shares were sold in a public offering in June 2002, and in October that same year the holding company Samson eignarhaldsfélag acquired a controlling holding of 45.8% from the state. The

Landsbanki Íslands hf. Prospectus, November 2005 31 privatisation of Landsbanki was formally completed when the national treasury sold its remaining 2.5% in a PO in February 2003. At the Bank’s AGM in February 2003, the state’s representative on the Landsbanki’s Board of Directors gave up his seat, to be replaced by new core investors heralding new emphases in the Bank’s operations and a new era of expansion. Landsbanki has played an active part in the rapid development of banking and financial activities in recent years, including involvement in companies such as the Icelandic Banks’ Data Centre, VISA Iceland (Greiðslumiðlun hf.) Master Card in Iceland (Kreditkort hf.) and leasing companies Lýsing and SP Fjármögnun. In 2000, Landsbanki purchased a 70% holding in Heritable Bank in London, which specialises in funding residential property development and mortgage lending. Landsbanki also obtained an option on the remaining 30% held by other parties which it exercised gradually until at the end of 2003 it had fully acquired the company. At the end of 2002, Landsbanki acquired 51% of SP Fjármögnun hf., which is now one of the Bank’s subsidiaries. Landsbanki had previously owned shares in Lýsing hf., but when Lýsing and Búnaðarbanki merged in 2001, Landsbanki exchanged its shares in Lýsing for shares in Búnaðarbanki. Landsbanki’s organisational structure underwent major changes in 2003. An additional CEO was appointed and the executive administration extensively restructured. Branches were made more independent. Securities and investment banking activities were substantially reinforced under the new structure and with additional personnel, and its corporate banking activities expanded. In May 2003, after the merger of Búnaðarbanki and Kaupthing Bank, Landsbanki acquired Bunadarbanki International SA in Luxembourg, which subsequently became Landsbanki Luxembourg SA. Landsbanki’s expansion abroad has continued in 2005. In February, the acquisition of the UK stockbroker Teather & Greenwood in London was announced followed in September by Landsbanki’s acquisition of an 81% holding in the Paris-based securities firm Kepler Equities. During the course of the next five years, Landsbanki will acquire Kepler’s total share capital. Kepler Equities has operations in seven countries: headquarters in Paris and activities in Amsterdam, Frankfurt, Madrid, Milan and Zurich, as well as brokering activities in New York. Landsbanki also opened a London branch which was formally licensed to operate at the beginning of 2005, specialising in lending. Two new divisions have been established within the Bank, specialising in factoring (RP) and asset- based financing, on the one hand, and corporate advisory services, on the other. At the end of September 2005, the Minister of Agriculture accepted Landsbanki’s offer of ISK 2.7 bn for the assets and liabilities of the Agricultural Loan Fund. The Fund currently has some 3000 clients. The Bank will take over bonds issued by the Fund amounting to ISK 13.8 bn. Payment will be made upon the delivery of the Fund’s assets and liabilities, providing the Financial Supervisory Authority and the Icelandic Competition Authority approve the transaction. Following its acquisition of Kepler, Landsbanki has operations in 10 countries, and income from its operations abroad will comprise around one-quarter of the Bank’s total income. The Group will have around 1,600 employees once Kepler’s operations are integrated into its activities in Q4 of 2005, 200 of them working in the UK and 300 in continental Europe.

Landsbanki Íslands hf. Prospectus, November 2005 32 7.2 Organisation Landsbanki's current operations are divided into six profit-generating divisions: Asset Management, Private Banking, International Banking, Securities and Treasury, Corporate Banking and Sales and Marketing. In addition, the Bank’s subsidiaries abroad, Heritable Bank, Teather & Greenwood, Landsbanki Luxembourg SA, Kepler Equities, and Landsbanki’s London Branch, comprise separate divisions. Landsbanki’s London Branch was formally licensed to operate at the beginning of this year. The Bank’s branches are directly responsible to the Bank's CEOs, while their daily operations are under the direction of its various divisions depending upon the nature of their activities. The Bank has four support divisions: the Legal Division/Credit Control, Finance and Operations, Human Resources and IT.

Board of Directors Björgólfur Guðmundsson chairman

Group Internal Audit

Group Managing Directors Sigurjon Th. Arnason and Halldor J. Kristjansson.

CEO Office

Securities and International Private Asset Treasury Corporate Sales and Banking Management Banking Banking Marketing Branch network Investment banking Iceland Finance & Correspondent Operations banking Corporate Corporate Sales and London Branch Finance & International relations Marketing Advisory Payments Corporate Web Services Teather & Institutional Fund Treasury IT Risk lending Greenwood Sales Mortgage Service Management FX, Derivatives & Private Banking Trade Finance Asset Risk Consulting Customer Investor Credit Kepler Equities Taxation Affairs Management Relation Relations Brokerage Legal Division/ Fund Corporate Management Credit Control Funding (EMTN, Research and Service Heritable Bank Management Pension and Life ECP) Analysis Ltd. Corporate Assurance Direct Proprietary Marketing Human Landsbanki Lux International Trading Investments Resources

Asset Management Merrion Capital Credit Committee Operation Committee Committee ALCO

Administration According to its Articles of Association, Landsbanki’s Board of Directors shall consist of five persons, elected at its AGM for a one-year term. Five alternate members shall be elected at the same time. The Board elects a Chairman and divides responsibility for other tasks between the members. The Board of Directors shall be ultimately responsible for the Bank’s activities, as provided for in the relevant legislation, rules and the Articles of Association, and shall supervise its operations. The Board is to adopt its own Rules of Procedure, providing in detail for the implementation of its tasks. The Bank’s Rules of Procedure comply with international guidelines on corporate governance. These rules deal, in particular, with the authorisation of the Board of Directors to take decisions on individual dealings, the implementation of rules on special eligibility of Board members, handling of information on individual customers by the Board, participation of Board members in the Boards of subsidiaries and affiliated companies, and the implementation of rules on handling business dealings with Board members. Two working committees operate within the Board of Directors, an

Landsbanki Íslands hf. Prospectus, November 2005 33 Audit Committee and Compensation Committee, preparing examination by the Board of specific areas of operation and investigating in more detail matters related to them. The Bank’s CEOs are responsible for the Bank’s day-to-day operations and are authorised to take decisions on all questions not entrusted to others by Acts, Regulations or the Articles of Association. The Bank’s Internal Auditor is appointed by the Board of Directors. Apart from directing Landsbanki’s Group Internal Audit, he advises the Board of Directors on issues concerning auditing, internal surveillance and credit control. Furthermore, Internal Audit carries out special examinations and investigations at the request of or in consultation with the Bank's CEOs or Board of Directors. The CEOs’ assistants are to aid the CEOs in all undertakings, as indicated by the latter in each case. One of their main tasks is to prepare and attend all meetings of Landsbanki’s executive board and assist in the overall co-ordination of the Bank’s strategy. Landsbanki has four permanent committees, intended to ensure well-grounded decision making. These are the Asset and Liability Committee (ALCO), the Asset Management Committee, the Credit Committee and the Operations Committee. ALCO meets once a week to decide on questions concerning Securities and Treasury and International Banking. Securities and Treasury manages the Group’s market risk. ALCO is responsible, for instance, with keeping track of risk factors in the Bank's operations and determining risk limits. The Credit Committee also meets once a week to deal with Corporate Banking matters and takes all decisions concerning lending exceeding the authorisations held by Corporate Banking according to Landsbanki’s lending rules. The Asset Management Committee, which meets monthly, takes decisions on major issues of Asset Management division and Private Banking. A special Operations Committee co-ordinates the Bank’s operations, directs efficiency measures, technical development, retail banking development and property matters.

Subsidiaries Landsbanki Holdings (UK) Plc, 8 Hill Street, Berkeley Square, London Landsbanki Holdings (UK) Plc is a holding Landsbanki Holdings (UK) plc company fully owned by Landsbanki. The Share capital as of 30 Sep. 2005 3,703 company was founded on 28 January 2005 Other equity as of 30 Sep. 2005 530 to manage the Bank’s UK assets. Hares held as of 30 Sep. 2005 100% Heritable Bank Ltd. and Teather & Book value as of 30. Sep. 2005 4,233 Greenwood Holdings Plc are subsidiaries of All amounts MISK Landsbanki Holdings (UK) Plc. Teather & Greenwood Ltd. is a subsidiary of Teather & Greenwood Holdings Plc. Landsbanki has paid up its entire holding in the company. Landsbanki and Landsbanki Holdings (UK) Plc conclude internal transactions, none of which involve any abnormal lending activities. Heritable Bank Ltd., 8 Hill Street, Berkeley Square, London Heritable Bank was established in 1877 In 2000, Landsbanki acquired a 70% holding in the Bank and has since steadily added to this until Heritable became a wholly owned subsidiary of Landsbanki at the end of 2003.

Landsbanki Íslands hf. Prospectus, November 2005 34 Heritable Bank specialises in advisory and financing services for housing development ventures. In 2003, the Bank added residential mortgages to its core activities. It also began to receive deposits from UK corporations and local authorities. In April 2005, Heritable acquired Key Business Finance Corporation plc. (Key Business) in the UK. The company specialises in short-term financing to UK legal offices. At the time of the acquisition, Key Business had loan assets of some GBP 50 million to around 1,250 clients. The company will be operated as an independent subsidiary of Heritable Bank Ltd. Heritable Bank has 64 employees and Mark Sismey-Durrant is its CEO. Heritable’s profit for the first nine months of 2005 amounted to GBP 5.9 million, as compared to GBP 3.1 million during the same period of 2004, an increase of 90%. The company’s total assets amounted to GBP 551 million at the end of September as compared to GBP 364 million at the beginning of this year, increasing by 51%. Heritable Bank aims at expanding further, either by organic growth of its core activities, introducing new products and services or acquiring other companies. Landsbanki Íslands hf. and Heritable Bank conclude internal transactions, none of which involve any abnormal lending activities. The company did not pay a dividend for 2004.

Teather & Greenwood Holding plc, Beaufort House, 15 St Botolph Street, London Landsbanki acquired UK stockbrokers Teather & Greenwood Plc (T&G) at the end of Q1 of 2005 and consolidated the subsidiary into its accounts as of 1 April. The purchase price was ISK 5 billion. Founded in 1855, T&G was listed on the London Stock Exchange in 1998. It is one of the UK’s leading stockbrokers specialising in smaller and growing companies, as well as providing clients with integrated advisory and financing services in major investment projects. T&G has 130 employees located in London and Edinburgh Its CEO is N. S. Stagg. The company provides comprehensive investment advice, operating a research department monitoring 230 companies. Its analysts are highly regarded in various City surveys of market researchers. The company performed well in the 2nd and 3rd quarters, reporting after-tax profit of GBP 2 million, and continuing the growth in profitability which has characterised its operations in the past two years. T&G’s total assets amounted to GBP 9 million (approx. ISK 1.1 bn) at the end of its accounting year on 30 April 2005. In 2004 T&G ranked fourteenth among stockbrokers in trading in FTSE index equities on the London Stock Exchange, and was in eighth place in trading in equities of smaller companies. The company is a market maker for some 320 smaller and mid-cap companies on three stock exchanges. Landsbanki Íslands hf. and T&G conclude internal transactions, none of which involve any abnormal lending activities.

Kepler Equities. S.A, 112 Avenue Kléber, Paris In September 2005, Landsbanki acquired a holding of 81% in the French securities broker Kepler Equities for ISK 5.8 bn and in the course of the next five years will acquire the remaining shares in the company, whose total value is ISK 7.2 bn. Kepler’s equity is around EUR 59.8 million, or the equivalent of ISK 4.5 bn.

Landsbanki Íslands hf. Prospectus, November 2005 35 It has operations in seven countries: headquarters in Paris and activities in Amsterdam, Frankfurt, Madrid, Milan and Zurich, as well as brokering activities in New York under a service contract with the Swiss bank Julius Baer. The company specialises in equity research and brokering services to over 800 institutional clients, covering 430 European equities. Kepler Equities has a total of 247 employees, of which 93 are in Paris, 17 in Amsterdam, 39 in Frankfurt, 33 in Zurich, 30 in Milan, 26 in Madrid and 9 in New York. All of Kepler’s key management will remain with the company following its acquisition by Landsbanki. Landsbanki is to acquire their 19% holding in the company over the next five years. Kepler’s income for 2005 as a whole is estimated at ISK 6.2 bn. In 2004, around 40% of the company’s income originated in France, 18% in Germany and 14% in Switzerland, with the remainder from its other operating locations. The acquisition of Kepler fits very well into the Landsbanki group alongside of T&G, as it opens up the continental market for T&G, while providing Kepler with access to T&G’s operating region. Once the relevant supervisory authorities have given their approval, the activities of Kepler Equities SA will be included in the Landsbanki group in Q4 of 2005, concurrent to payment of the purchase price.

Landsbanki Luxembourg S.A., 85-91 Route de Thionville, L-1011 Luxembourg Landsbanki Luxembourg SA is a wholly owned Landsbanki Luxembourg S.A. subsidiary of Landsbanki. The Bank offers a Share capital as of 30 Sep. 2005 3,439 variety of private banking services, asset Other equity as of 30 Sep. 2005 50 management and other financial services for Hares held as of 30 Sep. 2005 100% high net-worth individuals and their Book value as of 30. Sep. 2005 3,489 companies. It has also developed solid All amounts MISK business connections with small and medium-size financial enterprises in Northern Europe providing financing and asset management services. In addition, the Bank participates in financing purchases by wealthy European investors of European commercial real estate. Landsbanki Luxembourg SA has 54 employees; CEO is Gunnar Thoroddsen. The Bank’s operations were very successful during the first nine months of 2005, with pre-tax profit of EUR 10.6 million, as compared to a pre-tax profit of EUR 4.9 million last year. The Bank’s total assets amounted to EUR 2.5 bn at the end of September 2005, as compared to ISK 1.2 bn at the beginning of the year To support its further growth, the company’s share capital was increased from EUR 27 million to EUR 34 million during the period. Landsbanki has paid up its entire holding in the company. Landsbanki and Landsbanki Luxembourg SA conclude internal transactions, none of which involve any abnormal lending activities. The company did not pay a dividend for 2004.

SP Fjármögnun hf., Id. No. 620295-2219, Sigtún 42, Reykjavík SP Fjármögnun hf. was established by the Icelandic savings banks in 1995. In November 2002, Landsbanki acquired a 51% share in SP-Financing, with the savings banks holding the remaining 49%. SP Fjármögnun has two types of activities: equipment financing, in the form of asset leasing, and motor vehicle financing for both individuals and corporations. SP Fjármögnun hf. has 22 employees. Its Managing Director is Kjartan Georg Gunnarsson.

Landsbanki Íslands hf. Prospectus, November 2005 36 The company’s pre-tax profit was ISK 369 m SP Fjármögnun hf. for the first nine months of 2005, as Share capital as of 30 Sep. 2005 398 compared to ISK 246 m for the same period Other equity as of 30 Sep. 2005 1,890 in 2004. The company’s total assets were ISK Hares held as of 30 Sep. 2005 51% 20.3 bn at the end of September 2005, as Book value as of 30. Sep. 2005 1,167 compared to ISK 14.9 bn at the beginning of All amounts MISK the year Landsbanki’s objective is to continue the company’s current operations while further expanding its activities through its partnership and co-operation with Landsbanki and the continuing participation of the country’s largest savings banks. Landsbanki has paid up its entire holding in the company. Landsbanki Íslands hf. and SP Fjármögnun conclude internal transactions, none of which involve any abnormal lending activities. The company did not pay a dividend for 2004.

Landsvaki hf., Id. No. 700594-2549, Austurstræti 11, Reykjavík Landsvaki is the management company for Landsbanki’s mutual funds. Following the entry into force of Act No. 30/2003, on Units for Collective Investment in Transferable Securities (UCITS) and Investment Funds, the funds Landssjóður hf. and Landssjóður 2 hf. were merged with Landsvaki hf. The company’s profit during the first nine Landsvaki hf. months of 2005 was ISK 57.3 m. Sigurður Óli Share capital as of 30 Sep. 2005 21 Hákonarson is the company’s Managing Other equity as of 30 Sep. 2005 132 Hares held as of 30 Sep. 2005 100% Director. Book value as of 30. Sep. 2005 152 Landsbanki has paid up its entire holding in All amounts MISK the company. Landsbanki Íslands hf. and Landsvaki hf. conclude internal transactions, none of which involve any abnormal lending activities. Landsvaki is part of Landsbanki’s Asset Management division. The company paid a dividend of 100% on nominal value of share capital in 2004.

Other subsidiaries The activities of the following wholly owned Landsbanki subsidiaries have an insignificant impact on the Group’s operations. Hömlur hf., Id. No. 630992-2149, Austurstræti 11, Reykjavík Landsbankinn eignarhaldsfélag ehf., Id. No. 631204-330, Austurstræti 11, Reykjavík Landsbankinn - Fjárfesting hf., Id. No. 601099-2419, Austurstræti 11, Reykjavík Landsbankinn fasteignafélag ehf., Id. No. 670303-4030, Austurstræti 11, Reykjavík LI Investments Ltd., 85-91 Route de Thionville, L-1011 Luxembourg Stofnlánadeild samvinnufélaga, Id. No. 520789-3329, Austurstræti 11, Reykjavík Verðbréfun hf., kt. 630899-2579, Id. No. 630899-2579, Austurstræti 11, Reykjavík

Affiliated companies Affiliated companies are companies in which Landsbanki has made a long-term investment and in which it owns a considerable share, although no more than 50%. Holdings in affiliates are recognised in accordance with the Bank’s share in their equity capital and its share in their profit or

Landsbanki Íslands hf. Prospectus, November 2005 37 loss in the same manner. Dividends paid are entered against the Bank’s holding in the company in question. Grettir Investment Company Ltd. (Fjárfestingarfélagið Grettir hf.), Id. No. 481204-2590, Austurstræti 11, Reykjavík Landsbanki owns 17.4% of the company’s share capital of ISK 143 m. The carrying amount of shares in Fjárfestingarfélagið Grettir in Landsbanki’s accounts was ISK 2.1 bn as of 30 September 2005. The company’s after-tax profit as of 30 September 2005 was ISK 4.6 bn. The company paid a divided on its 2004 operations, of which Landsbanki’s share was ISK 153 m. No abnormal lending activities are involved. Greiðslumiðlun hf., Id. No. 500683-0589, Álfabakki 16, Reykjavík Greiðslumiðlun hf. operates payment card services, issuing VISA credit cards and VISA ELECTRON debit cards backed by commercial banks and savings banks. Landsbanki owns 38% of the company’s share capital of ISK 400 m. The carrying amount of shares in Greiðslumiðlun hf. in Landsbanki’s accounts was ISK 628 m as of 30 September 2005. The company’s after-tax profit as of 30 September 2005 was ISK 254 bn. The company paid a divided on its 2004 operations, of which Landsbanki’s share was ISK 25 m. No abnormal lending activities are involved. Kreditkort hf., Id. No. 440686-1259, Ármúli 28, Reykjavík Kreditkort hf. operates payment card services and is the agent for MasterCard and Maestro cards in Iceland. Landsbanki owns 20% of the company’s share capital of ISK 500 m. The carrying amount of shares in Kredit kort hf. in Landsbanki’s accounts was ISK 218 m as of 30 September 2005. The company’s after-tax profit as of 30 September 2005 was ISK 199 m The company paid a divided on its 2004 operations, of which Landsbanki’s share was ISK 40 m. No abnormal lending activities are involved. Icelandic Banks’ Data Centre, Id. No. 551073-0339, Kalkofnsvegur 1, Reykjavík The Icelandic Banks' Data Centre (RB) is owned by the country’s commercial banks and savings banks, the Central Bank, Greiðslumiðlun hf. and Kreditkort hf. The purpose of RB is to operate settlement and information systems for its members. RB is jointly operated by its owners, who share the profit or loss on its activities. Landsbanki’s share is 33.8% and the carrying amount of RB in the Bank’s accounts was ISK 529 m as of 30 September 2005. No abnormal lending activities are involved. Intrum á Íslandi hf., Id. No. 701195-3109, Laugavegur 97, Reykjavík Landsbanki owns 25% of the collection service Intrum. The company’s purpose is to collect payments in arrears for companies, institutions and individuals. It assists customers in achieving maximum results in collecting receivables efficiently, guided by the interests both of its customers and their debtors. Intrum’s share capital is ISK 625,000. The company’s after-tax profit as of 30 September 2005 was ISK 44 m. The carrying amount of Intrum in Landsbanki’s accounts was ISK 38 m as of 30 September 2005. The company did not pay a dividend for 2004. No abnormal lending activities are involved. Creditinfo Group hf., Id. No. 610303-3580, Brautarholt 10-14, Reykjavík In 2004, Landsbanki acquired 13.4% of Creditinfo Group’s shares, giving it a holding of 26.4% in the company. Landsbanki sold its 22.9% holding in Lánstraust hf. in return for an increased share of Creditinfo Group hf. The company’s purpose is the registration and communication of information relating to financial and credit matters in foreign markets. The company’s share capital is ISK 417.5

Landsbanki Íslands hf. Prospectus, November 2005 38 m. The carrying amount of shares in Creditinfo Group in Landsbanki’s accounts was ISK 184 m as of 30 September 2005. The company’s after-tax profit as of 30 September 2005 was ISK 20 m. The company did not pay a dividend for 2004. No abnormal lending activities are involved. Gírósamskipti ehf., Id. No. 571100-3040, Austurstræti 5, Reykjavík The company is a private limited company established by the commercial banks and association of savings banks in Iceland. Landsbanki’s holding is 28%. The purpose of the company is to handle the giro payment services of commercial banks and savings banks. The company’s share capital is ISK 1 m. The carrying amount of shares in Gírósamskipti in Landsbanki’s accounts was ISK 0.3 m as of 30 September 2005. The company did not pay a dividend for 2004. No abnormal lending activities are involved.

Shareholdings Landsbanki’s equity holdings at the end of September 2005 were recognised at a carrying amount of ISK 117 bn, including ISK 62.9 bn in forward contracts. Landsbanki’s shareholdings, net of forward contracts, were thus ISK 54.3 bn as of 30 September 2005, or around 4.8% of the Bank’s total assets. This figure does not include the investment company Fjárfestingarfélagið Grettir hf. nor Landsafl hf. Fjárfestingarfélagið Grettir hf. is a Landsbanki affiliate. The Bank’s 17.4% holding in the company was recognised at a carrying value of ISK 2.1 bn at the end of September 2005. Landsafl hf. is recognised under non-current assets held for sale and in the process of being sold, where the Bank’s 80% share in Landsafl was recognised at a carrying value of ISK 3.8 bn. The Bank’s shareholdings, including its 17.4% holding in Fjárfestingarfélagið Grettir hf. and 80% holding in Landsafl hf., but excluding forward contracts, amounted to ISK 60.2 bn as of the end of September 2005, or 5.3% of the Bank’s total assets. Listed equities

Equity holdings as of 30 Sep. 2005 - listed equities Forward contracts Total holding Net asset Holding (net) Market value Market value Market value Carnegie Bank AS, Denmark 20.5% 0 10,826 10,826 Marel hf. 36.4% 6 5,815 5,809 Intrum Justitia AB, Sweden 11.7% 6 5,084 5,078 Icelandic Group Plc 18.7% 215 4,091 3,876 Total other companies 62,233 85,150 22,917 Total listed equities 62,460 110,966 48,506

All amounts MISK

On 14 October this year, Landsbanki sold shares in its possession equivalent to 14.48% of the share capital of Icelandic Group Plc. At the time this prospectus was issued, Landsbanki’s holding in Icelandic group Plc was 4.22%. Unlisted equities Landsbanki’s total holdings in unlisted equities amount to ISK 6.2 bn, of which ISK 391 m are forward contracts, making the Bank’s total net assets in unlisted securities ISK 5.8 bn at the end of September 2005. The accompanying table shows Private equity holdings as of 30 Sep. 2005 Landsbanki’s holdings in unlisted Sector Holding companies which exceed 10% of Lear Holding Holding Company 36.0% the Bank’s equity and/or the CVIL Mutual Fund 10.9%

Landsbanki Íslands hf. Prospectus, November 2005 39 issued share capital of the company in question. Landsbanki’s policy is to invest in unlisted companies which are regarded as suitable for restructuring within 1-3 years of the time of purchase. In connection with such investments, Landsbanki has supported the companies with advice on financial restructuring, merger or takeover, market listing, delisting or direct sale. The Bank does not regard such purchases as long-term investments, but rather aims to sell its share in the company in question in parallel to or following its restructuring.

7.3 Board of Directors Björgólfur Guðmundsson, Chairman of the Board of Landsbanki: Id. No. 020141-7199, Vesturbrún 22, Reykjavík. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 4,427,184,339 shares Kjartan Gunnarsson, Vice-chairman of the Board of Directors Id. No. 041051-7019, Starhagi 4, Reykjavík, Managing Director of the Icelandic Independence Party. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 91,752,772 shares Andri Sveinsson, Member of the Board Id. No. 210971-3439, Sigtún 23, Reykjavík, business economist. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 557 shares Guðbjörg Matthíasdóttir, Member of the Board Id. No. 140352-3499, Birkihlíð 17, Vestmannaeyjar, teacher. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 392,554,998 shares Þorgeir Baldursson, Member of the Board Id. No. 250942-4789, Stórihjalli 5, Kópavogur, Director of the printing company Prentsmiðjan Oddi hf. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 1,490,054 shares

Total payments to the Chairman of Landsbanki’s Board of Directors were ISK 2 m in 2004 and ISK 1.25 m to each Member of the Board. Members of the Board do not hold stock options on Landsbanki’s shares. Landsbanki has granted loans to Board Members and companies fully owned by them in the amount of ISK 205 m as of 30 September 2005. Loans to companies to which the Members of the Board are connected totalled ISK 13,037 m as of the end of September 2005, some of them among the Bank’s larger clients. The interest rates on these loans are comparable with rates given to other customers. The Bank has not concluded any extraordinary contracts with Members of the Board.

7.4 Employees Landsbanki has a dedicated group of energetic and ambitious employees, working together in a productive and encouraging environment with first-class facilities. The Bank’s management

Landsbanki Íslands hf. Prospectus, November 2005 40 recognises that its employees and their dynamism, expertise, experience, ideas and initiative are the key to future growth and development. The Group will have around 1,600 employees once Kepler’s operations are integrated into its activities in Q4 of 2005, 200 of them working in the UK and 300 in continental Europe. Since the beginning of this year, the number of employees has grown by almost 500. The increase is primarily the result of the acquisition of Teather & Greenwood in the UK and Paris-based Kepler Equities. The accompanying table shows the Personnel number of full-time equivalent 2005/9 2004 2003 2002 positions in the Landsbanki Group at Full time equivalent positions 1,382 1,121 1,025 986 the end of each year and at the end of September 2005. Landsbanki aims at being among the most desirable workplaces in Iceland and to attract, further develop and retain exceptional employees. To encourage the Bank’s growth and profitability, emphasis is placed on job satisfaction, a good working environment, and effective job development and employee expertise. The Bank’s employees, their expertise, ambition, energy and loyalty are a pre-requisite for its successful operation.

7.4.1 Employee stock options Employees other than the CEOs and Managing Directors hold options on the Bank’s shares at share prices ranging from 4.00 to 14.25. These stock options will be earned from 2003 to 2008. Stock options are transferable between years but not between parties. Unexercised stock options become null and void upon termination of employment. At the time this prospectus was issued, stock options of employees other than the Bank’s CEOs and Managing Directors amounted to ISK 559 m nominal value. Of this, the acquired but unexercised options are ISK 118 m nominal value. The expiry date of these contracts is at year-end 2010.

7.4.2 CEOs Halldór J. Kristjánsson Id. No. 130155-4569, Krókamýri 6, Garðabær. Total salary 2004: ISK 27 million. Total stock options: ISK 53 m nominal value. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 9,976,165 shares These stock options are earned from 2005 to 2008. The contract is variable, with the minimum amount ISK 48 m and maximum ISK 53 m nominal value. The expiry date of this contract is year- end 2010. The share price of the options in the above-mentioned contract is ISK 3.58-14.25 nominal value. Halldór J. Kristjánsson has been Landsbanki’s CEO since 1998. Before that he was assistant manager of the European Bank in London (1991-1994) and Permanent Undersecretary in the Ministry of Industry and Commerce (1994-1998). He is a lawyer, with a Masters’ degree in International Law from New York University in the United States. Sigurjón Þ. Árnason Id. No. 240766-3109, Bjarnarstígur 4, Reykjavík. Total salary 2004: ISK 34 million. Stock options ISK 110 m nominal value.

Landsbanki Íslands hf. Prospectus, November 2005 41 Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 0 shares These stock options will be earned from 2003 to 2008. As of year-end 2004, Sigurjón Árnason’s earned and unexercised stock options amounted to ISK 17 m nominal value. The expiry date of this contract is at year-end 2010. The share price in the above-mentioned contract ranges from 4.12 to 14.25. Sigurjón Árnason joined Halldór J. Kristjánsson as CEO at the end of April 2003. He commenced his employment at Búnaðarbanki Íslands hf. in 1995 and became a Managing Director in 1998. Sigurjón Árnason is an engineer, with an MBA in Finance from the University of Minnesota in the US.

7.4.3 Landsbanki’s Managing Directors, Managing Directors of subsidiaries and directors of the Bank’s establishments abroad Brynjólfur Helgason, Managing Director of International Banking and deputy CEO Id. No. 190851-3389, Seiðakvísl 21, Reykjavík. Brynjólfur Helgason is Managing Director of International Banking and has worked for Landsbankinn since 1979. He is a microeconomist with an MBA degree from INSEAD in France. Yngvi Örn Kristinsson, Managing Director of Securities and Treasury Id. No. 161056-3249, Lækjarsel 9, Reykjavík. Total salary 2004: ISK 32 million. Stock options: ISK 25 million. Shareholding in Landsbanki Íslands hf. including holdings of financially connected parties: 0 shares As of year-end 2004, Yngvi Örn Kristinsson’s earned and unexercised stock options amounted to ISK 10 m nominal value. These stock options will be earned from 2003 to 2008. The expiry date of these contracts is at year-end 2010. The share price in the above-mentioned contract ranges from 4.12 to 14.25.

He took over as Managing Director of Securities and Treasury in May 2003. Previously he worked for Búnaðarbanki Íslands hf. as a Managing Director from 2002, and as manager of Bunadarbanki International SA in Luxembourg from 2000. Yngvi Örn Kristinsson worked for the Central Bank of Iceland for 20 years, concluding as Director of the bank’s Monetary Policy Department. He is an economist with a Masters’ Degree from LSE in the UK.

Ingólfur Guðmundsson, Managing Director of Private Banking Id. No. 020357-5689, Hofgarðar 23, Seltjarnarnes. Ingólfur Helgason took over as Managing Director of Landsbanki’s Private Banking in October 2004 after being Managing Director of Retail Banking and Marketing since October 2003. From 1999 to 2003 he was Regional Manager at Landsbanki head office, while serving as Assistant Manager of Commercial Banking from April 2003. Ingólfur Guðmundsson has worked for Landsbanki since 1989, after graduating as a business economist from Aalborg University in Denmark. S. Elín Sigfúsdóttir, Managing Director of Corporate Banking Id. No. 240855-2679, Baugatangi 7, Reykjavík. Elín Sigfúsdóttir took over as Managing Director of Corporate Banking in May 2003. Prior to that she worked for Búnaðarbanki Íslands hf. for 24 years, ending as Managing Director of Corporate Banking. She holds a degree in Business Administration from the University of Iceland. Stefán H. Stefánsson, Managing Director of Asset Management. No. 261271-5679, Tjarnamýri 21, Seltjarnarnes.

Landsbanki Íslands hf. Prospectus, November 2005 42 Stefán Stefánsson took over as Managing Director of Asset Management in April 2003. Prior to that he was Managing Director of the Development Division from 2001 and before that worked in corporate finance, proprietary trading and treasury for Landsbanki and Landsbréf since 1996. He holds a degree in business administration and a Masters’ degree in finance from the University of Reading in the UK. Haukur Þór Haraldsson, Managing Director of Finance and Operations Id. No. 110860-5369, Klyfjasel 9, Reykjavík. Haukur Þór Haraldsson has worked for Landsbanki in a variety of capacities since 1985. He has a degree in business administration and an MBA degree from the University of Minnesota in the US. Hermann Jónasson, Managing Director of Sales and Marketing Id. No. 310869-4229, Haðaland 7, Reykjavík. Hermann Jónasson took over as Managing Director of Landsbanki’s Sales and Marketing Division in October 2004. Prior to that he headed the Bank’s securities and pension services. He holds a degree in law from the University of Iceland. Guðmundur Guðmundsson, Managing Director of Information Technology Id. No. 140566-3499, Laugarásvegur 14, Reykjavík. Guðmundur Guðmundsson took over as Managing Director of IT in May 2003. Prior to that she worked for Búnaðarbanki Íslands hf. from 1996, ending as Director of Corporate Finance. He holds a degree in mechanical engineering from the University of Iceland and a Masters’ degree in industrial engineering from the US. Ársæll Hafsteinsson, Managing Director of the Legal Division/Credit Control Id. No. 140158-4379, Fjarðarsel 5, Reykjavík. Ársæll took over as Managing Director of Landsbanki’s Legal Division in May 2003. He began work for Búnaðarbanki Íslands in 1988, where he was Director of that bank’s legal department from 1991 and its chief legal counsel from 2000. He holds a degree in law from the University of Iceland and is a District Court Attorney. Atli Atlason, Managing Director of Human Resources Id. No. 081066-4429, Heiðarás 23, Reykjavík. Atli Atlason took over as Managing Director of Human Resources in May 2003. Prior to that he was personnel director at Búnaðarbanki Íslands from 1999. From 1992 to 1999 he was financial and personnel director of the Directorate of Fisheries. He holds a degree in Business Administration from the University of Iceland. Kjartan Gunnarsson, Managing Director of SP Fjármögnun Id. No. 240157-2689, Hesthamrar 22, Reykjavík Kjartan Gunnarsson took over as Managing Director of SP Fjármögnun in 1995. Prior to that he was employed by the investment company Fjárfestingarfélag Íslands 1985-1987 and served as Managing Director of Féfang from 1987 until moving to SP Fjármögnun. He holds a degree in Business Administration from the University of Iceland. Gunnar Thoroddsen, Managing Director of Landsbanki Luxembourg Id. No. 301069-5619, Luxemborg Gunnar took over as Managing Director of Landsbanki Luxembourg in 2004. Prior to that he had been director of Debt Recovery and Managing Director of Hömlur hf., a Landsbanki subsidiary. Gunnar Thoroddsen holds a law degree from the University of Iceland and an MBA from Reykjavík University. He is a District Court Attorney in Iceland and graduate of Duke University School of Law with an LLM degree.

Landsbanki Íslands hf. Prospectus, November 2005 43

Lárus Welding, Manager of Landsbanki’s London Branch Id. No. 310177-5209, London Lárus Welding came to Landsbanki in 2003 as head of its London Branch. He previously worked for Íslandsbanki since 2000 and prior to that for the Icelandic investment bank FBA. He holds a degree in Business Administration from the University of Iceland. Nick Stagg, CEO of Teather & Greenwood Nick Stagg became CEO of Teather & Greenwood in September 2004, after previously serving as the company’s CFO and Chief Executive Director. A chartered accountant, he was previously Managing Director at property managers Lambert Smith Hampton Plc and railway engineers W S Atkins in the UK. Mark Sismey –Durrant, Managing Director of Heritable Bank Mark Sismey-Durrant has managed Heritable Bank since 2002. Prior to that he was CEO of Sun Bank Plc and Managing Director of Sun Life Financial of Canada and HSBC in the UK for a number of years. He holds a BSc (Hons) degree in banking and finance and an M Phil degree in international banking from Loughborough University of Science and Technology in the UK.

7.4.4 Salaries, shareholdings and stock options Total salaries of Landsbanki’s ten Managing Directors, the four Managing Directors of its subsidiaries and the manager of the London Branch in 2004 amounted to ISK 271 m. The total shareholdings of the above-mentioned managers and financially connected parties are 11,060,124 shares. These managers’ stock options total ISK 240.5 m nominal value, of which earned and unexercised stock options were ISK 62 m. Stock options, will be earned from 2003 to 2008. The expiry date of these contracts is at year-end 2010. The share price of the options in the above-mentioned contracts is ISK 4.12-14.25 nominal value. The options can be transferred from one year to the next and can be accumulated and exercised at the end of the period. Measures have been taken to be able to fulfil the contracts concluded and the cost of these measures has been expensed through profit and loss. Loans granted to Managing Directors and CEOs totalled ISK 109 m at the end of September 2005. The Bank has not concluded any abnormal contracts with its Managing Directors or CEOs.

7.5 Auditors Landsbanki’s auditors are Hjalti Schiöth and Vignir Rafn Gíslason, on behalf of PriceWaterhouseCoopers hf. Hjalti Schiöth, Certified Public Accountant, Id. No. 141261-4289, Melahvarf 7, Kópavogur. Vignir Rafn Gíslason, Certified Public Accountant Id. No. 140467-5379, Seiðakvísl 34, Reykjavík

Payment to the Group’s auditors in 2004 was ISK 39.2 m, of which ISK 19.3 m was for auditing and ISK 19.9 m for other expert services.

Landsbanki Íslands hf. Prospectus, November 2005 44 8 Activities and Operating Environment

8.1 Strategy and objectives Landsbanki's goal is to provide individuals, corporations and institutional investors with solid, comprehensive financial services based on a long-term business partnership. Commercial and investment banking services are the core of the Bank’s activities. By utilising its extensive branch network and leading position on the domestic market, Landsbanki aims at increasing its market share in all types of financial transactions. Realistic options for co-operation and integration on the financial market will be considered. Landsbanki has declared its willingness to take the initiative in the further consolidation of the banking sector, thereby increasing the efficiency of the financial market in Iceland. In addition, the Bank emphasises further privatisation of residential housing mortgages in Iceland. Increasing its operations abroad is Landsbanki's prime opportunity for growth. Although the Bank’s possibilities for growth in Iceland are limited, due to the small size of the market and its already high market share, it will continue to reinforce its position in all areas of financial services. Investment projects by Icelandic enterprises abroad have been more numerous than ever in the past two years. In 2005, Landsbanki opened a Branch in London, specialising in international lending, partly in co-operation with the Bank’s subsidiaries abroad. The Branch also emphasises supporting Icelandic companies expanding internationally. Investment opportunities will be examined in financial enterprises abroad with an eye to increasing diversification of risk and achieving greater economies of scale. The main emphasis in Landsbanki’s international development is to take advantage of the Bank’s expertise in corporate and investment banking services to build up an international bank focusing primarily on providing medium-size companies with comprehensive corporate and investment banking solutions. At the same time, the Bank intends to continue to increase its international lending activities, both through organic growth and acquisitions of banking assets, with the objective of ensuring increased stability in the Group’s global income generation. The following table shows the Group’s investments in related companies so far in 2005 and during the past three years. Landsbanki´s investments in related companies 2002-2005

Company Country Holding Year Financing Agricultural Loan Fund Iceland 100% 2005 From operations Key Business Finance Corporation plc. UK 100% 2005 From operations Lex Life & Pension S.A. Luxembourg 100% 2005 From operations Kepler Equities France 81.0% 2005 From operations Teather & Greenwood UK 100.0% 2005 From operations Creditinfo Group Iceland 13.4% 2004 From operations Landsbanki Luxembourg Luxembourg 100.0% 2003 From operations Heritable UK 1.0% 2003 From operations Lánstraust hf Iceland 22.9% 2003 From operations Creditinfo Group Iceland 13.0% 2003 From operations Intrum hf Iceland 8.0% 2003 From operations Intrum hf Iceland 17.0% 2002 From operations SP Fjármögnun hf. Iceland 51.0% 2002 From operations Heritable UK 29.0% 2002 From operations

Landsbanki Íslands hf. Prospectus, November 2005 45 Landsbanki’s expansion abroad has continued in 2005. In February, the acquisition of the UK stockbroker Teather & Greenwood in London was announced followed in September by Landsbanki’s acquisition of an 81% holding in the Paris-based securities firm Kepler Equities. During the course of the next five years, Landsbanki will acquire Kepler’s total share capital. At the end of September 2005, Landsbanki’s offer for the assets and liabilities of the Agricultural Loan Fund was accepted. The purchase price was ISK 2.7 bn. The takeover reinforces the Bank's business ties with farmers, in accordance with its objective of providing comprehensive and solid financial service to all of Iceland.

8.2 Divisions International Banking All foreign financing of Landsbanki and its subsidiaries, apart from deposits, is handled by International Banking. The Bank’s foreign relations, international transfers (SWIFT), risk management and investor relations are also part of this Division. International Banking supervises Landsbanki’s direct international investments and its foreign subsidiaries, and assesses investment opportunities in international financial undertakings. The division also handles contacts with rating agencies. The Managing Director of International Banking is Brynjólfur Helgason. The division has 33 employees. International Banking is responsible for all the Bank's foreign relations, including financing, marketing and promotion abroad. Landsbanki obtains financing on international markets through bond issuance under European Medium Term Note (EMTN) or European Commercial Paper (ECP) programmes, syndicated loans and credit lines. Subordinated loans (innovative and non-innovative hybrid capital) classified as Tier 1 and Tier 2 capital are taken on the international market. Landsbanki’s borrowing abroad and bond issuance increased by ISK 153 bn (EUR 1.83 bn) in 2004 and at year-end amounted to ISK 339 bn (EUR 4.78 bn). During the first nine months of 2005, this amount increased by another ISK 156 bn (EUR 2.10 bn) and amounted to ISK 531 bn (EUR 7.13 bn) at the end of September. Emphasis has been placed, in particular, on lengthening the loan repayment curve and diversifying borrowing among markets and investors. Refinancing of the Bank’s foreign loans and new borrowings have been highly successful in recent years. The EMTN financing framework is currently EUR 7,500 m and the ECP programme EUR 500 m. In March 2005, Landsbanki concluded an issue of subordinated bonds in the amount of ISK 27.5 bn (EUR 380 m). The issue was comprised of Tier 1 capital amounting to ISK 11.8 bn (EUR 150 m) and ISK 15.7 bn (EUR 200 m) classified as Tier 2. In June 2005, Landsbanki concluded a EUR 300 bond issue with a 7Y maturity, the longest ever issued by an Icelandic financial undertaking. This was followed by an issue of ISK 74.4 bn (EUR 1 bn) with a 5Y maturity in October 2005. This transaction is Landsbanki’s largest single bond issue to date and the largest borrowing ever by an Icelandic party. The Bank also recently arranged for subordinated debt in the amount of EUR 240 m, which is intended as a back-up facility for its long-term financing. Landsbanki’s successful financing is the result of effective marketing in connection with its issues and regular promotional meetings with investors, together with favourable market conditions. High participation by investors in Landsbanki’s financing, and not least the introduction of new creditor groups, is a clear indication of the confidence which the Bank has instilled among foreign investors following its privatisation. International Payments is responsible for all the Bank’s international transfers (SWIFT).

Landsbanki Íslands hf. Prospectus, November 2005 46 Risk Management enforces compliance with working procedures and rules set for employees. Risk Management is responsible for supervising and reporting on developments in the Bank’s risk- weighted asset base, the risk-level of its loan portfolio, market and currency risk, liquidity risk, duration mismatch and interest-rate and inflation risk. Risk Management also supervises the drafting of working rules and guidelines for the Bank’s risk management and treasury, as well as co- ordinating all its quality assurance. The role of the investor relations officer is to provide shareholders, investors, analysts and other interested parties with clear and reliable information on the Bank’s activities. The IR officer also prepares the Bank’s promotional material, which is currently a major emphasis due to increased international activities. Landsbanki’s strategy is to seek opportunities for growth and investment internationally. The objective is to have one-half of the Bank’s assets and income linked to its activities abroad within two years' time. Emphasis is placed on building up vital corporate and investment banking activities in Europe, emphasising small and medium-size companies. Assessment of investment opportunities is in the hands of International Banking. In 2005, Landsbanki acquired two foreign financial undertakings. In March 2005, Landsbanki acquired the UK securities broker Teather & Greenwood, for ISK 5 bn (GBP 43 m). In September 2005, the Bank announced the acquisition of the securities broker Kepler Equities. The company’s total value is ISK 7.2 bn (EUR 94 m). Kepler is based in Paris, but also has operations in five other European cities, Amsterdam, Frankfurt, Zurich, Milan and Madrid, plus an office in New York.

Securities and Treasury Landsbanki’s Securities and Treasury provides large corporations, institutions, local government and institutional investors with a broad range of financial services. The division includes Proprietary Trading, Treasury, Corporate Finance, FX, Derivatives and Debt Management, Brokerage and Research. The Managing Director of Securities and Treasury is Yngvi Örn Kristinsson. The division has 62 employees. Proprietary Trading handles the Bank’s own investments in both domestic and foreign listed and unlisted equities, as well as underwriting and market-making of equities. Active management of the Bank’s equity portfolio in recent years has resulted in returns exceeding returns on the equity market as a whole. Treasury is responsible for the Bank’s liquidity management, internal funds management and internal pricing. Its tasks involve investing and financing all the Bank’s short-term commitments through borrowing, granting loans and issuing bonds and bills. Treasury also manages Landsbanki’s bond assets and is a market maker for bonds issued by the National Debt Management Agency (NMDA) and the Housing Financing Fund (HFF), pursuant to the Bank’s contracts with these parties. Treasury also manages the Bank’s FX balance and its currency exposures on own account. In addition, Treasury is a FX market maker on the interbank market for both domestic and foreign banks. Corporate Finance provides independent consulting services to companies and institutions concerning the acquisition, sale or merger of companies and operating units. It also advises on and co-ordinates public offers and listings on the Iceland Stock Exchange. Corporate Finance has, in co- operation with Landsbanki’s London Branch, established itself in London and currently has seven employees located there. Landsbanki’s Corporate Finance was involved in many of the largest M&A projects in 2004 and during the year to date. Among its more recent projects are consultancy

Landsbanki Íslands hf. Prospectus, November 2005 47 services for the takeover by Baugur Group of Big Food Group in the UK, Icelandic Group’s takeover of Sjóvík hf., and the sale by Burðarás of Eimskipafélag Íslands ehf. FX, Derivatives and Debt Management provides clients with currency overlay and derivatives. Landsbanki has a long history as a major corporate financier, not least in fisheries and commerce, giving it a strong position in FX trading. FX and derivative trading includes both spot and forward currency transactions. Debt management and currency overlay services provide companies, local governments and pension funds with comprehensive advice on currency and interest rate risk. Risk assessment is based on recognised methodology and followed up on with advice on what actions can be taken to minimise both risk and financial expense. Brokerage serves as an intermediary for institutional investors dealing in domestic and foreign equities and bonds, and handles the issue and sale of corporate, municipal and national government bonds. The activities of the brokerage department have grown rapidly in the past year or two, both due to increased trading on ICEX and Landsbanki’s growing market share. During the first 9M of this year, Landsbanki’s brokerage had a 30% share of total trading on the domestic equity market. Its share of bond market trading during the same period was 21.4% of total trading. Landsbanki Research carries out independent analysis and data collection, for distribution to the public, corporations and clients, as well as for the Bank’s interal use. It analyses the macroeconomic situation as well as equity, bond and FX markets. Landsbanki Research publishes Vegvísir (the Signpost), a daily market overview (in Icelandic) as well as a shorter Daily Economic Briefing in English, plus more in-depth reports on macroeconomic trends and the bond market, quarterly reports on domestic equities, economic and inflation forecasts, valuations of ICEX-listed companies and special reports on economic issues of current significance. Landsbanki Research also holds regular seminars focusing on economic issues and securities markets.

Corporate Banking Landsbanki’s Corporate Banking division handles transactions with Iceland's largest companies, institutions and local government, as well as assisting individual Landsbanki branches in their corporate transactions. This enables the Bank to offer corporate clients the same services regardless of the branch at which they do their banking. Its activities cover most services which these parties require from Landsbanki. Providing credit is naturally the largest single aspect of this, as corporate lending has always been the core of Landsbanki’s lending activities. The Bank is a major financer in all industrial sectors and makes every effort to offer professional assistance to all areas of business and industry. Lending by Corporate Banking to Icelandic companies abroad has increased substantially in recent years, as the Bank provides backing for its clients’ international expansion. The same can be said of the Bank’s lending activities in foreign markets. Corporate Banking’s lending grew substantially in 2004 and during the year to date, and the number of its clients has also increased sizeably. As of mid-September 2005, the division’s lending amounted to ISK 390 bn, increasing by over 43% since the beginning of the year. The majority of ICEX-listed companies, excluding the commercial banks, are among Landsbanki’s corporate clients, either as their main bank of business or as one of two banks they deal with. Clients are offered a varied and flexible range of borrowing options, almost all of which have expanded in volume. Corporate Banking is comprised of Corporate Relations, Credit Analysis and Loan Administration, and its services include analyses, Landsbanki’s Corporate Internet Banking, domestic and foreign fisheries financing, syndications and participation. The Managing Director of Corporate Banking is Elín Sigfúsdóttir. The division has 65 employees.

Landsbanki Íslands hf. Prospectus, November 2005 48 Customer Relations Managers handle dealings with the largest corporations, institutions and municipalities. All larger clients have their own customer relations manager, who is well informed of their situation, in order to ensure prompt response and optimal service. The services provided range from all types of credit required by clients in their operations, investments and general handling of numerous other services required by businesses. To ensure specialist expertise for clients, the customer relations managers are divided up into several teams, such as institutional investors; services to fisheries, which serve both fishing and fish processing companies; services to other industrial sectors; and credit development, which handles more complex and specialised solutions. The lending activities in Landsbanki’s London Branch are part of Corporate Banking. At year-end 2005, it is estimated that Landsbanki’s London Branch will have 30 employees. It has a variety of activities, including a syndicated loan team operating in European leveraged finance. This specialised team focuses on loan originations, emphasising close working relationships with highly regarded local banks for each project. Participation in the European syndicated loan market under the lead of major foreign banks is also a central aspect of its activities. Recently, the Bank has been supplementing this with investments in the secondary market aimed at further diversifying its loan portfolio. Successful working relationships have been developed with foreign banks active in this sector and the deal flow is good. All processing of credit, together with credit assessment and system access is carried out jointly with Corporate Banking. Corporate Banking is expanding its credit activities through a new team focusing on receivables purchasing (RP) and asset-backed lending. In 2004, a special group was established to provide services to fisheries clients outside of Iceland, especially foreign corporations. The members of the group have lengthy experience of fisheries and marketing of marine products abroad. The foreign corporations are offered comprehensive credit management, including long-term and receivables financing. A representative has been hired in Canada and additional agents are to follow in other countries. Corporate Research was established at the beginning of 2005. It intended, in particular, to support the Division’s lending activities with analyses of markets, sectors, regions, countries, etc. which are broader in scope and more detailed than analyses of individual companies and borrowers. Credit Assessment in Corporate Banking has two main tasks: Firstly, branch contact persons assist the Bank’s branches in lending to small and medium-sized companies, especially branches which do not have a corporate specialist. Credit Assessment also handles both corporate and household loan approvals in excess of the authorisations of branch managers, but which are not high enough to require approval by Corporate Banking’s credit meetings. Secondly, Credit Assessment keeps a record of decisions taken at Corporate Banking’s credit meetings with the Credit Committee and looks after work related to the Bank’s annual accounts and development of credit information systems. Credit Assessment also provides general professional support to branches’ corporate services, for instance through data processing product development and developing lending strategies.

Private Banking Private Banking provides customers with comprehensive international financial services, including investment counselling, taxation advice and asset management. These services are intended to meet the needs of high net worth individuals, enabling them to devote their energies elsewhere while the Bank’s experts manage their assets.

Landsbanki Íslands hf. Prospectus, November 2005 49 Each customer has his or her own financial advisor, who handles all transactions with Landsbanki, whether this involves general banking services, such as access to credit, payment services, obtaining payment cards, or other services. The financial advisor handles relations with fund managers, with derivative specialists concerning derivative trading, credit experts for lending matters and securities brokers concerning securities transactions. Private Banking also serves as an intermediary in advising on sale of companies, their restructuring or expansion. Employees of Private Banking also liaise with Heritable Bank in London and provide general advice on real estate purchases abroad. The Managing Director of Private Banking Division is Ingólfur Guðmundsson. The division has 11 employees.

Asset Management Asset Management is responsible for managing the assets of third parties, by managing mutual funds, investment funds and institutional investors’ funds; for operating and managing pension funds and other portfolios, e.g. for companies, institutions and local authorities; and for asset management on behalf of Landsbanki’s Private Banking Division. The division also handles sales of domestic and foreign mutual funds to corporate and institutional investors. The division has 21 employees and its Managing Director is Stefán H. Stefánsson. Asset Management is comprised of three units, Landsvaki hf., Fund Management and Institutional Fund Sales. Landsvaki hf. is an independent subsidiary and the management company for Landsbanki’s mutual funds, investment funds and institutional funds. The company is a financial undertaking supervised by the Financial Supervisory Authority, but in an organisational respect it is part of Landsbanki’s Asset Management division. Fund Management handles asset management for third parties. Landsbanki operates and/or manages the assets of 12 pension funds, companies, institutions and local authorities, as well as managing the assets of Landsbanki’s Private Banking clients. Institutional Fund Sales handles sales and marketing of the Bank’s own mutual funds as well as third-party funds to companies and institutional investors. It is Landsbanki’s policy to offer its clients a broad spectrum of first-class funds, including both its own and foreign funds. With this in mind, the Bank has been expanding its domestic and foreign fund options. In addition to Landsbanki’s own funds, clients are offered a varied selection of mutual funds from other fund managers. Prime emphasis is placed on the sales and marketing of funds from Alliance Capital Management, which are registered in Luxembourg. During the first 9M of 2005, assets under active management by the Division grew by over 38%. Total assets under Landsbanki’s management at the end of September 2005 were ISK 263 bn. The market share of Landsbanki’s domestic mutual funds and investment funds was around 32%.

Sales and Marketing Sales and Marketing is responsible for the organisation of sales, services, marketing and Internet services. Since the Bank’s branches are the focal point of sales and service, the division aims at supporting branches in obtaining new clients and providing even better service. The Sales and Marketing Division was restructured in October 2004, following changes to the Bank’s organisational structure aimed at increasing emphasis on promoting its products and services. The division is currently divided into six departments: Sales, Marketing, Web Services, Mortgage Services, Customer Relations Management, and Pension and Life Assurance.

Landsbanki Íslands hf. Prospectus, November 2005 50 The Sales department is responsible for selling all the Bank’s products intended for households and individuals, for its sales structure and strategy. The department is also responsible for introducing a sales-oriented corporate culture in the Bank’s branches. The Marketing department is responsible for the Bank’s marketing, for devising and implementing its marketing strategy and for preparing marketing plans in accordance with the current strategy. The principal responsibility of the Web Services department is to the development and technical maintenance of the intranet and external Internet services, as well as special solutions for the Bank’s various divisions. The Mortgage Service is responsible for the Bank’s mortgage lending, advisory service and product development, serving both clients and Bank branches. The Mortgage Service also handles relations with estate agents and other co-operating partners. Customer Relations Management looks after the Bank’s customer services and formulating its policy in this regard. Customer relations is regarded as one of the key factors in successfully creating a unique image for the Bank on the financial market. Organising customer services in Landsbanki branches and determining key measurements of its service level is the responsibility of Customer Relations Management. Pension and Life Assurance looks after advice and services concerning securities, pensions, insurance and overall financial planning for households. This includes responsibility for products, sales and service. Landsbanki continues to be the main business bank of most Icelanders, as it has been for many years. The Bank has image and market research studies carried out several times each year. A survey by Gallup in June 2005 indicated that the Bank’s market share is 30% as compared with 24% for its closest competitor. The same Gallup survey indicated that the Bank has a strong image and enjoys high customer confidence. Among the Bank’s customers, 95.6% regarded it as a reliable bank, a proportion which has been stable in the past few years. The number of customers who regarded Landsbanki as a progressive bank has been growing steadily in Gallup's polls and was 75.3% in June 2005. Sales and Marketing Division has 102 employees. Its Managing Director is Hermann Jónasson.

UK activities Landsbanki’s UK activities include the operations of its London Branch, Heritable Bank and Teather & Greenwood. In 2000, Landsbanki acquired a 70% holding in Heritable Bank and has since steadily added to this until Heritable became a wholly owned subsidiary of Landsbanki at the end of 2003. Heritable Bank specialises in financing services for property development ventures. In 2003, the Bank added residential mortgages to its core activities. It also began to receive deposits from UK corporate clients and institutions and today is completely financed by deposits. Heritable Bank has 64 employees and Mark Sismey-Durrant is its CEO. Landsbanki’s partnership with Heritable Bank has enabled the latter to direct its attention to larger project and generally strengthened its market position. At the beginning of 2004, Fitch Ratings awarded Heritable a long-term credit rating of A. Ratings in this class range from D to AAA. The Bank received a short-term credit rating of F1, which is the highest short-term rating awarded. The Bank’s support rating is 1, with ratings in this category given on a scale of 1 to 5, 1 being the highest possible rating. Fitch evaluates the Bank’s outlook as stable.

Landsbanki Íslands hf. Prospectus, November 2005 51 Landsbanki’s London Branch was formally opened in January 2005. It has 32 employees and is managed by Lárus Welding. It has three types of activities. Firstly, lending activities in the form of syndicated loans where Landsbanki acts as either a participant or lead arranger; secondly, asset-backed lending; and thirdly, it offers corporate finance services in co-operation with Teather & Greenwood. The Branch has been highly successful in developing business connections with, for instance, Deutsche Bank AG London, Credit Suisse First Boston, Royal Bank of Scotland, Halifax Bank of Scotland and Barclays Capital, all of them leading actors in the European banking market. In August 2005, several key employees from GMAC Commercial Finance joined Landsbanki’s London branch to head its new asset-based lending operations. The new department’s objective is to offer top quality services in asset-based lending for medium and large international companies. The London Branch focuses, for instance, on loan originations, emphasising close working relationships with highly regarded local banks for each project. Participation in the European syndicated loan market under the lead of major foreign banks is also a central aspect of its activities. Recently, the Bank has been supplementing this with investments in the secondary market aimed at further diversifying risk in its loan portfolio. Successful working relationships have been developed with foreign banks active in this sector and the deal flow is good. All processing of credit, together with credit assessment and system access is carried out jointly with Corporate Banking. The Branch’s loan portfolio has grown rapidly and amounted to ISK 70 bn at the end of September 2005. Borrowers include businesses in the UK, Germany, the Netherlands and France in retail, manufacturing, services and the chemical industry. In addition to its lending department, Landsbanki's Corporate Finance section has established a team at the Branch which will co-operate closely with Teather & Greenwood. Employees of Corporate Finance will also work in close co-operation with the Branch’s employees in connection with arranging and underwriting financing of leveraged buyouts. As an example, the Bank underwrote mezzanine financing for Baugur Group's purchase of Goldsmiths and guaranteed mezzanine financing and, together with Barclays Bank, jointly underwrote a senior loan for the purchase by Baugur Group and Landsbanki of MK One. The lending activities of the London Branch are part of Corporate Banking, while the Branch’s Corporate Finance team is part of the Bank’s Corporate Finance department. Landsbanki fully acquired UK stockbrokers Teather & Greenwood Plc (T&G) at the end of Q1 of 2005 and consolidated the subsidiary into its accounts as of 1 April.

The purchase price was GBP 43 m. Founded in 1855, T&G was listed on the London Stock Exchange in 1998. It is one of the UK’s leading stockbrokers specialising in smaller and medium-sized companies, as well as providing clients with integrated advisory and financing services in major investment projects. T&G has 130 employees located in London and Edinburgh Its CEO is N. S. Stagg. The company provides its clients, which are primarily small and medium-sized companies, with comprehensive investment advice, operating a research department monitoring 230 companies. Its analysts are highly regarded in various City surveys of market researchers. The company performed well in the 2nd and 3rd quarters, reporting after-tax profit of GBP 2 million, and continuing the growth in profitability which has characterised its operations in the past two years. T&G’s equity amounted to GBP 9 m (approx. ISK 1.1 bn) at year-end 2004.

Landsbanki Íslands hf. Prospectus, November 2005 52 In 2004 T&G ranked fourteenth among stockbrokers in trading in FTSE index equities on the London Stock Exchange, and was in eighth place in trading in equities of smaller companies. The company is a market maker for 450 smaller and mid-cap companies on three stock exchanges.

Operations in Continental Europe Landsbanki Luxembourg SA offers a variety of private banking services, asset management and other financial services for high net-worth individuals and their companies. It has also developed solid business connections with small and medium-size financial enterprises in Northern Europe providing financing and asset management services. In addition, the Bank participates in financing purchases by wealthy European investors of European commercial real estate. Landsbanki Luxembourg SA has 54 employees; its the CEO is Gunnar Thoroddsen. The Bank’s operations were very successful during the first nine months of 2005, with pre-tax profit of EUR 10.6 million, as compared to a pre-tax profit of EUR 4.7 million last year, an increase of 125%. The Bank’s total assets totalled EUR 2.5 bn at the end of September 2005, as compared with EUR 1.2 bn at the beginning of this year, or an increase of close to 108%. To support its further growth, the company’s share capital was increased from EUR 27 million to EUR 34 million during the first 9M of 2005. In September 2005, Landsbanki acquired a holding of 81% in the French securities broker Kepler Equities for EUR 76.1 m and in the course of the next five years will acquire the remaining shares in the company, whose total value is EUR 94 m. Kepler Equities has operations in seven countries: headquarters in Paris and activities in Amsterdam, Frankfurt, Madrid, Milan and Zurich, as well as brokering activities in New York under a service contract with the Swiss bank Julius Baer. The company specialises in equity research and brokering services to over 800 institutional clients, covering 430 European equities. By far the greatest share of its income comes from sales of equities to foreign investors. Kepler Equities has a total of 247 employees, of which 93 are in Paris, 17 in Amsterdam, 39 in Frankfurt, 33 in Zurich, 30 in Milan, 26 in Madrid and 9 in New York. All of Kepler’s key management will remain with the company following its acquisition by Landsbanki. Landsbanki is to acquire their 19% holding in the company over the next five years. Kepler’s income for 2005 as a whole is estimated at EUR 82 m. In 2004, around 40% of the company’s income originated in France, 18% in Germany and 14% in Switzerland, with the remainder from its other operating locations. The acquisition of Kepler is part of Landsbanki’s strategy of building up corporate and investment banking activities, emphasising small and medium-size European companies. There are also prime opportunities for co-operation between Kepler and Teather & Greenwood, as their combined research covers 665 companies, representing 87% of the total European market cap. The company has a market share of 2-4% on those markets where it is active.

Branch Network/Branch Development Landsbanki is the largest retail bank in Iceland. According to a Gallup survey in June 2005, the Bank’s market share was 30%. Landsbanki has placed emphasis on increasing still further the viability of its retail network and adapting it to the current operating environment. Enlarging and reinforcing retail branches makes them more capable of meeting customer demands for more specialised financial services in the

Landsbanki Íslands hf. Prospectus, November 2005 53 coming years. The focus is on increasing sales efforts in branches, adding to the supply of self- service options, as well as creating expertise, both in household and corporate products. Restructuring of the branch network has been underway for several years and last year four smaller branches were merged with larger ones in the near vicinity, bringing the number of branches and outlets to 48. At the same time, many of Landsbanki’s major branches were given new vitality by renewing the facilities for both customers and employees, together with their information systems. Branch Development is a department of the CEOs’ office and responsible for devising and implementing the strategy, structure, development and operation of the Bank’s branch network as a whole and for individual branches. This includes branch issues which are not part of day-to-day operations but more future-oriented. Branch Development is also responsible for Landsbanki’s interest rates and service tariff, development of deposit and loan products for households and information provision to employees on these aspects.

Support divisions Legal Division, Credit Control and Branch Services The Legal Division consists of ten departments: Legal Collection, Legal Advisory, Branch Supervision, Corporate Credit Control, Credit Risk Control, Operating Risk, Branch Support, Debt Recovery, Branch Services and the Compliance Officer.

Landsbanki Íslands hf. Prospectus, November 2005 54 The Legal Collection department carries out legal collection for the Bank’s branches and handling and sale of appropriated assets. Legal Advisory provides all legal advice to senior management, individual divisions and Bank branches. The department handles preparation of contracts and documents, in addition to drafting the rules which apply to the Bank’s operations. Legal Advisory also handles relations with the Financial Supervisory Authority, the Icelandic Competition Authority and other public authorities. Credit Control is responsible for the systematic and regular control of the Bank’s lending and procedures for granting credit. Special emphasis is placed, on the one hand, on supervising the Bank's largest debtors and, on the other hand, controlling credit granted by Bank branches. In addition, emphasis is placed on surveillance of specific loan types and on Landsbanki’s collection procedures. Reporting to the Bank’s senior management and supervisory authorities on the assessment of and changes in the Bank’s credit risk and on the quality of its loans is an important aspect of the work of Credit Control. Within the Credit Control department work is underway on developing databases and statistical models to fulfil, for instance, the requirements of Basel II. Operational Risk is the department which assesses and monitors Landsbanki’s operational risk. The department works in close co-operation with other divisions and is currently placing special emphasis on reviewing all the rules, procedures and documents used in Landsbanki. Branch Support supervises and arranges training in the working practices, procedures, standards and systems used in the Bank’s branches. Debt Recovery handles larger loan defaults, with the aim of minimising the Bank's risk of loss. Branch Services is responsible for operating and developing the main back office operations of branches, i.e. middle office processing, loan handling and chief cashier. The compliance officer ensures that all laws and regulations are complied with within the Landsbanki Group. The compliance officer ensures that activities within Landsbanki Group comply with good and sound business practices and that work procedures which have been adopted are followed. Landsbanki’s Legal Division, Credit Control and Branch Services have 145 employees in 128.5 full- time equivalent positions. The Managing Director is Ársæll Hafsteinsson.

Operations Finance and Operations is responsible for the Bank’s financial affairs and day-to-day operations. The division is divided into two main sections, Financial Administration and Premises. The division has 49 employees. Its Managing Director is Haukur Þór Haraldsson. Financial Administration looks after accounting and Landsbanki’s own finances, settles the accounts for all its various units and supervises the preparation of the Bank’s annual and interim financial statements. The department also handles preparation of Landsbanki’s budget and investment plans, all accounts payable, relations with subsidiaries concerning financial issues and internal supervision of financial information. The department is responsible for relations with auditors as well as handling insurance and related issues. Financial Administration is responsible for reporting and information provision on financial matters to senior management, the Financial Supervisory Authority and the Central Bank. The Premises department supervises the Bank’s internal operations, i.e. the operation and maintenance of all its property, including sale or purchase. The department is also responsible for

Landsbanki Íslands hf. Prospectus, November 2005 55 employees’ working facilities, purchase of equipment for the Bank's operations, internal security and relations with external security facilities, custodial operations and the archives. Custodial operations looks after all necessary supplies, as well as handling various types of reproduction tasks, all transport services and internal mail distribution. The archive section is ultimately responsible for the storage and preservation of Landsbanki’s data and documents. The objective of Finance and Operations is to ensure that the Bank’s internal activities proceed smoothly and efficiently.

Human Resources Human resources is responsible for all employee-related issues. Development and Training, the cafeteria at Bank headquarters, and catering are all part of Human Resources. Employee Service and Training and Development have ten employees. Twelve employees work in the head office cafeteria and catering services. Managing Director of the division is Atli Atlason. Concerted efforts have been directed at reinforcing all the Bank’s divisions and branches. A changed operating environment and increased competition calls for additional specialised personnel and recruitment has been aimed at attracting capable and well-educated employees. Job development has always been a priority at Landsbanki. A new human resources strategy has been adopted and the organisation of employee interviews improved. Each year, workplace analyses are carried out in the Bank, assessing its employees’ views towards management and the Bank as a whole. In educational work, emphasis has been placed on maintaining and improving Landsbanki’s competitive position by offering effective training.

Information Technology The IT division ensures that the Bank’s other divisions have the equipment and computer systems they need to achieve their goals. All back office processing of securities, FX and derivative trading is included in this division, as well as accounting and fund management and handling of pension and insurance matters. State-of-the-art solutions and automation in back-office processing has been made a priority in order to ensure security, speed and surveillance in these areas. Landsbanki has recently completed a major stage in the renewal of computer systems and equipment. For instance, the Bank has renewed all its service systems, migrating from an externally operated mainframe environment, to more modern technology controlled completely by the Bank. This was a necessary step to ensure increased operating security, as well as to enable more rapid response than before to changes in the Bank's environment. The Bank’s general IT environment has been improved to comply with the standards and demands which the Bank has set for itself. Changes to the regulatory framework, together with the demands made by the Bank concerning its own procedures and security measures, have required extensive work. These aspects will clearly continue to have a major impact on the IT division’s work and actions are already underway to adapt its activities to this future. The IT division has been substantially reinforced and is extremely well prepared to take on the demanding tasks which a rapidly growing bank entrusts to it. The division has 135 employees, in 133 full-time equivalent positions, under Managing Director Guðmundur Guðmundsson.

Landsbanki Íslands hf. Prospectus, November 2005 56 9 Outlook and Future Vision

During the two years which have elapsed since Landsbanki was privatised, the Bank has expanded substantially and acquired new strength. At the beginning of 2004, Landsbanki’s total assets were ISK 448 bn, whereas at the end of September 2005 they amounted to ISK 1,142 bn, more than doubling in less than two years. Total loans outstanding have grown by 173% and at the end of September 2005 amounted to ISK 891.7 bn. The Bank’s equity has more than quadrupled and is currently ISK 99 bn. After-tax return on equity (ROE) was 48% on an annualised basis for the first 9M of 2005, while the Bank’s profitability objective is for an after-tax ROE of 15-17%. At the end of September 2005, the Bank’s capital ratio was 14.3%, which effectively means that the Bank can expand substantially without seeking additional capital from its shareholders, even more if it issues subordinated loans, as provided for in regulations. The Bank’s objective is a minimum capital ratio of 10%, as defined in CAD rules, with minimum 8% Tier 1 capital. Landsbanki holds a strong position on its home market and is the leading actor on the Icelandic financial market. It currently holds a 30% domestic market share. In the past year or two, the Bank’s activities abroad have been increased substantially, for instance, with the establishment of its London Branch at the beginning of 2005, through its acquisition of the UK stockbroker Teather & Greenwood early in the same year, and finally in September with the acquisition of the Paris-based securities firm Kepler Equities. During the first nine months of 2005, the Bank’s net operating income from its activities abroad amounted to ISK 6.7 bn, as compared with ISK 1.9 bn for the same period in 2004, an increase of over 250%. The increased income generation from operations abroad reflects the growth and fine performance of foreign subsidiaries, as well as the expansion and profitability of the Bank's London branch. Landsbanki now has operations in 10 countries, and income from its operations abroad comprises around one-quarter of the Group’s total income. The Group’s employees number around 1,600, of whom 200 work in the UK and 300 in Continental Europe. The outlook for the Bank’s operations in the coming year is very positive. Landsbanki has adopted a strategy of prudent and sound expansion in its investments domestically and abroad. The Bank will continue to emphasise the organic growth of its units in Luxembourg and London. The activities of Corporate Banking and Securities and Treasury are expected to continue to increase, with corporate restructuring and transfer of ownership a major focus of Landsbanki’s operations. Providing comprehensive commercial banking services will continue to be at the core of the Bank’s activities, and the key to its leading position on the domestic market. The Bank’s international activities will continue to increase in proportion to the total scope of the Group's activities, whether measured in terms of income or assets. The main emphasis in Landsbanki’s international development is to take advantage of the Bank’s expertise in corporate and investment banking services to build up an international bank focusing primarily on providing medium-size companies with comprehensive corporate and investment banking solutions. At the same time, the Bank intends to continue to increase its international lending activities, both through organic growth and acquisitions of banking assets, with the objective of ensuring increased stability in the Group’s global income generation. Varied financing routes, including increasing share capital and utilising EMTN and ECP programmes, together with effective investor relations, will lay the foundation for the Bank’s future growth.

Landsbanki Íslands hf. Prospectus, November 2005 57 Market conditions have been very favourable for financial enterprises in Iceland in the past year or two. Taking advantage of these propitious circumstances, Landsbanki has consolidated its position on the domestic market, while its operations in the UK and Luxembourg have grown and returned a good profit. Landsbanki’s strategy is to seek opportunities for growth and investment internationally. The objective is to have one-half of the Bank’s assets and income linked to its activities abroad. Emphasis is placed on developing strong corporate and investment banking activities in the financial centres of Europe while at the same time expanding units which ensure stable income generation. In this connection, prime emphasis will be place on investment in the UK, Nordic countries and the remainder of Northern Europe.

Landsbanki Íslands hf. Prospectus, November 2005 58 10 Performance and Balance Sheet

Landsbanki’s consolidated accounts are compiled by combining comparable items under assets, liabilities, income and expenses, from the accounts of individual companies in the Group. Internal positions between Group companies, balances owing or owed to, as well as income and expenses are netted in the accounts. Assets and liabilities of subsidiaries abroad are converted to ISK at the exchange rate as of the end of the reporting period, while income and expenses of foreign subsidiaries are converted to ISK at the average annual exchange rate. Affiliated companies are companies in which Landsbanki has made a long-term investment and in which it owns a considerable share, although no more than 50%. Holdings in affiliated companies are recognised according to the Bank's share of their capital. The share in their profit or loss is recognised in similar fashion. Dividends paid are entered against the Bank’s holding in the company in question. Landsbanki Íslands hf. introduced International Financial Reporting Standards, IFRS, as of 1 January 2005, in accordance with requirements set for companies listed on European Stock Exchanges. The principal changes resulting from the introduction of IFRS concern the evaluation and presentation of financial instruments. Valuation of loans, loan commitment fees, derivatives and other financial assets will change, in addition to which the presentation of these items on the income statement and balance sheet will differ from previous practice. In addition, treatment of goodwill and other items have changed. Notes to the financial statements will also be more detailed than previously. Landsbanki has decided to avail itself of the exemption granted in IFRS 1 First Time Adoption of International Financial Reporting Standards with regard to retroactive application of IAS 32, Financial instruments:. Disclosure and Presentation, and IAS 39, Financial Instruments: Recognition and Measurement. This means that changes resulting from these standards affect the evaluation and presentation of financial instruments as of 1 January 2005, but not amounts in the 2004 income statement and balance sheet. Other changes resulting from the transition are applied retroactively, and the 2004 income statement and balance sheet restated to reflect IFRS conventions. Landsbanki plans to publish its annual financial statements for 2005 on 27 January 2006. Due to the fact that Landsbanki’s annual financial statements for the past three years and its interim financial statements as of 30 September 2005 are not comparable, as a result of the introduction of IFRS, discussion of the Bank’s accounts is divided into two sections. The first section looks at the interim financial statements for the period 1 January to 30 September 2005, with a comparison to the interim financial statements for the same period of 2004. The second section is the annual financial statements of the past three years.

10.1 Nine-month interim financial statements 2005 Landsbanki’s auditors have examined the interim financial statements of the Landsbanki Group for the period 1 January to 30 September 2005. The interim financial statements have been compiled in accordance with International Financial Reporting Standards (IAS/IFRS). The auditors’ examination was carried out as provided for in IFRS and does not involve such extensive actions as an audit. Their examination did not reveal anything to indicate otherwise than that the interim financial

Landsbanki Íslands hf. Prospectus, November 2005 59 statements give a true and fair picture of the Bank’s performance during this period, its balance sheet as of 30 September 2005 and changes to its financial situation occurring during the period, in accordance with IAS 34 (Interim Financial Reporting),

Performance The operations of Landsbanki Íslands for the first nine months of 2005 were very successful. The Bank reported gross profit (before allowing for taxes and goodwill impairment) of ISK 23.3 billion (bn), as compared to ISK 14.4 bn for the same period of 2004, an increase of 62%. Profit after taxes and after allowing for goodwill impairment amounted to ISK 16.2 bn for the period, as compared with ISK 11.8 bn for the same period in 2004. Landsbanki’s performance is divided up into the following four areas of operation: retail banking, corporate banking, securities trading, and private banking and asset management services. Retail Banking includes the parent company’s branch network, Heritable Bank’s mortgage operations and SP Fjármögnun. Pre-tax profit on retail banking for the first 9M of 2005 amounted to ISK 1.8 bn, as compared to an ISK 5 m loss during the same period of 2004. Corporate Banking includes the parent company’s Corporate Banking division, including its London Branch, and Heritable Bank’s real estate financing. Pre-tax profit on corporate banking for the first 9M of this year amounted to ISK 4.8 bn, as compared to ISK 3.0 bn during the same period of 2004. Securities’ trading is comprised of the parent company’s Securities and Treasury division plus Teather & Greenwood. This area of operation includes securities brokerage, corporate advisory, FX and derivative trading, debt management, treasury and proprietary trading. Pre-tax profit on securities transactions during the first 9M of 2005 was ISK 12.7 bn, which is equal to the performance for the same period in 2004. Goodwill impairment resulting from the merger of the assets of Burðarás hf., amounting to ISK 3.3 bn, is recognised under this division. Once the relevant supervisory authorities have given their approval, the activities of Kepler Equities SA will be included in the division in Q4 of 2005. Asset management and private banking services include the parent company’s Asset Management division, Landsvaki hf. and Landsbanki Luxembourg SA and Private Banking. Pre-tax profit on asset management and private banking for the first 9M of 2005 amounted to ISK 1.1 bn, as compared to ISK 462 m during the same period of 2004. The accompanying table gives a breakdown of the Bank's income by area of operation within the Bank for the first 9M of 2005 and, by comparison, for the same period of 2004.

Performance by Division Retail Corporate Asset management 1.1 - 30.9.2005 Banking Banking Securities and Private Banking Other Total Net interest income 7,109 7,900 -408 1,140 0 15,741 Net fees and commissions 2,488 1,477 6,477 1,524 0 11,966 Trading gains 21 150 13,599 149 0 13,919 Net income from operations 9,618 9,527 19,668 2,813 0 41,626 Operating expenses 6,002 2,481 3,712 1,387 316 13,897 Loan impairment 1,846 2,220 0 326 0 4,392 Impairment on intangibles 0 3,293 3,293 Pre-tax profit 1,769 4,827 12,663 1,100 -316 20,044 All amounts MISK

Landsbanki Íslands hf. Prospectus, November 2005 60 Performance by Division Retail Corporate Asset management 1.1 - 30.9.2004 Banking Banking Securities and Private Banking Other Total Net interest income 4,771 4,683 -97 767 0 10,124 Net fees and commissions 2,246 662 2,265 909 0 6,082 Trading gains 0 -36 12,024 61 0 12,049 Net income from operations 7,016 5,309 14,192 1,737 0 28,255

Operating expenses 4,659 1,584 1,473 1,091 1,791 10,597

Loan impairment 2,362 709 7 184 0 3,262 Pre-tax profit -5 3,016 12,712 462 -1,791 14,393

All amounts MISK

Income The Group’s net operating income during the Net operating income first 9M of 2005 totalled ISK 41,626 m, as 30 Sep 2005 compared to ISK 28,254 m for the same period Investment of 2004, increasing by ISK 13,372 m or 47% income etc. Intrest YoY. Net income from operations outside of 31% income Iceland amounted to ISK 6.7 bn in the first 9M 38% of 2005, as compared to ISK 1.9 bn for the same period of the previous year, increasing by around 250%. The increased income Fees and generation from operations abroad reflects the commissions growth and fine performance of foreign sub- 31% sidiaries as well as the expansion and profitability of the Bank's London branch. Net operating income is comprised of trading and investment income, fees and commissions, and interest income. The Group’s net interest income during the first 9M of 2005 totalled ISK 15,741 m, as Interest rate spread as ratio of compared to ISK 10,124 m for the same average capital position period of 2004, increasing by ISK 55% YoY. This reflects the Landsbanki Group’s 4.00% increasing economies of scale, as its total 3.45% 3.50% 3.25% 2.99% assets have more than doubled since the 2.86% 2.83% 3.00% 2.62% 2.59% beginning of 2004. The ratio of interest 2.50% 2.20% spread to average capital position was 2.2% 2.00% in the first nine months of 2005 as 1.50% 1.00% compared to 2.6% for 2004 as a whole. The 0.50% Bank’s lower interest rate spread is an 0.00% indication of the more favourable terms 1998 1999 2000 2001 2002 2003 2004 2005/9 enjoyed by its clients.

Landsbanki Íslands hf. Prospectus, November 2005 61 Net fees and commissions were ISK 11,965 m during the first 9M of 2005, as compared to ISK 6,081 m for the same period of 2004, or almost double. Increased income from fees and commissions is the result of the Bank’s increased securities trading, growth in asset management and overseas activities of both the parent company and subsidiaries. The increase in net interest and commission income reflects the substantial increase in the Group’s basic income generation. These items have increased by ISK 11.5 bn or 71% YoY. During the first 9M of 2005, net interest and commission income totalled ISK 27.7 bn. Trading and investment income includes dividend income, net income (trading gains) on current assets and other financial assets at fair value, available-for-sale financial assets, as well as trading gains on market derivatives and hedging derivatives and foreign exchange. The Bank’s trading and investment income for the first 9M of 2005 amounted to ISK 13.9 bn, as compared to ISK 12.0 bn for the same period of 2004. Trading and investment income is comparable to the heading of trading gains under previous accounting practices, with the modifications which result from settlement of derivatives and available-for-sale financial assets. Income Statement 2005 2004 1.1.-30.9 1.1.-30.9

Interest income 45,364 23,373 Interest expense 29,623 13,249 Net interest income 15,741 10,124

Commission income 13,120 7,044 Commission expense 1,155 962 Net commission income 11,965 6,081

Dividend income 882 442 Net income from current assets/current liabilities 5,365 4,156 Net income on other assets at fair value 4,660 7,138 Trading gains on hedging items 367 0 FX trading gains 295 242 Share in returns of associates 1,264 71 Profit on assets held for sale 1,087 0 Income from operations 13,920 12,049

Net income from operations 41,626 28,254

Salaries and related expenses 8,546 5,681 Operating expenses 5352 4917 Total operating expenses 13,898 10,598

Impairment of loans 4,392 3,262 Pre-tax profit and goodwill impairment 23,336 14,393

Goodwill impairment 3,293 0 Income tax 3,836 2,627 Earnings for the period 16,208 11,766

Accruing to: Landsbanki's shareholders 16,006 11,670 Minority 202 96

Earnings per share 1.85 1.47 Diluted earnings per share 1.81 1.46

MISK

Landsbanki Íslands hf. Prospectus, November 2005 62

Minority interest in affiliates amounted to ISK 1.3 bn during the first three quarters of this year, as compared to ISK 71 m for the same period of the previous year. The increase can be attributed to Landsbanki’s holding in the investment company Fjárfestingarfélagið Grettir hf.

Expenses The Bank’s operating expenses were ISK 13,898 m for the first 9M of 2005, as compared to ISK 10,598 m for the same period of 2004. The Bank’s cost ratio (operating expenses as a proportion of net operating income) has dropped substantially in recent years. For the first nine months of 2005, the Bank’s cost ratio was 33% as compared to 43% for 2004.

The Bank’s objective is to maintain a cost Cost ratio ratio below 55%. 80% 75% 70% 71% 70% 66% The Bank’s salary expenses were ISK 8,546 61% 57% m for the first 9M of 2005, as compared 60% to ISK 5,681 m for the same period of 50% 43% 2004. This is a YoY increase of ISK 2,865 40% 33% m, or 50%. The total number of full-time 30% equivalent positions in the Group was 20% 10% 1,382 at the end of September 2005, as 0% compared with 1,081 for the same period 1998 1999 2000 2001 2002 2003 2004 2005/9 of 2004. Impairment on loans and available-for-sale financial assets in the first nine months of 2005 amounted to ISK 4,392 m, as compared to ISK 3,262 m during the same period of the previous year. Provisions for impairment on loans were 0.66% of lending exposures at the end of September 2005. At the end of September 2004 this ratio was 0.73%. Landsbanki’s objective is to keep provisions for credit losses to within 1% of its total lending. Total contributions to the credit loss allowance account amounted to ISK 11,189 m, or 1.3% of total loans and guarantees provided at the end of September 2005. Provisions for credit losses do not reflect actual write-offs, but amounts set aside to cover possible credit losses. When and if loans are not recovered, the amount is credited from these provisions. During the first nine months of 2005, Landsbanki applied ISK 1,691 m from credit loss provisions against final write-offs. Goodwill impairment amounted to ISK 3,293 m in Q3 of 2005. This is goodwill resulting from the merger of the assets of Burðarás hf. with Landsbanki. The goodwill should be viewed against the context of the large number of new shareholders gained by the Bank as a result of the merger and the fact that payment was made for Burðarás’s assets with shares in Landsbanki at a share price of 19, which was the company’s market share price when the merger was approved by the companies’ Boards. Imputed income tax for the first 9M of 2005 is ISK 3,836 m as compared to ISK 2,627 m for the same quarter of 2004.

Landsbanki Íslands hf. Prospectus, November 2005 63 Assets

The Group’s total assets Total Assets amounted to ISK 1,142 billion at 1,142 the end of September 2005, 1,200 increasing by 55% or ISK 405 bn 1,000 800 737 since year-end 2004. The 600 448 Group’s assets have almost 400 239 269 278 quadrupled in just over two 200 years’ time, based almost - completely on organic growth in 2000 2001 2002 2003 2004 2005/9 Iceland and abroad. Loans and advances were ISK 892 bn at the end of September 2005. Of this amount, ISK 58 bn are loans and amounts due from credit institutions, as compared to ISK 67 bn at the beginning of the year. Loans and amounts due from clients amounted to ISK 845 bn, as compared to ISK 556 bn at the beginning of 2004, an increase of ISK 289 bn during the intervening period. The increase is primarily in corporate lending to major clients through Landsbanki’s Corporate Banking division and the Bank’s London Branch, as well as in residential housing mortgages in Iceland.

Loans to foreign clients and Lending to parties abroad lending by foreign subsidiaries 37% totalled ISK 307 bn at the end of 40% 27% 30% September 2005, as compared to 22% ISK 150 bn at the beginning of the 20% 9% year, increasing by ISK 157 bn (or 10% by 105%). They represent 37% of 0% total loans to clients as compared 2002 2003 2004 2005/9 to 27% at the beginning of this year. The figure shows how lending to foreign parties as a ratio of the Bank’s total lending has developed in recent years. The accompanying table gives a breakdown of market bonds and holdings in companies net of forward contracts.

Landsbanki Íslands hf. Prospectus, November 2005 64 Market bonds and holdings in companies 30.9.2005 1.1.2005 Book value Book value Change %

Current assets 156,243 64,730 91,513 141% Monetary assets carried at fair value through profit and loss 33,976 12,817 21,159 165% Holdings in affiliates 4,282 3,792 490 13% 194,501 81,339 113,162 139%

Breakdown Market bonds 60,791 18,529 42,262 228% Eguities 117,160 50,316 66,844 133% Affiliates 4,282 3,792 490 13% Derivatives in the money 12,269 8,702 3,567 41% 194,501 81,339 113,162 139%

Forward contracts Market bonds 28,147 1,785 26,362 1477% Equities 62,850 23,596 39,254 166% 90,997 25,381 65,616 259%

Assets net of forward contracts Market bonds 32,644 16,744 15,900 95% Equities 54,310 26,720 27,590 103% Affiliates 4,282 3,792 490 13% Derivatives in the money 12,269 8,702 3,567 41% 103,504 55,958 47,546 85%

All amounts in MISK

The company’s trading securities were ISK 156.2 bn at the end of September 2005, as compared to ISK 64.7 bn at the beginning of the year. This includes market bonds and trading equities, as well as derivatives that are in the money. The Bank’s holdings in other financial assets amounted to ISK 34 bn at fair value at the end of September and investment in affiliates amounted to ISK 4.3 bn. At the end of September, the Group’s total exposures in trading bonds and equities after taking derivative contracts into consideration, amounted to ISK 194.5 bn as compared to ISK 81.3 bn at the beginning of the year. The Bank has entered into forward contracts against these holdings in the amount of ISK 91 bn, making the net trading bond and equity exposure ISK 103.5 bn at the end of September 2005. Landsbanki’s total market bond assets were ISK 60.8 bn at the end of September 2005, as compared to ISK 18.5 bn at the beginning of the year The Bank has entered into forward contracts against its bond holdings amounting to ISK 28.1 bn as of the end of September 2005, making its net market bond exposures just over ISK 32.6 bn. The Bank’s equities totalled almost ISK 117 bn at the end of September 2005, as compared to ISK 50.3 bn at the beginning of the year. Landsbanki has entered into forward contracts against its equity holdings amounting to ISK 62.9 bn at the end of September 2005 as compared to ISK 23.6 bn at the beginning of this year. The Bank’s forward contracts are marked to market. Its net equity exposures have increased by just over ISK 27.6 bn since the beginning of this year, or by 103%. The most significant factor here is the increase to the Bank’s equity assets arising from its merger with Burðarás hf. Non-current assets held for sale were ISK 14.6 bn at the end of September 2005, of which 80% is Landsbanki’s holding in Landsafl hf., which was recognised at a carrying value of ISK 3.8 bn at the end of September 2005.

Landsbanki Íslands hf. Prospectus, November 2005 65 Other assets amounted to ISK 17.8 bn at the end of September 2005, of which the book value of real estate was ISK 1.4 bn at the end of September 2005. The insured value of the Bank’s real estate was ISK 2.7 bn at the end of September 2005. The types of collateral depend upon specific circumstances, but the main types are pledges against deposits, or mortgages on real estate or vessels, as well as guarantees. Decisions on the mortgage value and loan-to-value ratio are taken in accordance with the procedures laid down in the Bank’s lending rules. Total contributions to the credit loss allowance account amounted to ISK 11.2 bn or 1.34% of total loans and guarantees at the end of September 2005. Provisions for credit losses do not reflect actual write-offs, but amounts set aside to cover possible credit losses. When and if loans are not recovered, the amount is credited from these provisions. During the period the first nine months of 2005 Landsbanki applied ISK 1,691 m from credit loss provisions against final write-offs.

Liabilities and equity Landsbanki’s total deposits amounted to ISK 414 bn at the end of September 2005 as compared to ISK 279.2 bn at the beginning of the year, increasing by 48% during the first 9M of 2005. The Bank’s total deposits are comprised, on the one hand, by deposits from financial undertakings and the Central Bank and, on the other hand, customer deposits. The former amounted to close to ISK 138.7 bn as of the end of September 2005, as compared to Customers´ deposits ISK 61.2 bn at the beginning of the year, an increase of 126%. 30.9.2005 31.12.2004 Savings deposits 115,241 42% 84,225 39% Customer deposits were ISK 275.3 Term deposits 160,054 58% 133,745 61% bn at the end of September, as Total 275,295 217,970 compared to ISK 218 at the All amounts MISK beginning of the year, thus increasing by around 26% during the 9M period. The accompanying table gives a breakdown of customer deposits into fixed term deposits and savings deposits.

Landsbanki’s borrowing amounted Borrowing to ISK 531.4 bn at the end of 30.9.2005 31.12.2004 September 2005, as compared to Bond issuance 453,067 85% 328,416 88% ISK 375 at the beginning of the Loans from credit institutions 78,350 15% 46,668 12% year, increasing by ISK 156.3 bn Total 531,417 375,084 or 42% during the intervening All amounts MISK period. The Bank’s increased activities have been partly financed with long-term credit. In the 3rd quarter of 2005, Landsbanki floated its two largest bond issues ever. The former, amounting to EUR 600 m, was in July, arranged by Bank of America and CSFB. Landsbanki also concluded a 5Y EUR 1 bn (equivalent to over ISK 73 bn) bond issue with HSBC investment bank in London acting as lead manager. This transaction is Landsbanki’s largest single bond issue to date and the largest loan ever by an Icelandic borrower. Over 240 subscribers from 23 countries were involved, mainly banks and mutual funds. This is the most diverse investor base, by any measure, that Landsbanki has ever achieved in a single transaction, which in this instance was focused on small regional investor accounts in Europe. This financing extends the repayment curve significantly, in addition to

Landsbanki Íslands hf. Prospectus, November 2005 66 increasing the weight of long-term credit in Landsbanki’s overall financing. Furthermore, new investors have been added and the variety in the Bank’s financing increased.

The Bank’s subordinated debt Capital ratio - CAD was ISK 47 bn at the end of 16.00% September 2005, as compared 14,3 to ISK 23 bn at the beginning of 14.00% 1.4% 10,4% 10 ,6% 10,4% the year The Bank issued 12.00% 9,6% 9,9% 8,7% 8,7% subordinated bonds in the 10.00% 1.4% 2.9% 2.9% 2.6% 3.0% 0.6% 1.5% amount of ISK 28 bn in March 8.00% B hluti 12.9% 2005. The issue was comprised 6.00% A hluti 8.1% 8.2% of Tier 1 capital amounting to 4.00% 7.7% 7.8% 7.2% 7.5% 6.9% EUR 150 m and EUR 200 m 2.00% classified as Tier 2. The group’s 0.00% capital ratio according to CAD 1998 1999 2000 2001 2002 2003 2004 2005/9 rules was 14.3% at the end of September 2005, of which 12.9% was Tier 1 capital. At the beginning of the year the Group’s CAD ratio was 10.4%, of which 7.8% was Tier 1 capital. Landsbanki’s capital ratio has never been higher. Group equity was ISK 100.8 bn at the end of September 2005, increasing by ISK 62.1 bn or 160% since the beginning of the year, when the Group’s equity was ISK 38.7 bn. Landsbanki issued additional shares of ISK 2.1 nominal value, at a share price of ISK 19, in connection with its acquisition of the assets of Burðarás hf. Furthermore, the Bank issued new capital in March 2005 at the nominal value ISK 800 million, the share price was14.25. The remaining increase in equity is the result of profits during the 9M period, dividends and changes to treasury shares held. The Bank’s objective is a minimum capital ratio of 10%, as defined in CAD rules, with Tier 1 capital 7.5-8.5%. Annualised after-tax return on After-tax ROE equity (ROE) was 48.3% annualised during the first nine months of this 60.00%

48.30% year, as compared to 49.5% ROE in 50.00% 49.50% 2004. Landsbanki’s objective is an after-tax ROE of 15-17%, 40.00% 30.00% 20.00% 17.60% 12.40% 13.50% 11.50% 13.10% 10.00% 8.10%

0.00% 1998 1999 2000 2001 2002 2003 2004 2005/9

Landsbanki Íslands hf. Prospectus, November 2005 67 Balance Sheet 30.9.2005 1.1.2005

Assets Cash and balances with the Central Bank 8,134 18,237 Loans 891,668 614,274 Current assets 156,243 64,730 Financial assets designated at fair value through profit and loss 33,976 12,817 Hedging derivative contracts 5,478 4,930 Holdings in affiliates 4,282 3,792 Fixed assets 3,425 4,146 Intangible assets 6,668 1,585 Non-current assets held for sale and assets in the process of being sold 14,557 9,962 Other assets 17,826 2,668 Total assets 1,142,258 737,141

Liabilities Deposits from financial enterprises and Central Bank 138,693 61,236 Customer deposits 275,295 217,970 Borrowing 531,417 375,084 Subordinated debt 47,224 22,570 Derivative contracts 16,463 8,077 Hedging derivative contracts 1,941 1,582 Deferred income tax 6,417 1,674 Liabilities included in disposal groups 4,154 4,204 Other liabilities 19,830 6,035 Total liabilities 1,041,434 698,432

Equity Share capital 10,500 7,954 Share premium account 49,815 7,557 Changes in valuation and reserves 1,791 -20 Retained earnings 36,643 22,214 98,749 37,705 Minority interest 2,076 1,004 Total equity 100,825 38,709

Total liabilities and equity 1,142,258 737,141

MISK

Cash Flow Working capital to operations amounted to over ISK 247 bn at the end of September 2005 as compared to working capital from operations of ISK 7 bn for the same period last year. Investment activities during the first 9 months of this year totalled ISK 22.3 bn as compared with ISK 167.9 bn for the same period of the previous year. Financing activities totalled over ISK 256.3 bn as compared with ISK 168.1 bn for the same period the previous year. Cash and cash equivalents at the end of September 2005 were ISK 12.5 bn, decreasing by ISK 13.1 bn since the beginning of the year.

Landsbanki Íslands hf. Prospectus, November 2005 68 Cash flow 2005 2004 1.1.-30.9 1.1.-30.9

Cash and cash equivalents from operations -247,048 7,040 Investment activities -22,332 -167,902 Financing activities 256,277 168,095 Increase (decrease) in cash and cash equivalents -13,103 7,233 Cash and cash equivalents at beginning of year 25,630 22,369

Cash and cash equivalents at end of period 12,527 29,602

10.2 Annual Results 2002-2004

Income Statement Performance Landsbanki’s after-tax profit was ISK 12.7 bn in 2004, as compared with around ISK 3 bn in 2003. In 2002, the Bank’s after-tax profit was ISK 2 bn. Landsbanki’s profit increased by almost ISK 10.7 bn from the end of 2002 to the end of 2004. After-tax earnings per ISK 1 nominal value in 2004 were ISK 1.57 as compared with ISK 0.36 in 2003 and ISK 0.30 in 2002. Calculation of after-tax earnings per ISK 1 nominal value has been adjusted to take changes in the nominal value of share capital into consideration. A summary of performance by area of operation for 2004 is given in the table below. No breakdown of Landsbanki’s income and performance by area of operation is available for 2002 and 2003.

Performance by Division Retail Asset management 1.1 - 31.12.2004 Banking Securities and Private Banking Other Total Net interest income 13,948 -187 1,141 0 14,902 Net fees and commissions 3,760 3,879 1,228 0 8,867 Trading gains -46 9,792 85 0 9,830 Net income from operations 17,662 13,483 2,454 0 33,600

Operating expenses 8,617 2,153 1,715 1,890 14,373

Provisions for credit losses 4,255 -4 235 0 4,485 Pre-tax profit 4,790 11,335 504 -1,890 14,738

All amounts MISK

Income Landsbanki’s net operating income at year-end 2004 was ISK 33.6 bn as compared with ISK 19 bn for 2003. Net income from operations in 2002 was ISK 13.9 bn. Net operating income has increased by ISK 19.7 bn over the past two years. Net interest income in 2004 was ISK 14.9 bn as compared to ISK 9.3 bn in 2003. In 2002, the Bank’s net interest income was ISK 7.7 bn. Net interest margin (net interest income as a ratio of average capital position) was 2.83% in 2002, but has dropped substantially and was 2.59% at year-end 2004.

Landsbanki Íslands hf. Prospectus, November 2005 69 The Bank’s fees and commissions in 2004 were almost ISK 10 bn as compared to ISK 7 bn in 2003, a YoY increase of ISK 3 bn or 43%. In 2002 Landsbanki’s fees and commissions totalled ISK 4.7 bn.

Expenses In 2004, the Bank’s operating expenses amounted to close to ISK 14.4 bn, as compared to ISK 10.8 bn in 2003. In 2002, the Bank’s operating expenses were ISK 8.5 bn. Operating expenses for 2004 increased by ISK 3.6 bn over those of 2003. Salary expense is the largest single expense item in the Bank’s operations. In 2004 this was ISK 7.7 bn, and had increased 36% YoY. The Bank’s cost ratio (operating expenses as a ratio of net operating income) has dropped substantially in recent years and was 43% at the end of 2004. The Bank’s objective is to maintain a cost ratio below 55%. Provisions for credit losses in 2004 amounted to almost ISK 4.5 bn, as compared to ISK 4.7 bn in 2003. As a ratio of total loans outstanding, provisions for credit losses were 0.73% at year-end 2004, as compared to 1.47% in 2003.

Income Statement 1.1-31.12.2004 1.1-31.12.2003 1.1-31.12.2002 Interest income on amounts due from credit institutions 1,672.1 1,167.2 1,796.0 Interest on loans extended 30,191.2 18,786.2 18,076.6 Interest on market securities 1,261.4 1,899.0 1,891.1 Other interest income 1,364.4 18.8 49.6 Interest income 34,489.1 21,871.2 21,813.3

Interest paid to credit institutions 1,110.4 380.0 1,520.6 Interest charges on deposits 8,960.9 6,108.7 6,669.4 Interest charges on loans 7,298.1 4,822.2 4,572.2 Interest expense on subordinated debt 866.5 423.9 501.5 Other interest expense 1,350.9 805.1 818.1 Interest expense 19,586.7 12,539.8 14,081.6

Net interest income 14,902.3 9,331.4 7,731.7

Income from shares and other holdings 22.0 144.1 523.0 Fees and commissions 9,995.2 6,958.6 4,744.6 Fees and commissions paid -1,343.8 -842.5 -669.1 Exchange rate differential 9,829.9 2,672.8 208.3 Sundry income from operations 193.9 717.9 1,377.9 Income from operations 18,697.2 9,651.0 6,184.8

Net income from operations 33,599.5 18,982.4 13,916.4

Salaries and related expenses 7,699.9 5,656.4 4,387.4 Other operating expense 4,713.2 3,562.0 3,208.4 Depreciation 1,715.0 1,306.7 752.0 Other operating costs 245.7 289.5 157.4 Operating expenses 14,373.8 10,814.5 8,505.2

Credit loss provisions 4,485.4 4,656.0 2,862.7

Earnings before taxes 14,740.1 3,511.9 2,548.5 Taxes imputed -1,881.9 -456.7 -475.4

Minority interest 12,858.3 3,055.2 2,073.1 Minority interest in subsidiaries -148.9 -99.4 -45.1

Earnings for the period 12,709.4 2,955.8 2,028.0

After-tax earnings per share 1.57 0.36 0.30 Dividend per share 0.20 0.10 0.10

MISK ..... 8,100 6,846 6,846

Landsbanki Íslands hf. Prospectus, November 2005 70 Balance Sheet Assets The company’s total assets were ISK 730.4 bn at year-end 2004, as compared to ISK 448.2 bn at year-end 2003. The increase during 2004 was ISK 282.1 bn, or 63%. Market securities and equity holdings totalled close to ISK 75.3 bn at year-end 2004 as compared to ISK 63.7 bn at year-end 2003. Liabilities and equity At year-end 2004 Landsbanki’s deposits were ISK 218 bn as compared to ISK 152.3 bn at year-end 2003. The Bank’s deposits increased by ISK 65.6 bn in 2004, or 43% YoY. At the end of September 2004, the Bank’s borrowing amounted to ISK 372.4 bn, as compared to ISK 209.4 bn at year-end 2003. The Group’s equity at year-end 2004 was ISK 38 bn, as compared with ISK 22.4 bn at year-end 2003. The Bank’s equity has grown by over ISK 15.6 bn, or 69.8%, YoY. The Bank’s subordinated debt was ISK 22.6 bn at year-end 2004, as compared to ISK 13.1 bn at the end of 2003. The Group’s capital ratio, calculated on a CAD basis, was 10.4% at year-end 2004 and 9.9% at year-end 2003.

Landsbanki Íslands hf. Prospectus, November 2005 71 Balance Sheet 31.12.2004 31.12.2003 31.12.2002 Assets Cash and balances with the Central Bank 13,431.8 1,373.3 996.3 Treasury bills for resale to Central Bank 4,804.8 9,204.8 1,045.7 Due from credit institutions 73,435.4 38,193.9 16,850.4 Cach and receivables due from credit institutions 91,672.0 48,772.0 18,892.5

Loans to customers 537,377.9 317,579.8 208,309.0 Asset-leasing contracts 11,640.7 7,132.4 4,788.8 Appropriated assets 782.5 1,687.5 1,689.4 Loans 549,801.1 326,399.7 214,787.2

Market bonds and other fixed-income securities 18,528.8 38,696.0 23,309.9 Equities and other variable-yield securities 52,969.6 23,708.5 9,012.1 Holdings in affiliates 3,756.1 1,339.9 3,999.9 Shares in connected companies 0.0 0.0 15.0 Market securities and holdings in companies 75,254.5 63,744.3 36,336.9

Real estate 2,710.3 2,888.4 3,115.6 Current assets 2,035.3 1,818.2 2,106.0 Goodwill 1,012.2 1,168.6 950.8 Sundry assets 1,396.6 506.9 1,083.1 Pre-paid expenses and income due 6,496.8 2,940.6 552.1 Other assets 13,651.2 9,322.7 7,807.7

Total assets 730,378.8 448,238.7 277,824.3

Liabilities and equity

Amounts owed to credit institutions 63,475.6 43,839.7 30,665.1 Deposits 217,969.6 152,320.0 108,306.1 Borrowing 372,424.0 209,356.9 108,478.8 Other liabilities 14,387.3 5,754.5 4,490.8 Imputed obligations 563.1 634.2 565.9 Total liabilities 668,819.6 411,905.3 252,506.7

Subordinated debt 22,552.2 13,089.7 8,216.2

Minority interest in subsidiaries' equity 991.1 861.7 792.0

Share capital 7,975.0 7,500.0 6,695.7 Share premium account 7,525.7 4,354.7 1,378.0 Mandatory reserve 268.5 268.5 268.5 Retained earnings 22,246.7 10,258.8 7,967.2 Equity 38,015.9 22,381.9 16,309.4

Total liabilities and equity 730,378.8 448,238.7 277,824.3

MISK

Cash Flow Working capital from operations was ISK 12.1 bn at year-end 2004, as compared to ISK 3.0 bn at the end of 2003. Investment activities were ISK 300.5 bn at year-end 2004, as compared with ISK 152.3 bn the previous year. Cash and cash equivalents at the end of 2004 were ISK 25.6 bn, increasing by ISK 3.2 bn during the year.

Landsbanki Íslands hf. Prospectus, November 2005 72 Cash Flow

1.1-31.12.2004 1.1-31.12.2003 1.1-31.12.2002

Earnings for the period 12,709.4 2,955.8 2,028.0 Operating items which do not affect cash flow Inflation indexing and trading gains -8,366.8 -3,772.3 -773.0 Credit loss provisions 4,556.0 4,787.0 2,893.1 Income tax, change in tax obligation 9.5 35.6 93.6 Other items 2,026.8 224.0 -375.9 Change in current assets and liabilities 1,148.0 -1,220.5 3,556.0 Cash and cash equivalents from operations 12,082.9 3,009.6 7,421.8

Reserves on deposit with Central Bank -287.9 5,039.2 -4,845.6 Other fixed amounts due from credit institutions -38,986.4 -16,506.1 2,354.5 Loans -255,248.7 -117,006.1 -22,248.3 Trading bonds 20,667.7 -23,768.6 -1,969.0 Trading equities -21,866.6 -12,152.8 238.1 Investment bonds 36.4 9,004.8 1,728.1 Investment equities 81.1 -30.1 968.5 Shares in affiliated and connected companies -2,539.0 3,510.3 2,334.9 Fixed assets acquired -1,701.8 -859.9 -770.3 Fixed assets sold 115.8 175.7 29.9 Sundry assets -802.9 333.7 -1,090.5 Investment activities -300,532.3 -152,259.9 -23,269.7

Amounts owed to credit institutions 21,351.1 14,052.7 4,684.7 Deposits 67,568.3 42,485.5 9,488.5 Borrowing 185,900.7 102,876.0 -2,174.5 Sundry obligations 3,254.6 58.7 75.3 Subordinated debt 10,710.7 5,111.0 116.0 Increase in share capital 4,560.0 3,233.6 0.0 Dividend paid -721.5 -664.3 -676.0 Trading in own shares -914.0 547.5 -547.5 Financing activities 291,709.9 167,700.6 10,966.4

Increase (decrease) in cash and cash equivalents 3,260.5 18,450.3 -4,881.5 Cash and cash equivalents at beginning of year 22,369.3 3,919.1 8,800.6

Cash and cash equivalents at end of period 25,629.8 22,369.3 3,919.1

Other Information Income tax paid 344.1 12.7 89.0 Dividends from affiliated and connected companies 173.0 211.8 457.5

MISK

Landsbanki Íslands hf. Prospectus, November 2005 73 11 Annexes

Articles of Association

Interim Financial Statements as of 30 September 2005

Schedule for the Division and Merger of Burðarás hf. with Straumur Investment Bank Ltd. and Landsbanki Íslands hf.

Report of Assessors on the Merger of Burðarás hf. and Landsbanki Íslands hf.

Landsbanki Íslands hf. Prospectus, November 2005 74 TRANSLATION FROM ICELANDIC

ARTICLES OF ASSOCIATION of Landsbanki Íslands hf.

CHAPTER I Company name, Domicile and Purpose

Article 1 The Company is a limited liability company. The name of the Company is Landsbanki Íslands hf. The Company was established on the basis of Act No. 50/1997 on the Incorporation of Landsbanki Íslands and Búnaðarbanki Íslands, and operates pursuant to Act No. 161/2002, on Financial Undertakings and the Companies Act No. 2/1995.

Article 2 The Company is domiciled at Austurstræti 11, Reykjavík.

Article 3 The purpose of the Company is to operate a commercial bank engaging in all activities permitted under the Act on Financial Undertakings.

CHAPTER II Share Capital

Article 4 The share capital of the Bank is ISK 11,020,677,803. The Board of Directors is authorised to increase the share capital in phases, up to ISK 1,200,000,000 in nominal value though a subscription of new shares. Shareholders waive their priority right of subscription, under Article 34 of the Companies Act No. 2/1995, to the new shares issued in accordance with this paragraph. The Board of Directors has the authority to decide the details of the new issue, such as the pricing of the new shares and the payment details. This authority is valid until 21 March, 2007. The Board of Directors can decide that subscribers pay for the new shares in part or wholly with other means than cash payment. The share capital of the Bank is divided into shares in the amount of one króna and multiples thereof. A shareholders meet ing may decide on increases in share capital, either by new subscriptions or through the issue of bonus shares. Only a shareholders meeting may decide to reduce the share capital.

Article 5 The Board of Directors is authorised to issue shares electronically through the Securities Depository in accordance with act no. 131/1997 on the electronic registration of securities. Once a shareholder has paid their shares to the Company in full, the Securities Depository will issue the shareholder with an electronic share certificate and register ownership of the shares. This will give the shareholder rights in full, in accordance with the Company’s Articles of Association. A Securities Depository list of shareholders shall serve as a fully valid register of shareholders.

Article 6

1 The Board of Directors of the Bank shall maintain a share register as provided by law. The register shall specify the following: 1. The date of issue of share certificates. 2. The nominal value and number of each share certificate. 3. To whom the share certificate was issued and any later transfers of ownership. Name, address and Identity Number of the shareholder. In addition, the date of registration and any transfers of ownership shall be entered on the certificate.

The register of shares shall be kept in the offices of the Bank where all shareholders shall have access to it and may acquaint themselves with its contents.

Article 7 Shares in the Bank may be sold and pledged unless otherwise provided by law. Transfers of ownership of a share, whether through sale, gift, inheritance, liquidation or enforcement of a court decision, shall always be notified to the offices of the Bank as soon as they are effected and the share register shall be amended accordingly. Any party coming into possession of a share in the Company may not exercise his rights unless his name has been registered in the register of shares or he has notified and submitted proof of his ownership of the share. For the Bank’s part, the register of shares shall be regarded as valid proof of ownership of shares, and dividends at any time as well as bonus shares, notices of meetings and all other notices shall be sent to the party registered at any time as the owner of the shares in question in the register of shares. Dividends shall be paid to those whose names are registered in the register of shares at the end of the day of the Annual General Meeting, unless the Company is notified of the endorsement of dividend by the endorsement of share. The Bank shall not be held responsible if payments or notices are lost owing to negligence in notifying the Bank of changes in ownership or domicile.

Article 8 No privileges are attached to any shares in the Bank. Shareholders are not required to suffer redemption of their shares.

Article 9 Each shareholder is bound, without special commitment, to abide by these Articles in their present form or as lawfully amended at any time. Shareholders are not liable for the commitments of the Bank beyond their share.

CHAPTER III Shareholders' Meetings

Article 10 Shareholders' meetings are the supreme authority in the affairs of the Bank. Shareholders meetings may be attended by shareholders, their agents and advisors, the Bank’s Auditor and the Bank’s Group Managing Director and Chief Executive Officer. A shareholder may appoint a proxy to attend a meeting on his behalf. The proxy shall submit a written and dated authorisation. A shareholder may attend a meeting accompanied by an advisor. The advisor shall not be entitled to speak, submit motions or vote at shareholders’ meetings. The Bank’s Auditor and the Group Managing Director and Chief Executive Officer shall have full rights to speak and submit motions even if they are not shareholders. The Board of Directors of the Bank shall have the right to invite experts to attend individual meetings if their opinion or assistance is required.

Article 11 The Annual General Meeting shall be held before the end of the month of April each year.

2 The Annual General Meeting shall be called with a notice on the radio and in newspapers or by other verifiable means with at least one week's and at most four weeks’ notice. The notice shall specify the business of the meeting. The Annual General Meeting is valid if it is lawfully convened, regardless of the number of attendants.

Article 12 The Agenda of the Annual General Meeting shall include the following: 1. The report of the Board of Directors of the Bank on the activities of the bank in the last year of operation. 2. The annual accounts for the last year of operation along with a report from the Auditor submitted for approval. 3. Decision on the payment of dividends and the disposal of any profits or losses in the preceding financial year. 4. Recommendations on amendments to the Articles, if any have been submitted. 5. Election of the Board of Directors of the Bank. 6. Election of the Auditor. 7. Decision on remuneration to the Board of Directors of the Bank for the next election term. 8. Any other business. Elections to the Board of Directors of the Bank shall be conducted in accordance with the provisions of statutory law on limited liability companies, currently Article 63 of Act No. 2/1995.

Article 13 Extraordinary shareholders’ meetings shall be held when regarded as necessary by the Board of Directors of the Bank, by a resolution of a meeting, or if the elected Auditor or shareholders holding a minimum of 1/10 of the shares of the Company request a meeting by a written notice stating the business of the meeting. Such shareholders’ meetings shall be convened no later than 14 days from the date that the Board of Directors received the notice. Extraordinary shareholders’ meetings shall be called with at least one week’s and at most four weeks’ notice. If all shareholders or their proxies are present they may grant exception from this provision. Shareholders’ meetings shall be convened by a notice on the radio and in newspapers or by other verifiable means. The validity of shareholders’ meetings shall be governed by the rules governing the validity of Annual General Meetings, cf. paragraph 3 of Article 11 hereof.

Article 14 Each shareholder has the right to have certain business included on the agenda of a shareholders meeting, provided he submits a written request to the Board of Directors of the Bank with sufficient notice for the matter to be included on the agenda of the meeting pursuant to these Articles. Those who wish to be considered for the Board of Directors must announce this no later than five days before the Annual General Meeting. The notice of the meeting shall include the business to be addressed at the shareholders’ meeting. One week before a shareholder’s meeting, at the latest, an agenda, final submissions and, in the case of Annual General Meetings, the annual financial statement and Auditors’ report shall be laid open for examination at the offices of the Bank. Items, which are not included on the agenda, may not be brought to a conclusion at a shareholders meeting except with the consent of all the shareholders, but resolutions may be passed on such matters for the purpose of providing guidance to the Board of Directors of the Bank. Even if an item of business has not been included on the agenda, this shall not preclude the calling of an extraordinary shareholders meeting to discuss the matter. Furthermore, an Annual General Meeting may always conclude matters, which must be concluded there by law or pursuant to these Articles. Lawfully submitted proposals for amendment may be submitted at the meeting itself even if they have not been laid open for examination by shareholders.

Article 15

3 The Chairman of the Board of Directors of the Bank, or an elected chairman, shall preside over shareholders’ meetings and the election of a secretary. The chairman shall ascertain at the beginning of the meeting whether it has been lawfully convened and whether the meeting is valid in other respects and declare whether such is the case. He shall preside over all discussions and voting. When the meeting has been called to order, a list shall be drawn up of the shareholders present and their proxies in order to ascertain how many shares and votes each of them controls. This list shall be used until such time as the shareholders’ meeting decides to alter it.

Article 16 The secretary of the meeting shall keep the minutes. All the decisions of the meeting and the results of all votes shall be entered in the minutes. A list of the shareholders present and their proxies shall be entered in the minutes or accompany the minutes. The minutes shall be read aloud before the end of the meeting and corrections recorded, if any. The chairman and secretary shall sign the minutes. Fourteen days following the shareholders’ meeting, at the latest, the shareholders shall have access to the minutes or a certified copy of the minutes at the offices of the Bank. The Record of Minutes shall be preserved in a secure manner. The recorded minutes shall be conclusive proof of the proceedings of meetings.

Article 17 At shareholders’ meetings, each share of one króna shall carry one vote. Decisions at shareholders’ meetings shall be taken by majority vote unless otherwise specified in these Articles or statutory law. In the event of an equality of votes, the election shall be decided by casting lots. Voting shall be by ballot if anyone present and voting at the meeting so requests. The consent of all shareholders is required to: 1. Oblige shareholders to contribute funds etc. for company needs beyond their commitments. 2. Oblige shareholders to endure redemption of their shares in part or in full beyond the provisions of statutory law, unless the Bank is dissolved or the share capital lawfully reduced. 3. Alter the purpose of the Company substantially. 4. Amend the provisions of these Articles regarding voting rights or shareholder equality.

CHAPTER IV The Board of Directors of the Bank

Article 18 The governing body of the Company, which pursuant to these Articles and the Act on Financial Undertakings is called the Board of Directors of the Bank, shall be composed of five members elected at the Annual General Meeting for a term of one year. Five alternate members shall be elected at the same time. The eligibility of Members of the Board shall be subject to statutory law. Elections shall always be by ballot if the number of nominations exceeds the number of Members to be elected. The Board of Directors of the Bank shall elect a Chairman from among its Members and allocate tasks in other respects as required.

Article 19 The Chairman shall convene meetings of the Board of Directors of the Bank and preside over the meetings. Meetings shall be held whenever the Chairman considers them necessary. The Chairman shall also convene a meeting of the Board of Directors of the Bank if requested by a Member of the Board or Group Managing Director and Chief Executive Officer of the Bank. Meetings of the Board shall be called with at least twenty-four hours’ notice. The presence of the majority of the Members of the Board or their alternates constitutes a quorum. Issues shall be decided by majority vote. In the event of an equality of votes, the Chairman shall cast the deciding vote.

4 The Board of Directors of the Bank shall keep minutes of proceedings at Meetings of the Board and confirm such minutes with their signatures.

Article 20 The Board of Directors of the Bank is responsible for of the activities of the Bank pursuant to legislation governing such activities, regulations and these Articles, and supervises the operation of the Bank. The Board of Directors is responsible for recruiting Group Managing Directors and CEOs and determine their number and terms of employment. The Board of Directors confirms the recruitment of Alternate Group Managing Directors and CEOs pursuant to proposals by the Group Managing Directors and CEOs. The Board of Directors shall determine the Company’s policy on division of tasks between the Board of Directors and the Group Managing Directors and CEOs, in accordance with the Companies Act No. 2/1995, and paragraph 1, article 54 of Act 161/2002 on Financial Undertakings. The Board of Directors will determine the Company’s internal regulations of Corporate Governance which will determine the Board’s modus operandi in further detail. These regulations shall specifically address the Board’s decision making authority relating to particular transactions, enforcement of regulations relating to the qualifications of Board members, handling of information relating to particular clients, Board members’ memberships on the boards of subsidiaries and associated companies, and enforcement of regulations relating to the handling of Board member’s own businesses and transactions. These regulations of Corporate Governance shall be sent to the Financial Services Authority in accordance with paragraph 2, article 54 of Act No. 161/2002 on Financial Undertakings. The Board of Directors alone has authority to grant power of procuration. A majority signature from the Board of Directors commits the Bank.

Article 21 In accordance with the Act on Financial Undertakings , the Company’s general managers shall be referred to as ”bankastjóri” (Icelandic terminology – bankastjóri is referred to as “Group Managing Director and CEO” in this translation).. The Group Managing Directors and CEOs are responsible for the day-to-day operations of the Bank and are empowered to make decisions in all affairs of the Bank which are not entrusted to others by statutory law, regulations or these Articles. The Group Managing Directors and CEOs shall ensure that the operations of the Bank conform to statutory law, government regulations or these Articles and the decisions of the Board of Directors of the Bank. The Group Managing Directors and CEOs shall attend the meetings of the Board of Directors of the Bank unless the Board of Directors of the Bank decides otherwise. The Group Managing Directors and CEOs shall keep a record of all significant decisions made by their office. The Group Managing Directors and CEOs shall meet all qualifications stipulated by the Act on Financial Undertakings and the Companies Act as amended at any time.

Chapter V Accounts and Auditing

Article 22 At the Annual General Meeting, a chartered auditor or auditing firm shall be elected for a term of one year. The Auditor shall examine the accounts of the Bank and all the accounting documents for each year of operation and shall have access to all the books and documents of the Company for such purpose. The Auditor shall meet all the qualifications stipulated by law at any time.

Article 23

5 The operating year and financial year of the Bank shall be the calendar year. The Board of Directors of the Bank and the Group Managing Directors and CEOs shall prepare each year the annual accounts and report. The annual accounts and annual report shall form single document. The annual accounts shall be prepared in accordance with the law and generally accepted accounting principles, both as regards the assessment of the various items, organisation, itemisation, notes and titles of items.

Article 24 The Auditor shall audit the annual account of the Bank in accordance with statutory law and generally accepted accounting principles. Following auditing, the Auditor shall sign the annual account and the signature shall accompany the annual account as the Auditor's Report. The annual accounts and the Auditor's Report shall be laid open for inspection by shareholders for at least one week before the Annual General Meeting. Audited Annual Accounts shall be sent to the Financial Services Authority no later than three months after the end of the financial year.

CHAPTER V Other Provi sions

Article 25 No decisions may be made to the effect that shareholders in the Bank shall enjoy better terms than other customers in transactions with the bank which can be attributed directly to the holdings of the shareholder in question.

Article 26 These Articles may be amended at a valid Annual General Meeting or extraordinary shareholders’ meeting provided that the amendment is supported by 2/3 of the cast votes and that shareholders controlling at least 2/3 of the shares represented at the meeting participate in the voting, provided that the Articles of the Bank or statutory law do not require another proportion of votes. Proposals to amend these Articles shall be included in the notice of the meeting.

Article 27 Dissolution of the Bank or mergers with other institutions shall be governed by the provisions of the Act on Financial Undertakings, the provisions of the Companies Act and any other applicable legislation.

Article 28 Matters on which these Articles provide no directions shall be governed by the provisions of the Act on Financial Undertakings, the Companies Act, the provisions of the Act on Annual Accounts and such provisions of other statutory law as may be applicable.

So adopted at the initial shareholders' meeting of the Company on 10 September 1997 as amended at a shareholders meeting on 3 September 1998, as amended at the Annual General Meeting on 22 March 1999, as amended at a shareholders meeting on 26 July 2000, as amended at the Annual General Meeting on 21 March 2002, as amended at the Annual General Meeting on 14 February 2003, as amended by the decision of the Board of Directors to increase the share capital of the Company on 28 August 2003 as authorised by these Articles , as amended at the Annual General Meeting on 14 February 2004, as amended in accordance with the decision of the Board of Directors to increase the share capital of the Company on 12 March 2004 as authorised by these Articles , as amended at the Annual General Meeting on 5 February 2005, as amended in accordance with the decision of the Board of Directors to increase the share capital of the company on 11 March 2005 as authorised by these Articles ,

6 and as amended at a shareholders meeting on 15 September 2005.

Reykjavík, 30 Spetember 2005

7 Consolidated Interim Financial Statements Landsbanki Íslands hf. 1 January – 30 September 2005 ISK

Landsbanki Íslands hf. Austurstraeti 11 155 Reykjavík ICELAND Landsbanki www.landsbanki.is The National Bank of Iceland Consolidated Interim Financial Statements Landsbanki Íslands hf. 1 January – 30 September 2005

ISK Content page Consolidated Key Figures 3 Report of the Board of Directors and Group Managing Directors & CEOs 4 Auditor´s Review Report 5 Consolidated Income Statement 6 Consolidated Balance Sheet 7 Consolidated Equity Statement 8 Consolidated Statement of Cash Flow 8 Notes to the Consolidated Interim Financial Statements 9 - 24 Icelandic Summary 26 - 32 Consolidated Key Figures

Operations 2005 2004 2005 2005 2005 2004 2004 2004 Q1 - Q3 Q1 - Q3 Change Q3 Q2 Q1 Q4 Q3 Q2 Interest revenues 45,364 23,373 94% 18,594 14,309 12,461 10,879 8,172 8,534 Interest expenses 29,623 13,249 124% 12,272 9,180 8,172 6,268 4,273 5,264 Net interest revenues 15,741 10,124 55% 6,322 5,129 4,289 4,611 3,898 3,269

Fee and commission income 13,120 7,044 86% 4,775 4,864 3,481 3,191 2,509 2,080 Fee and commission expenses 1,155 962 20% 392 403 361 382 365 301 Net fee and commission income 11,965 6,081 97% 4,383 4,461 3,120 2,809 2,144 1,779

Dividend income 882 442 100% 161 616 105 11 1 98 Net gain on financial assets and liabilities held for trading 5,365 4,156 29% 3,550 (163) 1,978 (41) 1,794 806 Net gain on financial assets designated at FV through P/L 4,660 7,138 -35% 1,167 1,003 2,490 (2,220) 4,693 200 Fair value adjustments in hedge accounting 367 0 0% 232 (81) 216 0 0 0 Foreign exchange gain 295 242 22% 359 (161) 97 122 111 59 Share of profit of associates 1,264 71 1668% 505 275 484 (79) 41 17 Net gain of disposal groups held for sale 1,087 0 0% 270 817 0 0 0 0 Other operating revenues 13,920 12,049 16% 6,243 2,307 5,370 (2,207) 6,639 1,179

Operating revenues 41,626 28,254 47% 16,949 11,898 12,779 5,213 12,682 6,227

Salaries and related expenses 8,546 5,681 50% 3,077 3,114 2,355 2,112 2,304 1,735 Administrative expenses 5,352 4,917 9% 1,905 1,764 1,683 1,749 1,963 1,342 Operating expenses 13,898 10,598 31% 4,982 4,879 4,037 3,862 4,267 3,076

Impairment on loans and advances and assets held for sale 4,392 3,262 35% 1,687 1,359 1,345 1,223 1,293 978 Profit before impairment on goodwill and income tax 23,336 14,393 62% 10,280 5,660 7,396 128 7,121 2,172

Impairment on goodwill 3,293 0 0% 3,293 0 0 0 0 0

Income tax 3,836 2,627 46% 1,882 602 1,351 (829) 1,333 361 Net profit 16,208 11,766 38% 5,105 5,058 6,045 957 5,788 1,812

Attributable to: Shareholders of Landsbanki Íslands hf. 16,006 11,670 37% 4,995 5,000 6,011 905 5,746 1,785 Minority interests 202 96 110% 110 58 34 53 42 27

Balance Sheet 30.9.2005 1.1.2005 Change 30.6.2005 Change

Cash and cash balances with Central Bank 8,134 18,237 -55% 8,211 -1% Loans and advances 891,668 614,274 45% 828,342 8% Trading assets 156,243 64,730 141% 119,208 31% Other assets 86,212 39,900 116% 66,311 30% Total assets 1,142,258 737,141 55% 1,022,072 12%

Deposits 413,988 279,206 48% 355,410 16% Funding 531,417 375,084 42% 521,870 2% Subordinated loans 47,224 22,570 109% 49,394 -4% Other items 48,804 21,572 126% 34,378 42% Equity 98,749 37,705 162% 58,954 68% Minority interests 2,076 1,004 107% 2,066 0% Total liabilities and equity 1,142,258 737,141 55% 1,022,072 12%

Key ratios 2005 2004 2004 2003 2002 2001 Q1 - Q3 Q1 - Q3 Return on equity before impairment on goodwill and taxes 71.9% 82.2% 57.2% 20.9% 17.0% 13.9% Return on equity after taxes 48.3% 65.6% 49.5% 17.6% 13.5% 13.1% Tier 1 ratio 12.9% 8.7% 7.8% 6.9% 7.7% 7.5% Equity ratio 14.3% 11.7% 10.4% 9.9% 10.6% 10.4% Cost-income ratio 33.4% 37.5% 43.2% 57.0% 61.1% 66.2% Operating expenses as a ratio of average capital position 2.0% 2.7% 2.5% 3.0% 3.1% 3.2% Interest spread as a ratio of average capital position 2.2% 2.6% 2.6% 2.6% 2.8% 3.5% Ratio of provision to lending position at period-end 0.66% 0.91% 0.73% 1.47% 1.33% 1.17% Share price at period-end 22.20 14.00 12.10 5.80 3.65 3.39 Share price increase adjusted for dividend payments 85.1% 143.1% 110.3% 61.6% 10.6% 0.1% Number of positions at period-end 1,382 1,081 1,121 1,025 986 997 Report of the Board of Directors and Group Managing Directors & CEOs

The Condensed Consolidated Interim Financial Statements for the first nine months of 2005 comprise the Consolidated Financial Statements of the Landsbanki Íslands hf. and its subsidiaries. The Condensed Consolidated Interim Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS). The effect on shareholder’s equity as a result from adoption of IFRS is a decrease of ISK 311 million. Further disclosures of the effect of IFRS transition are in the notes.

In February Landsbanki Group made an offer for Teather & Greenwood Holdings plc and had bought a 100% share in the company in May. In August, a merger schedule was approved, merging part of Burðarás hf. with Landsbanki, and concluding in September. An agreement reached in September provides for the Bank's acquisition of holding companies owning 82% of Kepler Equities SA. Once this is formally approved, that company's operations and balance sheet will be included in Landsbanki's consolidated accounts for the 4th quarter.

In March 2005 the nominal share capital was increased by ISK 800 million The share price in the Issue was 14.25. In September this year, the Bank issued additional shares of ISK 2,121 million nominal value, used to pay shareholders in Burðarás hf. for their holdings at a conversion rate of 19.00. Total issued nominal share capital is ISK 11,021 million at 30 September 2005.

At 30 September 2005, shareholders in Landsbanki numbered 29,618. Samson eignarhaldsfélag ehf. is the only shareholder with a stake over 10%, namely a 40.17% stake.

According to the income statement, the Group's after tax profit for the first nine months amounted to ISK 16,208 million. The Landsbanki Group's equity at period-end totalled ISK 100,825 million. The capital adequacy ratio (CAD) of the Group was 14.3%. Total assets of the Group were ISK 1,142,258 million at the end of September 2005.

The Board of Directors of the Bank and the Group Managing Directors & CEOs hereby confirm the Consolidated Interim Financial Statements of Landsbanki Íslands hf. for the nine months of 2005 with their signatures.

Reykjavík, 27 October 2005

Board of Directors

Björgólfur Guðmundsson

Kjartan Gunnarsson Andri Sveinsson

Guðbjörg Matthíasdóttir Þorgeir Baldursson

Group Managing Directors and Chief Executive Officers

Halldór J. Kristjánsson Sigurjón Þ. Árnason Auditor´s Review Report

To the Shareholder and Board of Directors of Landsbanki Íslands hf.

We have reviewed the Consolidated Interim Balance sheet of Landsbanki Íslands hf. and its subsidiaries as of 30 September 2005 and the related Interim Statements of Income, Changes in Shareholders' Equity, Cash Flows and the accompanying Notes for the nine months then ended. These Interim Statements have been prepared in accordance with International Financial Reporting Standards. These Consolidated Interim Financial Statements are the responsibility of the Bank's management. Our responsibility is to issue a report on these Consolidated Interim Financial Statements based on our review.

We conducted our review in accordance with the International Standard of Review Engagements 2400. This Standard requires that we plan and perform the review to obtain moderate assurance about whether the Consolidated Interim Financial Statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying Consolidated Interim Financial Statements do not give a true and fair view in accordance with International Accounting Standard 34 "Interim financial Reporting".

Reykjavík, 27 October 2005

PricewaterhouseCoopers hf.

Hjalti Schiöth

Vignir Rafn Gíslason

Consolidated Income Statement 1st January - 30th September 2005

2005 2004 2005 2004 Notes Q3 Q3 Q1 - Q3 Q1 - Q3

Interest revenues 18,594 8,172 45,364 23,373 Interest expenses 12,272 4,273 29,623 13,249 Net interest revenues 6,322 3,898 15,741 10,124

Fee and commission income 4,775 2,509 13,120 7,044 Fee and commission expense 392 365 1,155 962 8 Net fee and commission income 4,383 2,144 11,965 6,081

Dividend income 161 1 882 442 Net gain on financial assets and financial liabilities held for trading 3,550 1,794 5,365 4,156 Net gain on financial assets designated at fair value through profit and loss 1,167 4,693 4,660 7,138 Fair value adjustments in hedge accounting 232 0 367 0 Foreign exchange difference 359 111 295 242 Share of profit of associates 505 41 1,264 71 Net gain of disposal groups held for sale 270 0 1,087 0 Other operating revenues 6,243 6,639 13,920 12,049

Net operating revenues 16,949 12,682 41,626 28,254

Salaries and related expenses 3,077 2,304 8,546 5,681 Administrative expenses 1,905 1,963 5,352 4,917 Operating expenses 4,982 4,267 13,898 10,598

9 Impairment on loans and advances and assets held for sale 1,687 1,293 4,392 3,262 Profit before impairment on goodwill and income tax 10,280 7,121 23,336 14,393

14,23 Impairment on goodwill 3,293 0 3,293 0

Income tax 1,882 1,333 3,836 2,627 Net profit 5,105 5,788 16,208 11,766

Attributable to: Shareholders of Landsbanki Islands hf. 4,995 5,746 16,006 11,670 Minority interest 110 42 202 96

Earnings Per Share: Earnings Per Share 0.53 0.72 1.85 1.47 Diluted earnings per share 0.52 0.71 1.81 1.46

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Consolidated Balance Sheet as at 30 September 2005

Notes 30.9.2005 1.1.2005

Assets

Cash and cash balances with Central Bank 8,134 18,237 10 Loans and advances 891,668 614,274 11 Trading assets 156,243 64,730 Financial assets designated at fair value through profit and loss 33,976 12,817 13 Derivatives held for hedging 5,478 4,930 Investment in Associates 4,282 3,792 Property and equipment 3,425 4,146 14 Intangible assets 6,668 1,585 15 Non-current assets and disposal groups classified as held for sale 14,557 9,962 16 Other assets 17,826 2,668 Total assets 1,142,258 737,141

Liabilities

Deposits from credit institutions 138,693 61,236 17 Deposits from customers 275,295 217,970 18 Borrowing 531,417 375,084 19 Subordinated loans 47,224 22,570 12 Trading liabilities 16,463 8,077 13 Derivatives held for hedging 1,941 1,582 Tax liabilities 6,417 1,674 Liabilities included in disposal groups classified as held for sale 4,154 4,204 Other liabilities 19,830 6,035 Total liabilities 1,041,432 698,432

Equity Share Capital 10,500 7,954 Share Premium 49,815 7,557 Reserves 1,791 (20) Retained earnings 36,643 22,214 98,749 37,705 Minority interest 2,076 1,004 20 Total equity 100,825 38,709

Total liabilities and Equity 1,142,258 737,141

21-24 Other information

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Consolidated Equity Statement

Attributable to equity holders of the Company Share Premium Reserves Share Additionally Statutory Retained Minority capital paid in capital Account Translation Fair value earnings Interest Total Equity 1 January 2004 7,500 4,355 268 10,259 22,382 Changes due to conversion to IFRS 862 862 Equity 1 January 2004 - adjusted 7,500 4,355 268 0 0 10,259 862 23,244 Capital increase 600 3,960 4,560 Dividends paid (721) 0 (721) Net profit January - September 2004 11,696 0 11,696 Changes due to conversion to IFRS (4) (26) 77 47 Equity 30 September 2004 - adjusted 8,100 8,315 268 (4) 0 21,207 939 38,825

Equity 31 December 2004 7,975 7,526 268 0 0 22,247 0 38,016 Changes due to conversion to IFRS (20) (135) 1,004 849 Equity 31 December 2004 - adjusted 7,975 7,526 268 (20) 0 22,112 1,004 38,865 Changes due to conversion to IFRS (21) -237 103 0 (156) Equity 1 January 2005 7,954 7,288 268 (20) 0 22,214 1,004 38,709 Capital increase 800 10,600 11,400 Merger with Burðarás 2,121 38,172 40,293 Purchases and sales of treasury shares (374) (6,514) (6,888) Dividends paid (1,577) (1,577) Translation differences (53) (53) Fair value adjustment of investment properties, included in disposal groups 1,864 870 2,734 Net profit January - September 2005 16,006 202 16,208 Equity 30 September 2005 10,500 49,546 268 (73) 1,864 36,643 2,076 100,825

Consolidated Statement of Cash Flow

2005 2004 Q1 - Q3 Q1 - Q3

Cash flows from operating activities (247,048) 7,040 Cash flows from investing activities (22,332) (167,902) Cash flows from financing activities 256,277 168,095 Net (decrease) increase in cash and cash equivalents (13,103) 7,233 Cash and cash equivalents at beginning of year 25,630 22,369

Cash and cash equivalents at period-end 12,527 29,602

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

1 General information Landsbanki Íslands hf. (the Group) is a universal bank, providing retail, corporate and investment banking services. The Group operates subsidiaries in three countries and has 1,382 employees at period-end.

The Group’s parent company is Landsbanki Íslands hf. (the Bank), which is a limited-liability company incorporated and domiciled in Iceland. The Bank was established in 1885 and remained state-owned until 1998 when the State decided to privatise the Bank through a public offering. Today, the Bank’s shares are listed on the Main List of the Iceland Stock Exchange (ICEX).

These condensed consolidated interim financial statements were approved for issue by the Board of Directors on 27 October 2005.

2 Summary of significant accounting policies The principal accounting policies applied in preparing these condensed consolidated interim financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

2.1 Basis of preparation These condensed consolidated interim financial statements of Landsbanki Íslands hf. cover the nine months from 1 January to 30 September 2005. They have been prepared in accordance with IAS 34, Interim Financial Reporting and are covered by IFRS 1, First-time Adoption of IFRS. The Bank’s consolidated annual financial statements for 2005 will be prepared in accordance with those IFRS standards and these interim financial statements cover a part of this accounting period. Condensed interim financial statements such as these do not include information as extensive as annual financial statements compiled in accordance with IFRS. The consolidated interim financial statements reflect the IFRS and interpretations issued and effective in October 2005. Other and different IFRS may be applicable at the end of this year, when the first annual financial statements will be compiled in accordance with these standards.

The accounting policies prescribed by IFRS and followed in preparing the consolidated interim financial statements have been consistently applied retroactively to the comparison period of 2004, except where the Group has made use of special exemptions available under IFRS 1. The most important exemption which has been used is in connection with classification and measurement of financial instruments as provided for in standards 32 and 39 (IAS 32 and IAS 39). The Group will adopt these standards from 1 January 2005 and will not apply them retroactively. Until 31 December 2004, Landsbanki's consolidated financial statements were prepared in accordance with Generally Accepted Accounting Principles for financial institutions in Iceland (GAAP). The former accounting policies differ in some aspects from IFRS. The comparative figures for 2004 were restated to accord with the latter, except where otherwise expressly stated. Reconciliations and descriptions of the effect of the transition to IFRS on the Group’s equity and its net income and cash flows are provided in Note 4. These consolidated interim financial statements have been prepared under the historical cost convention, having regard to the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value in profit or loss. The preparation of financial statements in accordance with IAS 34 requires the use of certain accounting estimates. It also requires management to exercise judgement in the process of applying various accounting policies. Accounting assumptions and estimates of major significance are disclosed in particular in Note 3.

2.2 Consolidation (a) Subsidiaries Subsidiaries are all entities over which the Group has the power generally accompanying a shareholding of more than one-half of the voting rights to govern financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. On the date of reporting, the Bank’s subsidiaries were comprised of the following:

Landsbanki Holdings (UK) plc 100% - Heritable Bank Ltd 100% - Teather & Greenwood Holdings plc 100% Landsbanki Luxembourg S.A. 100% Landsvaki hf. 100% Landsbankinn eignarhaldsfélag ehf. 100% Landsbankinn - Fjárfesting hf. 100% Landsbankinn fasteignafélag ehf. 100% LI Investments ltd. 100% Hömlur hf. 100% Stofnlánadeild Samvinnufélaga 100% Verðbréfun hf. 100% SP – Fjármögnun hf. 51%

The purchase method is used to account for the investment in subsidiaries by the Group. The acquisition price is measured as the fair value of its stated assets, equity instruments issued and liabilities incurred or assumed at the transaction date, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values on the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated in the consolidated accounts. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the share capital conferring voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of movements of reserves is recognised in reserves under equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

2.3 Segment reporting A business segment is a part of the Group’s assets and operations which is subject to risks and returns differing from those of other business segments. A geographical segment is a part of the assets and operations within a specific economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of the Group’s individual entities are measured using the currency of the economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in millions of Icelandic kronas (ISK), which is the Company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates of the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions, and the translation at end-of period exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, except when deferred in equity as qualifying net investment hedges. Translation differences on non-monetary items, such as equities held at fair value in the income statement, are reported as part of these income statement movements. (c) Group companies The results and financial position of Group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) the assets and liabilities of each balance sheet are translated at the closing rate at the end of the period; (ii) items of each income statement are translated at the average exchange rate for the period; (iii) all resulting exchange differences are recognised as a separate component of equity.

Exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges on such investments, are taken to shareholders’ equity. When a foreign company is sold, such exchange differences are recognised in the income statement as part of the gain or loss on the sale.

2.5 Derivative financial instruments and hedge accounting Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their current fair value. Fair values are based on quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is based on comparison with comparable transactions in similar instruments. Fair value can also be based or founded on the basis of pricing models.

Derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value on the income statement. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of the fair value of assets or liabilities (fair value hedge). Hedge accounting is used for derivatives designated in this way provided certain criteria are met.

The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The relationship is documented and an assessment made, both at hedge inception and at each reporting period, of whether the derivatives used in hedging transactions are highly effective in offsetting changes in fair values of hedged items.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

(a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.

(b) Net investment hedge Any gain or loss on a hedging instrument relating to the effective portion of a hedge of net investments in foreign operations is recognised in equity as translation reserve; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses on net investments accumulated in equity are included in the income statement when the foreign operation is disposed of.

(c) Derivatives that do not qualify for hedge accounting Derivative financial instruments which do not qualify for hedge accounting are recognised on the balance sheet as trading assets or trading liabilities. Changes in their fair value are recognised immediately in the income statement.

2.6 Interest income and expense Interest income and expense are recognised in the income statement using the effective interest method for all instruments measured at amortised cost.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, making it equivalent to the net carrying amount of the financial asset or financial liability in the income statement. When calculating the effective interest rate, the Group estimates cash flows, considering all contractual terms of the financial instrument, but does not consider future credit losses. The calculation generally includes all fees and amounts paid or received between parties to the contract that are an integral part of the effective interest rate, as well as transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised at the rate of interest used to discount the impairment loss. Interest income on financial assets which have been written down as a result of impairment is calculated based on the net amount of the financial asset taking the write-down into consideration.

2.7 Fee and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans are generally deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as arrangement of transactions with equities or other securities or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-apportionate basis. Asset management fees related to investment funds are recognised rateably over the period the service is provided. The same principle for income reporting is applied for other custody services that are continuously provided over an extended period of time.

2.8 Financial assets The Group classifies its financial assets in the following categories: trading assets, financial assets designated at fair value through profit or loss at inception and loans and advances. Management determines the classification of its investments at initial recognition.

(a) Trading assets A financial asset is classified in this category if it is primarily held for the purpose of selling in the short term. Derivatives are also classified as current assets unless designated as hedges.

(b) Financial assets designated at fair value through profit or loss at inception According to IAS 39, management may classify financial assets in this category when initially recognised. Such financial assets are reported on the balance sheet at current fair value and changes recognised in the income statement. The classification of financial assets placed in this category cannot be changed after their original classification.

(c) Loans and advances Loans and advances are financial assets with defined payments that are not quoted in an active market. They arise when the Group provides funds directly to a debtor with no intention of trading the receivable.

Purchases and sales of trading assets and financial assets designated at fair value through profit or loss are recorded on the date on which the Group commits to purchase or sell the asset. Loans are recognised when the funds related to the loan are disbursed to the borrowers. All financial assets are initially recorded at fair value plus transaction costs. Transaction costs are, however, not included in the initial cost of trading assets and financial assets designated at fair value through profit or loss. Financial assets are derecognised when they have been transferred to another party, for instance when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

Financial assets designated at fair value through profit or loss and trading assets are subsequently carried at fair value. Loans and receivables are carried at cost using the effective interest method. Gains and losses arising from changes in the fair value of the financial assets at fair value on the income statement and current assets are included in the income statement in the period in which they arise. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using recognised valuation techniques. These include the use of recent arm’s length transactions, references to other materially equivalent instruments, discounted cash flow analysis and option pricing models and other valuation techniques commonly used by market participants.

2.9 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legal enforceable right to offset the recognised amounts and there is an intention to settle on a net basis.

2.10 Sale and repurchase agreements Repurchase agreements (repos) are financial instruments providing for the sale of securities under agreement to repurchase the same securities at a predetermined price. Control of the securities remains in the hands of the Group during their entire transaction period and the securities remain on its balance sheet as trading assets or as financial assets designated at fair value through profit or loss, as appropriate. When such securities are sold is the profit is reported as borrowing or as deposits from credit institutions or others, as appropriate.

Securities borrowed are not recorded in the financial statements, unless these are sold to third parties, in which case the purchase and sale are included with fees and commissions. The obligation to return them is recorded at fair value as a trading liability.

2.11 Impairment of loans and advances At each balance sheet date, the Group assesses whether there is objective evidence that a loan or loan portfolio is impaired. A loan or loan portfolio is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of the loan or group of loans that can be reliably estimated. Objective evidence of impairment includes observable data about the following loss events:

(i) significant financial difficulty of the borrower;

(ii) a breach of contract, such as a default on instalments or on interest or principal payments;

(iii) the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a refinancing concession, that the lender would not otherwise consider;

(iv) it becomes probable that the borrower will enter bankruptcy or undergo other financial reorganisation;

(v) the disappearance of an active market for that financial asset because of financial difficulties; or

(vi) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of loans since the initial recognition of those assets, even if the decrease cannot yet be identified with the individual financial assets in the group, including: – adverse changes in the payment status of borrowers in the group; or – general national or local economic conditions connected with the assets in the group.

The Group defines loans that are individually significant and assesses first whether objective evidence of their impairment exists, and individually or collectively for financial assets that have not been defined as individually significant. If the Group determines that no objective evidence of impairment exists for significant loans, it includes the loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment. Individual assets for which an impairment loss is recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount the asset’s recoverable value. The recoverable value is the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced by the amount of impairment through the use of an allowance account and the amount of the loss is recognised in the income statement. In the case of a loan at variable interest rates, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

For impairment calculation of the present value of the estimated future cash flows of a collateralised financial asset, regard is had for estimated sale or redemption value of the collateral less costs for obtaining and selling the collateral. Such calculation is made on the basis of objective assessment of loss, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Such classification, based on credit risk, gives a good indication of the impairment of a group of assets.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

Future cash flows in a group of loans evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Group and historical loss experience for assets with similar credit risk characteristics. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience was originally based and to remove the effects of previously existing loss factors which do not exist currently.

Estimates of changes in future cash flows for groups of assets should be consistent with changes in observable data from period to period (for example, changes in property prices, payment status, or other factors indicative of changes in the probability of losses on the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to minimise any differences between loss estimates and actual losses.

When a loan is uncollectible, it is fully written off against the provision for loan impairment on the balance sheet. Loans are written off after all the necessary procedures have been completed, as provided for in the Group’s rules, and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement.

If the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the original impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

2.12 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate on the date of acquisition. Goodwill related to a merger and on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of a subsidiary/associate include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Impairment of goodwill, based on impairment test procedures of IAS 36, is expensed in the income statement.

(b) Computer software Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and take into service the specific software. These costs are amortised on the basis of their expected useful lives (three to five years).

The Group assess at each reporting date whether there is any indication that an software asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. The recoverable amount is the higher of the asset’s fair value less costs to sell or its value in use. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Costs associated with developing or maintaining computer software programs are recognised when the expense is incurred.

2.13 Property, plant and equipment (PPE) Land and buildings consist of mainly the Bank’s branches and offices. All property, plant and equipment is stated at historical cost less depreciation. Historical cost of PPE includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Buildings 25-100 years, Computer equipment 3-5 years, Other chattels 3-8 years.

The assets’ residual values and useful lives are reviewed annually and adjusted if appropriate.

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may be lower than the estimated recoverable value. The recoverable amount is the higher of the asset’s fair value less costs to sell or its value in use. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the sale price of an asset with its carrying amount. Gains and losses are included in the income statement.

2.14 Non-current assets and disposal group classified as held for sale Non-current assets held for sale are the Group’s appropriated assets which are in the process of being sold. This item includes also a disposal group which is held for sale. Liabilities connected with the disposal group are recognised as a special liability on the balance sheet. The presentation and measurement of these assets and liabilities are based on IFRS 5, Non-current assets held for sale and discontinued operations. Items included under non-current assets held for sale are recognised at the lower of carrying amount or fair value less cost to sell, taken into account the measurement requirement exception in IFRS 5.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

2.15 Leases (a) A Group company is the lessee The leases entered into by the Group are primarily operating leases. The total payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, the total amount of the entire leasing contract until the end of the period is expensed.

(b) A Group company is the lessor When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as income due. Lease income is recognised over the term of the lease using a method which reflects a constant periodic rate of return.

2.16 Cash and cash equivalents In the cash flow statement, cash and cash equivalents are defined as cash and non-restricted balances with the Central Bank, amounts due from other banks and treasury bills.

2.17 Provisions Provisions for restructuring cost and disputes are recognised in the consolidated interim financial statements when it is more likely than not that an outflow of Group resources will be required to settle the obligation and the amount can be reliably estimate.

2.18 Share-based compensation The Group has entered in to stock options contracts with its employees enabling them to acquire shares in the Bank. In all instances the exercise price corresponds to the market value of the shares at grant date. The stock options were granted after 7 November 2002 and cost related to the agreements is expensed during the vesting period based on the related terms. The agreements are cash settled and the expenses recognised in the income statement and as a liability in the balance sheet.

2.19 Deferred income tax Deferred income tax is recognised in full as a liability, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated interim financial statements. Deferred income tax is, however, not recognised if it arises from the original recognition of an asset or liability in a transaction other than a merger of companies, which affects neither its accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

The principal temporary differences arise from revaluation of certain financial assets and liabilities, including derivative contracts and depreciation of property, plant and equipment. Temporary differences also include tax losses carried forward and the difference between the fair values of assets acquired and their tax base.

Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax arising from temporary differences in connection with investments in subsidiaries and associates is recognised in the consolidated interim financial statements. This is not done, however, where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable future.

Income tax payable on profits, based on the applicable tax law in each jurisdiction, is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.

2.20 Borrowings Borrowings are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method.

2.21 Subordinated loans The Group has borrowed funds by issuing bonds on subordinated terms. The bonds have the characteristics of equity in being subordinated to other liabilities of the Group. In the calculation of the capital ratio, the bonds are included with equity, as shown in note 20. The loans are entered as liabilities with accrued interest and indexation. Some of these loans are exchange rate linked.

2.22 Trading liabilities Trading liabilities primarily consist of derivatives with negative fair values and delivery obligations for short sales of securities. Trading liabilities are measured at fair value.

Gains and losses realised on disposal or redemption and unrealised gains and losses from changes in the fair value of trading liabilities are reported as Net gain on financial assets and liabilities held for trading. Interest and dividend expense on trading liabilities are included in Net interest income.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

2.23 Share capital (a) Share issue costs Costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

(b) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Bank's shareholders meeting.

(c) Treasury shares Where the Bank, or other member of the consolidated Group, purchases the Bank’s equity share capital, the consideration paid is deducted from total shareholders’ equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity.

2.24 Fiduciary activities The Group acts as custodian, holding or placing assets on behalf of individuals, institutions and pension funds. These include various mutual funds managed by the Group. These assets and income arising thereon are excluded from these financial statements, as they do not belong to the Group.

3 Critical accounting estimates, and judgements in applying accounting policies The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The accounting estimated based on these assumptions will by definition seldom be equivalent to the relevant real outcome. The discussion below examines estimates and assumptions which involve a substantial risk of causing material correction to the carrying amounts of assets and liabilities within the next financial year.

(a) Impairment losses on loans and advances The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The accounting estimated based on these assumptions will by definition seldom be equivalent to the relevant real outcome. The discussion below examines estimates and assumptions which involve a substantial risk of causing material correction to the carrying amounts of assets and liabilities within the next financial year.

(b) Fair value of derivatives The fair value of financial instruments not quoted in active markets are determined by various recognised valuation techniques When valuation techniques (e.g. models) are used to determine fair value, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data, however areas such as credit risk require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

(c) Securitisations and special purpose entities (SPEs) The Group sponsors the formation of special purpose entities (SPEs) primarily for the purpose of allowing clients to hold investments, for asset securitisation, and for buying or selling credit protection. The Group does not consolidate SPEs that it does not control. Where it is difficult to determine whether the Group does control an SPE, it makes an objective assessment about its exposure to risk and reward, as well as about its ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. In such cases, the SPE is consolidated.

4 Transition to International Financial Reporting Standards (IFRS)

4.1 Basis of the transition

4.1.1 Application of IFRS 1 The consolidated annual financial statements for 2005 will be the first financial statements compiled by Landsbanki Íslands hf. that comply with International Financial Reporting Standards (IFRS). These consolidated interim financial statements have been prepared as described in Note 2.1. The Group has applied IFRS 1 First Time Adoption of International Financial Reporting Standards in compiling these consolidated interim statements. As the transition date for Landsbanki Íslands hf. is 1 January 2004, the Group’s IFRS opening balance sheet has been prepared as of that date. The reporting date of these consolidated interim financial statements is 30 September 2005. The Group’s IFRS adoption date is 1 January 2005. The Group must restate all its assets and liabilities retroactively in accordance with IFRS 1. The Group has decided to avail itself of the exemptions provided for in IFRS 1, cf. Sections 4.1.2 and 4.1.3.

4.1.2 Optional exemptions The Group has decided to apply the following IFRS exemptions from full retroactive restatement and presentation of assets and liabilities.

(a) Business combinations exemption The Group has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the 1 January 2004 transition date.

(b) Fair value as deemed cost exemption The Group has elected to measure certain items of property, plant and equipment at fair value as of 1 January 2004.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

(c) Exemption from restatement of comparatives for IAS 32 and IAS 39 The Group applies previous GAAP rules to derivatives, financial assets and hedges for the 2004 comparative amounts. Adjustments required for differences between GAAP and IAS 32/39 are recognised in equity as of 1 January 2005.

(d) Designation of financial assets and financial liabilities exemption In accordance with IAS 32/39, various securities are reclassified as trading assets and financial assets designated at fair value through profit and loss as of 1 January 2005. The resulting changes in the presentation are shown especially in the summary in 4.1.8 of this section.

4.1.3 Mandatory exceptions The Group has applied the following exceptions:

(a) Derecognition of financial assets and liabilities exception Financial assets and liabilities derecognised before 1 January 2004 are not re-recognised under IFRS. The application of the exemption from restating comparatives for IAS 32 and IAS 39 means that the Group recognised from 1 January 2005 any financial assets and financial liabilities derecognised since 1 January 2004 that do not meet the IAS 39 derecognition criteria. Management did not choose to apply the IAS 39 derecognition criteria prior to this date.

(b) Hedge accounting exception Hedge accounting is applied from 1 January 2005 if the hedge relationship meets all the hedge accounting criteria set in IAS 39.

(c) Estimates exception Estimates under IFRS as of 1 January 2004 must be consistent with estimates made for the same date under previous GAAP, unless there is evidence that those estimates were in error.

(d) Assets held for sale and discontinued operations exception IFRS 5 is applied prospectively from 1 January 2005, i.e. assets held for sale and discontinued operations are recognised in accordance with IFRS 5 only from 1 January 2005.

The following tables show the effects of the change in measurement and presentation from previous GAAP to IFRS has had on the Group's equity, income statement and balance sheet. Changes to cash flows were negligible.

4.1.4 Reconciliations transition changes in equity

Summary of changes in equity to IFRS from previous GAAP: Equity under previous GAAP 31.12.2004 38,016 Changes in presentation of minority interest IAS 1 1,004 Total equity, including minority interest 39,020 Total equity under IFRS 1.1.2005 38,709 Total changes in equity from previous GAAP (311)

Changes in equity 1.1.2004: Equity under previous GAAP 1.1.2004 22,382 Changes in presentation of minority interest IAS 1 862 Total equity, including minority interest 23,244 Total equity under IFRS 1.1.2004 23,244 Total changes in equity 1.1.2004 0

Changes in equity during the year 2004: Valuation changes: Changes related to loan commitment fee IAS 18 (124) Reversal of goodwill amortised IAS 36, IFRS 3 184 Impairment of software IAS 36, IAS 38 (130) Impairment of equipment IAS 36, IAS 16 (45) Expense due to share-based compensation IFRS 2 (94) Exchange rate impact of foreign subsidiaries IAS 21 20 Recalculations of Tax liability IAS 12 54 Total valuation changes restated in income statement (135) Exchange rate impact of foreign subsidiaries IAS 21 (20) Total IFRS transition changes in equity 2004 (155)

Changes in equity 1.1.2005: Changes in presentation of treasury shares IAS 32 (259)

Valuation changes: Impairment of loans and advances IAS 39 150 Change in fair value of unlisted securities IAS 39 (206) Value changes - Hedge accounting IAS 39 289 Changes in fair value due to trading derivatives IAS 39 (62) Recalculation of Tax liability IAS 12 (68) Total value changes in equity 1.1.2005 103

Total changes in equity from previous GAAP (311)

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

The total change in equity as a result of transition to IFRS is a decrease of ISK 311 million. The Group’s equity in the opening IFRS balance sheet is ISK 38,709 million as compared to ISK 39,020 million after the altered presentation of minority interest. The principal changes to the Group’s income statement and balance sheet are explained below. Changes in presentation of minority interest The transition to IFRS will mean that minority interest in equity is presented as part of equity in accordance with IAS 1 Presentation of Financial Statements Previously minority interest was presented as a separate item outside shareholders’ equity. The total amount of minority interest is ISK 1,004 million at year-end 2004. The change only affects the presentation, but not the valuation or measurement of equity.

Changes in presentation of treasury shares Treasury shares, which were previously recognised as an asset in the trading book, are entered against equity in accordance with IAS 32. This equity decrease amounts to ISK 259 million on 1 January 2005.

Loan commitment fees on loans and advances and borrowings In accordance with IAS 18, Revenue, loan commitment fees are amortised through the effective interest rate over the life of the loan, while under GAAP they were recognised at the time the loan was disbursed. This change results in a temporary decrease in income and for 2004 this income is ISK 124 million lower than according to previous accounting treatment. This decrease has a corresponding impact on equity.

Reversal of goodwill amortised According to IFRS 3, Business Combinations, and IAS 36, Impairment of Assets, goodwill is not amortised systematically. Instead, goodwill is assessed especially by means of an annual impairment test. As a result of this change, goodwill previously amortised and expensed in 2004 has been reversed, since the result of an impairment test on goodwill did not result in a decrease for impairment. The total impact of this is to increase Group equity by ISK 184 million.

Impairment of intangible assets and equipment According to the provisions of IAS 36, an impairment test shall be carried out on intangible assets with a defined useful life and on property, plant and equipment when there is indication that an impairment loss has been incurred. At year-end 2004, an impairment test was performed on software and equipment which resulted in an impairment loss of ISK 175 million. This amount is recognised in the 2004 restated income statement and reduces Group equity at year-end 2004 by this amount.

Expense due to share-based compensation The cost of the share-based compensation contracts has been calculated according to IFRS and the 2004 cost, based on the underlying contracts, has been recognised as an expense and liability in accordance with IFRS 2, Share-based compensation. The total cost for 2004 was ISK 94 million, which decrease equity.

Exchange rate impact of foreign subsidiaries In accordance with IAS 21, The Effects of Changes in Foreign Exchanges Rates, all translation differences from investment in foreign subsidiaries shall be recognised directly in shareholders’ equity as a separate reserve. Exchange rate adjustment of liabilities used to hedge these investments are also recognised directly against shareholders’ equity. According to previous GAAP, both were recognised in the income statement. Adjustments resulting from the difference in these methods reduces the 2004 outcome by ISK 20 million, with a corresponding amount entered as a separate item against equity, translation reserve. The net impact on equity as a result is nil.

Impairment of loans and advances The transition to IAS 39 changes the method of impairment calculation on loans, with the application of new methods based on the present value of future cash flows from loans, based on objective evidence and other historical data. This lowers provisions for credit losses by ISK 150 million, with a corresponding increase in equity.

Change in fair value of unlisted securities In accordance with IAS 39, the Group will measure the fair value of unlisted securities. As a result, equity on 1 January 2005 will decrease by ISK 206 million.

Hedge accounting The group has applied hedge accounting, in accordance with IAS 39, as of 1 January 2005. All derivatives held for hedging are recognised at fair value and the carrying value of hedged items is adjusted to take into account the designated risk being hedged in accordance with the defined hedge relationship. Changes in valuation resulting from the application of hedge accounting have resulted in a increase in equity of ISK 289 million.

Changes in fair value due to trading derivatives In accordance with IAS 39, all derivative financial instruments are recognised at fair value. The total change in assessment as a result is to decrease Group equity by ISK 62 million on 1 January 2005. Of this amount, the increase to trading assets is ISK 603 million and the increase in trading liabilities is ISK 665 million.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

4.1.5 Change in Income Statement 2004 from previous GAAP to IFRS

Previous Change in Change in GAAP valuation presentation IFRS Net interest revenues 14,902 (124) (43) 14,734 Net interest revenues Net profit from shareholdings 22 0 (22) Commissions and fees 9,995 0 239 10,234 Commissions and fees Commission expenses (1,344) 0 0 (1,344) Commission expenses Trading gains 9,830 0 (9,830) 0 453 453 Dividend income 4,116 4,116 Net gain on financial assets and financial 0 liabilities held for trading 4,918 4,918 Net gain on financial assets designated at fair 0 value through profit and loss 000Fair value adjustments in hedge accounting 20 344 364 Foreign exchange difference 0 (8) (8) Share of profit of associates Other revenues 194 0 (194) Salaries and related expenses (7,700) (94) 0 (7,794) Salaries and related expenses Administrative expenses (4,713) 0 (248) (4,961) Administrative expenses Depreciation of fixed assets (1,715) 9 0 (1,706) Depreciation and amortisation Other expenses (246) 0 246 Net provisions for credit losses (4,485) 0 0 (4,485) Impairment on loans and advances and assets held for sale Taxes (1,882) 54 30 (1,798) Income tax Net profit 12,858 (135) 0 12,723 Net profit Minority interests (149) (149) Minority interests Net profit according to previous GAAP 12,709 12,574 Net profit attributable to shareholders of Landsbanki Íslands

4.1.6 Change in Income Statement 2004 from previous GAAP to IFRS by quarters

2004 2004 2004 2004 2004 Q4 Q3 Q2 Q1 Net profit 12,574 905 5,746 1,785 4,139

Income Statement from previous GAAP 12,709 1,014 5,660 1,941 4,094 Reversal of goodwill amortised 184 73 37 37 37 Impairment of software and equipment (175) (175) 0 0 0 Expense due to share-based compensation (94) 0 (38) (34) (23) Changes related to loan commitment fee (124) (66) 97 (197) 41 Exchange rate impact of foreign subsidiaries 20 16 6 1 (3) Recalculation of Tax liability 54 43 (17) 35 (7) Restated Income Statement 12,574 905 5,746 1,785 4,139

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

4.1.7 Changes in equity 30.9.2004

Equity under previous GAAP 30.9.2004 37,916 Changes in presentation of minority interest 939 Total equity, including minority interest 38,855 Valuation changes: Changes related to loan commitment fee (58) Reversal of goodwill amortised 111 Expense due to share-based compensation (94) Exchange rate impact of foreign subsidiaries 4 Recalculation of Tax liability 11 Changes in equity through P/L 1.1.2004 - 30.9.2004 (26) Exchange rate impact of foreign subsidiaries (4) Total equity under IFRS 30.9. 2004 38,825

4.1.8 Changes in Balance Sheet from previous GAAP to IFRS

Change in Change in Change in valuation IFRS 1 January Previous GAAP 31 December 2004 31.12.2004 presentation valuation 2004 1.1.2005 2005 Cash and cash balances Cash and current account at Central Bank 13,432 4,805 0 0 18,237 with Central Bank Treasury bills 4,805 (4,805) 0 0 Financial institutions 73,435 (73,435) 0 0 Loans to customers 537,378 77,396 (554) 54 614,274 Loan and advances Capital leases 11,641 (11,641) 0 0 Appropriated assets 782 (782) 0 0 Bonds and other fixed income securities 18,529 (18,529) 0 0 Equity and other variable income securities 52,970 (52,970) 0 0 0 64,594 (23) 159 64,730 Trading assets 0 12,817 0 0 12,817 Financial assets designated at fair value through profit and loss 0 4,930 0 0 4,930 Derivatives held for hedging Shares in Associates 3,756 0 36 0 3,792 Investment in Associates 0 4,191 (45) 0 4,146 Property and equipment Premises 2,710 (2,710) 0 0 Liquid assets 2,035 (2,035) 0 0 Goodwill 1,012 555 18 0 1,585 Intangible assets 0 9,866 0 96 9,962 Non-current assets and disposal groups classified as held for sale Other assets 7,893 (5,226) 0 0 2,668 Other assets Total assets 730,379 7,020 (567) 309 737,141

63,476 (2,239) 0 0 61,236 Deposits from credit Financial institutions institutions Deposits from customers 217,970 0 0 0 217,970 Deposits from customers Borrowing 372,424 2,880 (358) 138 375,084 Borrowing Subordinated loans 22,552 18 0 0 22,570 Subordinated loans 0 8,077 0 0 8,077 Trading liabilities 0 1,582 0 0 1,582 Derivatives held for hedging Computed commitments 563 (563) 0 0 0 1,660 (54) 68 1,674 Tax liabilities 0 4,204 0 0 4,204 Liabilities included in disposal groups classified as held for sale

Other liabilities 14,387 (8,353) 0 0 6,035 Other liabilities Minority interests 991 13 0 0 1,004 Minority interests Equity 38,016 (259) (155) 103 37,705 Equity Total liabilities 730,379 7,020 (567) 309 737,141

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

5 Income Statement by quarters 2005 2005 2005 2004 2004 Operations Q3 Q2 Q1 Q4 Q3 Interest revenues 18,594 14,309 12,461 10,879 8,172 Interest expenses 12,272 9,180 8,172 6,268 4,273 Net interest revenues 6,322 5,129 4,289 4,611 3,898

Fee and commission income 4,775 4,864 3,481 3,191 2,509 Fee and commission expense 392 403 361 382 365 Net fee and commission income 4,383 4,461 3,120 2,809 2,144

Dividend income 161 616 105 11 1 Net gain on financial assets and financial liabilities held for trading 3,550 (163) 1,978 (41) 1,794 Net gain on financial assets designated at fair value through profit and loss 1,167 1,003 2,490 (2,220) 4,693 Fair value adjustments in hedge accounting 232 (81) 216 0 0 Foreign exchange difference 359 (161) 97 122 111 Share of profit of associates 505 275 484 (79) 41 Net gain of disposal groups held for sale 270 817 0 0 0 Other operating revenues 6,243 2,307 5,370 (2,207) 6,639

Net operating revenues 16,949 11,898 12,779 5,213 12,682

Salaries and related expenses 3,077 3,114 2,355 2,112 2,304 Administrative expenses 1,905 1,764 1,683 1,749 1,963 Operating expenses 4,982 4,879 4,037 3,862 4,267

Impairment on loans and advances during the period 1,687 1,359 1,345 1,223 1,293 Profit before impairment on goodwill and income tax 10,280 5,660 7,396 128 7,121 Impairment on goodwill 3,293 0000 Income tax 1,882 602 1,351 (829) 1,333 Net profit 5,105 5,058 6,045 957 5,788

Attributable to: Shareholders of Landsbanki Islands hf. 4,995 5,000 6,011 905 5,746 Minority interest 110 58 34 53 42

6 Business segments

The Group operates in three Business Segments: Retail Banking includes the Bank’s branch network, SP Fjármögnun and the Residential Morgages division of Heritable Bank.

Corporate Banking includes the Bank´s Corporate division and Heritable´s Bank Corporate Banking division.

Securities and Treasury is comprised of the parent company’s securities operations and Teather & Greenwood. This division includes securities brokerage, corporate advisory, FX and derivative trading, the Bank’s treasury and debt management and proprietary trading.

Asset Management and Private Banking includes the parent company’s Asset Management division, Landsvaki hf. and Landsbanki Luxembourg S.A.

Asset As at 30 September 2005 Management Retail Banking Corporate Securities and Private Other Banking Treasury Banking operations Group Net interest revenues 7,109 7,900 (408) 1,140 0 15,741 Net fee and commission income 2,488 1,477 6,477 1,524 0 11,965 Other revenues 21 150 13,599 149 0 13,920 Net operating revenues 9,617 9,528 19,668 2,813 0 41,626

Operating expenses 6,002 2,481 3,712 1,387 316 13,898 Impairment on loans and advances and assets held for sale 1,846 2,220 0 326 0 4,392 Impairment on goodwill 0 0 3,293 0 0 3,293 Profit before income tax 1,769 4,827 12,663 1,100 (316) 20,044

Asset As at 30 September 2004 Management Retail Banking Corporate Securities and Private Other Banking Treasury Banking operations Group Net interest revenues 4,771 4,683 (97) 767 0 10,124 Net fee and commission income 2,246 662 2,265 909 0 6,081 Other revenues (0) (36) 12,024 61 0 12,049 Net operating revenues 7,016 5,309 14,192 1,737 0 28,254

Operating expenses 4,659 1,584 1,473 1,091 1,791 10,598 Impairment on loans and advances and assets held for sale 2,362 709 7 184 0 3,262 Profit before income tax (5) 3,016 12,712 462 (1,791) 14,393

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

7 Geographical segments - breakdown of income/revenues

As at 30 September 2005 Iceland UK Lux Total Net interest revenues 12,361 2,247 1,132 15,741 Net fee and commission income 8,995 2,342 627 11,965 Other revenues 13,563 278 79 13,920 Net operating revenues 34,920 4,868 1,839 41,626

As at 30 September 2004 Iceland UK Lux Total Net interest revenues 8,846 516 762 10,124 Net fee and commission income 5,537 381 163 6,081 Other revenues 11,966 22 61 12,049 Net operating revenues 26,349 919 986 28,254

8 Net fee and commission income 30.9.2005 30.9.2004 Fee and commission income Securities 6,721 2,486 Asset management 1,204 715 Lending 2,409 1,316 Cards 851 642 Interbank revenues 752 846 Collection and payment services 370 398 Foreign trade 285 267 Other commissions and fees 529 374 13,120 7,044

Fee and commission expense 1,155 962

Net fee and commission income 11,965 6,081

9 Impairment on loans and advances and assets held for sale 30.9.2005 30.9.2004

Loans and advances 4,507 3,317 Assets held for sale (19) 0 4,488 3,317

Collected previously written-off loans 97 55 4,392 3,262 10 Loans and advances 30.9.2005 1.1.2005

Financial institutions 58,162 67,107 Public entities 5,261 3,131 Corporates 619,259 439,952 Consumers 220,175 112,444 Allowance for losses on loans and advances (11,189) (8,359) Total loans and advances 891,668 614,274

A large part of the consumer loan growth (residential mortgage loans) has been funded via private placements of credit linked notes.

Provisions for credit losses Changes during the period: 30.9.2005 30.9.2004

Balance at beginning of year 8,359 7,700 Impairment on loans and advances 4,521 3,317 Loans written off (1,691) (2,450) 11,189 8,567 11 Trading assets 30.9.2005 1.1.2005 Trading assets Bonds and other fixed-income securities 60,791 18,529 Equity and other variable-income securities 83,184 37,499 Derivatives held for trading 12,269 8,702 156,243 64,730

Forward contracts against trading assets Bonds and other fixed-income securities 28,147 1,785 Equity and other variable-income securities 62,850 23,596

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

12 Derivatives held for trading and trading liabilities 30.9.2005 1.1.2005 Fair value Fair value Assets Liabilities Assets Liabilities Foreign exchange derivatives Currency forwards 4,927 7,038 3,501 3,193 OTC currency options bought and sold 2,731 3,376 2,694 3,147 7,657 10,414 6,195 6,340

Interest rate derivatives Interest rate swaps 1,124 1,388 535 621 Cross-currency interest rate swaps 1,086 1,410 147 197 2,210 2,799 682 819

Equity derivatives Equity forwards 1,584 3,250 1,607 918 OTC stock options - bought and sold 817 0 219 1 2,401 3,250 1,826 918

Total derivatives held for trading 12,269 16,463 8,702 8,077

13 Derivatives held for hedging 30.9.2005 1.1.2005 Fair value Fair value Assets Liabilities Assets Liabilities Derivatives designated as fair value hedges Interest rate swaps 3,869 940 2,084 1,235 Cross-currency interest rate swaps 1,608 1,001 2,846 347 5,478 1,941 4,930 1,582

14 Intangible assets 30.9.2005 1.1.2005 Goodwill Opening net book amount 1,160 1,159 Exchange differences 01 Acquisition of a subsidiary 4,900 0 Merger with Burðarás hf. 3,293 0 Impairment of goodwill (3,293) 0 Closing net book amount 6,060 1,160

Software Opening net book amount 425 491 Additions 268 472 Disposals 00 Amortisation (85) (408) Impairment on software 0 (130) Net book value at period-end 608 425

Total Intangible assets 6,668 1,585

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

15 Non-current assets and disposal groups classified as held for sale 30.9.2005 1.1.2005

Appropriated assets 789 1,031 Allowance for appropriated assets (203) (241) 587 790 Disposal group held for sale − Investments properties included disposal groups 12,978 8,265 − Other assets included disposal groups 992 908 13,970 9,173

Total non-current assets and disposal groups classified as held for sale 14,557 9,962

16 Other assets 30.9.2005 1.1.2005

Unsettled payments 12,633 0 Other assets 5,193 2,668 17,826 2,668

17 Deposits from customers 30.9.2005 1.1.2005

Demand deposits 115,241 84,225 Time deposits 160,054 133,745 275,295 217,970

18 Borrowing 30.9.2005 1.1.2005

Securities issues 453,067 328,416 Other borrowing 78,350 46,668 531,417 375,084

19 Subordinated loans 30.9.2005 1.1.2005

Tier I − Non-innovative hybrid capital 7,446 8,358 Tier I − Innovative hybrid capital 14,749 3,197 Tier II 25,028 11,015 47,224 22,570

20 Capital ratio 30.9.2005 31.12.2004

Risk-adjusted assets 909,421 576,498

Capital: Tier I capital: Equity 98,749 38,016 Subordinated loans 22,195 6,722 Goodwill (6,060) (918) Minority interests 2,076 991 116,960 44,811 Tier II capital: Subordinated loans 25,028 15,831 − deduction in accord with Articles 28 and 85 of Act No 161/2002 (11,672) (749)

Total capital 130,317 59,893

Tier I ratio 12.9% 7.8% Capital ratio 14.3% 10.4%

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

21 Off-balance sheet items 30.9.2005 1.1.2005

Guarantees issued 20,663 23,994 Available overdrafts 26,540 24,676 Unused credit commitments 46,296 9,918 93,499 58,588

22 Related-parties

Loans to CEOs and managing directors, and to companies fully owned by these persons, amounted to ISK 96 million as of 30 September 2005.

Loans to members of the Board of Directors and their fully owned companies amounted to ISK 205 million. In addition, Landsbanki has granted credit to companies with which members of the Board are related through membership of the companies’ Boards or ownership ties, including companies which number among the Bank’s major clients. Total credit extended to these companies amounts to ISK 13.037 million as of 30 September 2005.

The holding company, Samson eignarhaldsfélag ehf., which has a 40.17% holding in the Bank, is owned by three legal entities. The Bank has not assisted the company with any provision of credit. One of the company’s owners sits on Landsbanki’s Board of Directors and loans granted to this person are included in the above amounts.

Total credit extended to associated companies by the Bank amounted to ISK 18,040 million as of 30 September 2005.

All of the loans referred to here have been granted in accordance with the Bank’s credit rules and on normal commercial terms. No impairment charges has been made by the Bank to cover these loans.

23 Acquisitions

An offer was made by Landsbanki Holding (UK) plc for Teather & Greenwood Holding plc on 1 February 2005. On 30 June 2005 Landsbanki Holding (UK) plc share in Teather & Greenwood Holding plc was 100%. The Income Statement and Balance Sheet was consolidated into Landsbanki group.

On 1st. August a part of the investing company Burðarás hf. merged with the Group. The shareholders of Burðarás hf. recieved share capital in Landsbanki in exchange of their shareholding interest in Burðarás. The total amount of share capital issued in connection to the merger was ISK 2,121 millions at the price 19.00 per share which represent the cost of the acquisition. On the acquisition date the fair value of individual acquired assets and liabilities were measured. The excess of the cost of acquisition over the fair value of the acquired indiviual assets and liabilities was recorded as goodwill.

The details of the fair value of the assets and liabilities acquired and goodwill arising are as follow in ISK millions:

Equity and other variable-income securities 20,110 Other assets 17,832 Tax liabilities (942) Goodwill (see note 14) 3,293 Cost of acquisition, value of issued share capital 40,293

At the end of the period the acquired goodwill arising connected to the merger were tested for impairment due to requirements of IAS 36. The conclusion of the impairment test was that the total amount of the goodwill should be expensed in the income statement. The impairment expensed in the income statement is not tax deductible. The impairment of the goodwill needs to be reviewed in connection with the number of new shareholders in the bank and the fact that issued shares were issued at market price without traditional volume discount in such a large transaction. After the merger numbers of shareholders increased by about seventeen thousands.

On 5 September Landsbanki Islands hf. announced that it has reached an agreement to acquire Kepler Equities SA (Kepler), a European securities company, previously known as the Julius Bär Brokerage. Initially Landsbanki will acquire 82% of the total shares. This acquisition will be achieved through Landsbanki’s direct acquisition of shares in Kepler from holdings companies and from Kepler employees. The transaction is subject only to regulatory approval in France, Switzerland and Iceland and is expected to be completed before the end of this year and will from that time be part of the consolidated accounts.

The state of Iceland, signed a purchase agreement with Landsbanki Íslands hf. on the acquisition by the bank of specific assets and liabilities of the Agricultural Loan Fund. The Purchase Agreement was concluded in October.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million Notes to the Consolidated Interim Financial Statements

24 Litigation

The Bank Employees’ Pension Fund has brought a suit in the Reykjavík District Court against Landsbanki Íslands hf. and the Icelandic State, demanding that a court verdict establish that the bank guarantee which Landsbanki Íslands, as a state-owned bank, provided for the Fund’s obligations until 31 December 1997 has never been cancelled and is still fully valid. Furthermore, the plaintiff requests principally that the Court find that in the future Landsbanki Íslands should be responsible for this guarantee or, failing that, the National Treasury. Should this claim be rejected, the Fund requests, for instance, that the Bank’s obligations be re-calculated due to changed assumptions, or that damages be paid.

The reason for the suit is that the Pension Fund’s assets are not fully sufficient for its calculated obligations, in part due to increases in wages and purchasing power. In 1997, Landsbanki Íslands, as a state-owned bank, together with other contributing companies of the Bank Employees’ Pension Fund, reached an agreement with the fund on a final settlement, which the Pension Fund approved for its part at a meeting of fund members. The guarantee of the contributing companies was then cancelled and the Pension Fund therefore no longer has any legal entitlement to make claims on the contributing companies.

Should the Courts recognise any responsibility in this case, the claim would have to be directed at the National Treasury, as the agreement covered by the summons was concluded on the responsibility of Landsbanki as a state-owned bank and in connection with the establishment of a limited-liability company for the Bank’s operation and original sale of share capital.

Claims advanced towards Landsbanki in the above-mentioned case must therefore be considered as not liable to have a significant impact on the Bank’s operating performance.

Landsbanki Consolidated Interim Financial Statements 30 September 2005 ISK Million

Árshlutareikningur Landsbanki Íslands hf. 1. janúar – 30. september 2005

- útdráttur - Lykiltölur úr árshlutareikningi

Rekstrarreikningur 2005 2004 2005 2005 2005 2004 2004 2004 jan.-sept. jan.-sept. Breyting 3. ársfj. 2. ársfj. 1. ársfj. 4. ársfj. 3. ársfj. 2. ársfj. Vaxtatekjur 45.364 23.373 94% 18.594 14.309 12.461 10.879 8.172 8.534 Vaxtagjöld 29.623 13.249 124% 12.272 9.180 8.172 6.268 4.273 5.264 Hreinar vaxtatekjur 15.741 10.124 55% 6.322 5.129 4.289 4.611 3.898 3.269

Þjónustutekjur 13.120 7.044 86% 4.775 4.864 3.481 3.191 2.509 2.080 Þjónustugjöld 1.155 962 20% 392 403 361 382 365 301 Hreinar þjónustutekjur 11.965 6.081 97% 4.383 4.461 3.120 2.809 2.144 1.779

Arðstekjur 882 442 100% 161 616 105 11 1 98 Hreinar tekjur af veltufjáreignum 5.365 4.156 29% 3.550 (163) 1.978 (41) 1.794 806 Hreinar tekjur af öðrum fjáreignum á gangvirði 4.660 7.138 -35% 1.167 1.003 2.490 (2.220) 4.693 200 Gengismunur áhættuvarnarliða 367 0 0% 232 (81) 216 0 0 0 Gengismunur gjaldeyrisviðskipta 295 242 22% 359 (161) 97 122 111 59 Hlutdeild í afkomu hlutdeildarfélaga 1.264 71 1668% 505 275 484 (79) 41 17 Hagnaður af eignum í sölumeðferð 1.087 0 0% 270 817 0 0 0 0 Aðrar rekstrartekjur 13.920 12.049 16% 6.243 2.307 5.370 (2.207) 6.639 1.179

Hreinar rekstrartekjur 41.626 28.254 47% 16.949 11.898 12.779 5.213 12.682 6.227

Laun og tengd gjöld 8.546 5.681 50% 3.077 3.114 2.355 2.112 2.304 1.735 Rekstrarkostnaður 5.352 4.917 9% 1.905 1.764 1.683 1.749 1.963 1.342 Rekstrargjöld alls 13.898 10.598 31% 4.982 4.879 4.037 3.862 4.267 3.076

Virðisrýrnun útlána 4.392 3.262 35% 1.687 1.359 1.345 1.223 1.293 978 Hagnaður fyrir skatta og virðisrýrnun viðskiptavildar 23.336 14.393 62% 10.280 5.660 7.396 128 7.121 2.172

Virðisrýrnun viðskiptavildar 3.293 0 0% 3.293 0 0 0 0 0 Tekjuskattur 3.836 2.627 46% 1.882 602 1.351 (829) 1.333 361 Hagnaður tímabilsins 16.208 11.766 38% 5.105 5.058 6.045 957 5.788 1.812

Tilheyrandi: Hluthöfum Landsbanka Íslands hf. 16.006 11.670 37% 4.995 5.000 6.011 905 5.746 1.785 Minnihluta 202 96 110% 110 58 34 53 42 27

Efnahagur 30.9.2005 1.1.2005 Breyting 30.6.2005 Breyting

Sjóður og innstæður í seðlabanka 8.134 18.237 -55% 8.211 -1% Lán 891.668 614.274 45% 828.342 8% Veltufjáreignir 156.243 64.730 141% 119.208 31% Aðrar eignir 86.212 39.900 116% 66.311 30% Eignir samtals 1.142.258 737.141 55% 1.022.072 12%

Innlán 413.988 279.206 48% 355.410 16% Lántaka 531.417 375.084 42% 521.870 2% Víkjandi lántökur 47.224 22.570 109% 49.394 -4% Aðrar skuldir 48.804 21.572 126% 34.378 42% Eigið fé 98.749 37.705 162% 58.954 68% Hlutdeild minnihluta í eigin fé dótturfélaga 2.076 1.004 107% 2.066 0% Skuldir og eigið fé samtals 1.142.258 737.141 55% 1.022.072 12%

Kennitölur 2005 2004 2004 2003 2002 2001 jan.-sept. jan.-sept. Arðsemi eigin fjár fyrir virðisrýrnun viðskiptavildar og skatta 71,9% 82,2% 57,2% 20,9% 17,0% 13,9% Arðsemi eigin fjár eftir skatta 48,3% 65,6% 49,5% 17,6% 13,5% 13,1% Eiginfjárþáttur A 12,9% 8,7% 7,8% 6,9% 7,7% 7,5% Eiginfjárhlutfall 14,3% 11,7% 10,4% 9,9% 10,6% 10,4% Hlutfall rekstrarkostnaðar af hreinum rekstrartekjum 33,4% 37,5% 43,2% 57,0% 61,1% 66,2% Hlutfall rekstrarkostnaðar af meðalstöðu heildarfjármagns 2,0% 2,7% 2,5% 3,0% 3,1% 3,2% Vaxtamunur af meðalstöðu heildarfjármagns 2,2% 2,6% 2,6% 2,6% 2,8% 3,5% Framlag í afskriftareikning af stöðu útlána í lok tímabils 0,66% 0,91% 0,73% 1,47% 1,33% 1,17% Gengi hlutabréfa í lok tímabils 22,20 14,00 12,10 5,80 3,65 3,39 Hækkun hlutabréfaverðs að teknu t.t. arðgreiðslna 85,1% 143,1% 110,3% 61,6% 10,6% 0,1% Stöðugildi í lok tímabils 1.382 1.081 1.121 1.025 986 997 Skýrsla og áritun bankaráðs og bankastjóra

Árshlutareikningur Landsbanka Íslands hf. fyrir tímabilið 1. janúar til 30. september hefur að geyma samstæðureikning Landsbankans og dótturfélaga.

Árshlutareikningurinn er gerður í samræmi við alþjóðlega reikningsskilastaðla (IFRS). Áhrif innleiðingar IFRS á eigið fé í upphafi árs 2005 nam 311 milljónum króna til lækkunnar. Í skýringum er nánari grein gerð fyrir áhrifum innleiðingar alþjóðlegra reikningsskilastaðla á reikningsskilin.

Í febrúar gerði Landsbankinn tilboð í Teather & Greenwood Holdings plc og í maí eignaðist bankinn allt hlutafé félagsins. Í ágúst var samþykkt samrunaáætlun þar sem hluti Burðarás hf. var sameinaður bankanum og í september var samruna lokið. Í september var gert samkomulag um kaup bankans á eignarhaldsfélögum sem eiga 82% hlut í Kepler Equities SA. Að fengnu formlegu samþykki mun rekstur og efnahagur félagsins kom inn í samstæðu Landsbankans á fjórða árshluta.

Í mars 2005 jók bankinn hlutafé sitt um 800 milljónir króna að nafnvirði sem selt var á genginu 14,25. Í september 2005 jók bankinn hlutafé um 2.121 milljónir króna að nafnvirði og voru bréfin notuð sem greiðsla til hluthafa Burðaráss hf. á genginu 19,00. Útgefið hlutafé í bankanum nam 11.021 milljónum króna í lok september 2005.

Í lok september 2005 voru hluthafar bankans 29.618. Samson eignarhaldsfélag ehf. á einn hluthafa meira en 10% eignarhlut í bankanum eða 40,17%.

Samkvæmt rekstrarreikningi nam hagnaður bankans 16.208 milljónum króna eftir skatta á fyrstu níu mánuðum ársins 2005. Í lok september 2005 nam eigið fé samstæðu Landsbanka Íslands hf. 100.825 milljónum króna. Eiginfjárhlutfall samstæðunnar, samkvæmt eiginfjárákvæðum laga, var 14,3% í lok tímabilsins. Heildareignir samstæðu bankans námu 1.142.258 milljónum króna í lok september 2005.

Bankaráð og bankastjórar staðfesta hér með árshlutareikning Landsbanka Íslands hf. fyrir tímabilið 1. janúar til 30. september 2005 með undirritun sinni.

Reykjavík, 27. október 2005

Bankaráð

Björgólfur Guðmundsson

Kjartan Gunnarsson Andri Sveinsson

Guðbjörg Matthíasdóttir Þorgeir Baldursson

Bankastjórar

Halldór J. Kristjánsson Sigurjón Þ. Árnason Áritun endurskoðenda

Til bankaráðs og hluthafa Landsbanka Íslands hf.

Við höfum kannað árshlutareikning samstæðu Landsbanka Íslands hf, sem nær yfir tímabilið 1. janúar til 30. september 2005. Árshlutareikningurinn er gerður í samræmi við alþjóðlega reikningsskilastaðla og hefur að geyma rekstrarreikning, efnahagsreikning, yfirlit um breytingu á eigin fé, sjóðstreymi og skýringar. Árshlutareikningurinn er lagður fram af stjórnendum bankans og á ábyrgð þeirra í samræmi við lög og reglur. Ábyrgð okkar felst í því að veita umsögn um árshlutareikninginn á grundvelli könnunarinnar.

Könnun okkar var gerð í samræmi við alþjóðlega endurskoðunarstaðla. Slík könnun takmarkast við fyrirspurnir til starfsmanna og greiningar á hinum ýmsu liðum reikningsskilanna og felur ekki í sér jafn víðtækar aðgerðir og endurskoðun, sem hefur það að markmiði að láta í ljós álit á reikningsskilunum í heild. Þar af leiðandi látum við slíkt álit ekki í ljós.

Við könnun okkar kom ekkert fram sem benti til annars en að árshlutareikningurinn gefi glögga mynd af afkomu samstæðu Landsbanka Íslands hf. á tímabilinu, efnahag þess 30. september 2005 og breytingu á fjárhagslegri skipan á tímabilinu í samræmi við alþjóðlegan reikningsskilastaðal númer 34.

Reykjavík, 27. október 2005

PricewaterhouseCoopers hf.

Hjalti Schiöth

Vignir Rafn Gíslason

Rekstrarreikningur 1. janúar til 30. september 2005

2005 2004 2005 2004 3. ársfj. 3. ársfj. 1.1. - 30.9 1.1. - 30.9

Vaxtatekjur 18.594 8.172 45.364 23.373 Vaxtagjöld 12.272 4.273 29.623 13.249

Hreinar vaxtatekjur 6.322 3.898 15.741 10.124

Þjónustutekjur 4.775 2.509 13.120 7.044 Þjónustugjöld 392 365 1.155 962 Hreinar þjónustutekjur 4.383 2.144 11.965 6.081

Arðstekjur 161 1 882 442 Hreinar tekjur af veltufjáreignum 3.550 1.794 5.365 4.156 Hreinar tekjur af öðrum fjáreignum á gangvirði 1.167 4.693 4.660 7.138 Gengismunur áhættuvarnarliða 232 0 367 0 Gengismunur gjaldeyrisviðskipta 359 111 295 242 Hlutdeild í afkomu hlutdeildarfélaga 505 41 1.264 71 Hagnaður af eignum í sölumeðferð 270 0 1.087 0 Aðrar rekstrartekjur 6.243 6.639 13.920 12.049

Hreinar rekstrartekjur 16.949 12.682 41.626 28.254

Laun og tengd gjöld 3.077 2.304 8.546 5.681 Rekstrarkostnaður 1.905 1.963 5.352 4.917 Rekstrargjöld 4.982 4.267 13.898 10.598

Virðisrýrnun útlána 1.687 1.293 4.392 3.262 Hagnaður fyrir skatta og virðisrýrnun viðskiptavildar 10.280 7.121 23.336 14.393

Virðisrýrnun viðskiptavildar 3.293 0 3.293 0

Tekjuskattur 1.882 1.333 3.836 2.627 Hagnaður tímabilsins 5.105 5.788 16.208 11.766

Tilheyrandi: Hluthöfum Landsbanka Íslands hf. 4.995 5.746 16.006 11.670 Minnihluta 110 42 202 96

Hagnaður á hlut: Hagnaður á hlut 0,53 0,72 1,85 1,47 Útþynntur hagnaður á hlut 0,52 0,71 1,81 1,46

Árshlutareikningur Landsbanka Íslands hf. 30.9.2005 Fjárhæðir eru í milljónum Efnahagsreikningur 30. september 2005

30.9.2005 1.1.2005

Eignir

Sjóður og innstæður í seðlabanka 8.134 18.237 Lán 891.668 614.274 Veltufjáreignir 156.243 64.730 Fjáreignir á gangvirði í gegnum rekstrarreikning 33.976 12.817 Afleiðusamningar vegna áhættuvarna 5.478 4.930 Hlutir í hlutdeildarfélögum 4.282 3.792 Rekstrarfjármunir 3.425 4.146 Óefnislegar eignir 6.668 1.585 Fastafjármunir til sölu og eignir í sölumeðferð 14.557 9.962 Aðrar eignir 17.826 2.668 Eignir samtals 1.142.258 737.141

Skuldir

Innlán frá fjármálafyrirtækjum og Seðlabanka Íslands 138.693 61.236 Innlán viðskiptamanna 275.295 217.970 Lántaka 531.417 375.084 Víkjandi lán 47.224 22.570 Afleiðusamningar 16.463 8.077 Afleiðusamningar vegna áhættuvarna 1.941 1.582 Skattskuld 6.417 1.674 Skuldir vegna fastafjármuna til sölu 4.154 4.204 Aðrar skuldir 19.830 6.035 Skuldir samtals 1.041.432 698.432

Eigið fé Hlutafé 10.500 7.954 Yfirverðsreikningur hlutafjár 49.815 7.557 Matsbreytingar og varasjóðir 1.791 (20) Óráðstafað eigið fé 36.643 22.214 98.749 37.705 Hlutdeild minnihluta 2.076 1.004 Eigið fé samtals 100.825 38.709

Skuldir og eigið fé samtals 1.142.258 737.141

Árshlutareikningur Landsbanka Íslands hf. 30.9.2005 Fjárhæðir eru í milljónum Eiginfjáryfirlit samstæðu

Hlutdeild Skipt á hluthafa félagsins minnihluta Samtals Yfirverð Varasjóður Hlutafé Yfirverð Lögbundinn Þýðingar- Óráðstafað hlutafjár varasjóður munur Gangvirði eigið fé Eigið fé 1. janúar 2004 7.500 4.355 268 10.259 22.382 Breytingar vegna IFRS 862 862 Eigið fé 1. janúar 2004 - leiðrétt 7.500 4.355 268 0 0 10.259 862 23.244 Hlutafjáraukning 600 3.960 4.560 Greiddur arður (721) 0 (721) Hagnaður tímabilsins jan - sept 2004 11.696 0 11.696 Breytingar vegna IFRS (4) (26) 77 47 Eigið fé 30. september 2004 - leiðrétt 8.100 8.315 268 (4) 0 21.207 939 38.825

Eigið fé 31. desember 2004 7.975 7.526 268 0 0 22.247 0 38.016 Breytingar vegna IFRS (20) (135) 1.004 849 Eigið fé 31. desember 2004 - leiðrétt 7.975 7.526 268 (20) 0 22.112 1.004 38.865 Breytingar vegna IFRS (21) (237) 103 (156) Eigið fé 1. janúar 2005 7.954 7.288 268 (20) 0 22.214 1.004 38.709 Hlutafjáraukning 800 10.600 11.400 Samruni við Burðarás 2.121 38.172 40.293 Kaup og sala eigin bréfa (374) (6.514) (6.888) Greiddur arður (1.577) (1.577) Þýðingarmunur (53) (53) Gangvirðisbreytingar fjárfestingaeigna, þ.m.t. aflögð starfsemi. 1.864 870 2.734 Hagnaður tímabilsins jan - sept 2005 16.006 202 16.208 Eigið fé 30. september 2005 10.500 49.546 268 (73) 1.864 36.643 2.076 100.825

Sjóðstreymi samstæðu

2005 2004 1.1.-30.9 1.1.-30.9

Handbært fé frá rekstrarhreyfingum (247.048) 7.040 Handbært fé frá fjárfestingarhreyfingum (22.332) (167.902) Handbært fé frá fjármögnunarhreyfingum 256.277 168.095 (Lækkun) hækkun á handbæru fé (13.103) 7.233 Handbært fé í upphafi tímabils 25.630 22.369

Handbært fé í lok tímabils 12.527 29.602

Árshlutareikningur Landsbanka Íslands hf. 30.9.2005 ISK Million

BURÐARÁS HF

STRAUMUR INVESTMENT BANK HF

LANDSBANKI ÍSLANDS HF

______

Schedule for Division and Merger of Companies ______

Schedule for Division and Merger of Companies cf. Article 120 and the second paragraph of Article 133 of Act No. 2/1995

The Boards of Directors of Burðarás hf., Id. No. 510169-1829, Sigtún 42, Reykjavík; Straumur Investment Bank hf., Id. No. 701086-1399, Borgartún 25, Reykjavík; and Landsbanki Íslands hf., Id. No. 540291-2259, Austurstræti 11, Reykjavík, have today agreed on the following schedule for the division of Burðarás hf. into two parts, to be merged with Straumur Investment Bank hf., on the one hand, and Landsbanki Íslands hf., on the other.

1. The Boards of the companies have decided to submit a motion to shareholders’ meetings of the companies, that Burðarás hf. be divided, as provided for in Article 133 of Act No. 2/1995, on Public Limited Companies, and merged with Straumur Investment Bank hf., on the one hand, and Landsbanki Íslands hf., on the other, as provided for in the provisions of this schedule for the division and merger.

2. The plan for the division and merger of these companies assumes that the Board of Directors will approve, subject to the approval of a shareholders’ meeting, the company’s acquisition of shares in Ker hf. and Egla hf. from the investment company Fjárfestingarfélagið Grettir hf. These are holdings of ISK 305,938,652 of the total nominal value of share capital in Ker hf. and ISK 446,816 of the total nominal value of share capital in Egla hf. Part of the price is to be paid in shares in Burðarás hf. of nominal value of ISK 609,756,098. The company owns treasury shares of ISK 224,078,261 nominal value, making it necessary to increase its share capital by ISK 385,677,837. This plan for the division and merger of the company is subject to the approval by a shareholders’ meeting in Burðarás hf. of the above transaction and of the increase to the company's share capital.

3. Upon the division of the company, Burðarás’s shareholders will receive shares in Straumur Investment Bank hf. and Landsbanki Íslands hf. For each ISK 1000 nominal value of shares held in Burðarás hf., shareholders will receive shares of ISK 356.7465 nominal value in Landsbanki Íslands hf. and shares of ISK 769.7454 nominal value in Straumur Investment Bank hf. Shareholders in Burðarás hf. will receive shares totalling ISK 4,575,747,810 nominal value in Straumur Investment Bank hf. in exchange for their shares of ISK 3,004,095,332 nominal value in Burðarás hf.. The exchange ratio for shares in Straumur Investment Bank hf. is thus 1.52317. Shareholders in Burðarás hf. will receive shares totalling ISK 2,120,677,803 nominal value in Landsbanki Íslands hf. in exchange for their shares of ISK 2,940,400,149 nominal value in Burðarás hf.. The exchange ratio for shares in Landsbanki Íslands hf. is thus 0.72122. The decision on the exchange ratios has been based on the listed market price of shares in the companies, their financial positions, performance, market position and future outlook. In addition, it takes into consideration the companies’ audited annual financial statements for 2004 and their examined interim financial statements for the six months ended 30 June 2005, as well as other information on the companies’ operations and financial position.

4. As a result of the division and merger, Landsbanki Íslands hf. will assume the following assets, liabilities and obligations:

- All shares of Burðarás hf. in D. Carnegie & Co. AB, Marel hf., Intrum Justitia AB, Carrera Global Investments Ltd. and Vatnsmýrin ehf. The book value of these assets is ISK 18,215 million.

- Shares of a nominal value of ISK 184,000,000 in Straumur Investment Bank hf. The book value of this asset is ISK 2,236 million.

- The company’s real estate at Sigtún 42, with interior fixtures and furnishings, and the works of art belonging to the company. The book value of these assets is ISK 137 million.

- Tax obligations on the above-listed equity assets amounting to ISK 942 million.

In addition, Landsbanki Íslands hf. will have a claim on Straumur Investment Bank hf. amounting to ISK 17,354 million as a result of the division of assets and liabilities between the recipient companies. The due date for payment of this claim shall be based on the date the conditions of the division and merger provided for in this schedule, cf. Point 12, are satisfied.

A summary of the above division is provided in the division balance sheet for Burðarás hf. accompanying this schedule.

5. As a result of the division and merger, Straumur Investment Bank hf. will assume the assets, rights, liabilities, obligations and activities of Burðarás hf. other than those listed in Points 4 and 6. Reference is made to the interim financial statements of Burðarás hf. for the six months ending 30 June 2005 for a detailed description of the assets and liabilities assumed. Should Burðarás hf. own shares in Straumur Investment Bank hf. which do not accrue to Landsbanki Íslands hf. following the division of assets provided for in this division and merger schedule, these shares shall be cancelled and the share capital of Straumur Investment Bank hf. reduced accordingly.

6. Straumur Investment Bank hf. and Landsbanki Íslands hf. shall be responsible for obligations not stated on the balance sheet of Burðarás hf. as of 30 June 2005 and come to light and/or fall due following the signing of this division and merger schedule. The liability of the respective companies shall be directly proportional to the equity of Burðarás hf. they assume, with Landsbanki Íslands hf. responsible for 49.46% and Straumur Investment Bank hf. for 50.54%. Their liability shall include obligations to the Pension Fund of Hf. Eimskipafélag Íslands and any fines which may be levied on the company as the result of a legal suit currently before the Icelandic competition authorities. Any assets and/or rights which are not stated on the balance sheet of Burðarás hf. shall be divided between the companies in the same proportions as prescribed above.

7. The division of Burðarás hf. shall be effected as of 1 July 2005, the division date. Once the division is effected, all of Burðarás hf.’s assets and liabilities will be assumed by Straumur Investment Bank hf. and Landsbanki Íslands hf. The Articles of Association of these last two companies shall continue to be valid. Burðarás hf. will be deregistered following the division and merger.

8. From an accounting point of view, the rights and obligations of Burðarás hf. shall be deemed to cease on the division date; as of that day forward, Straumur Investment Bank hf. and Landsbanki Íslands hf. shall receive any income and pay any expenses arising from the assets and operating aspects assumed by the respective companies in accordance with the above.

9. The shares received by shareholders in Burðarás hf. in Straumur Investment Bank hf. and Landsbanki Íslands hf. in return for their shares in Burðarás hf. shall confer rights to dividends from the division date.

10. Neither shareholders, management, creditors nor any other parties shall enjoy special rights or privileges above those of others, cf. Points 5 and 6 of Article 120 of Act No. 2/1995.

11. Member of the companies’ Boards, managing directors, assessors as referred to in Article 122 of Act No. 2/1995, supervisory parties, shareholders or individual shareholder groups shall not enjoy special privileges in the companies beyond that indicated in their annual financial statement for 2004 and/or as published in the News System of the Iceland Stock Exchange hf. (ICEX).

12. This plan for division and merger of the companies is conditional on it receiving the satisfactory approval of shareholders’ meetings of Burðarás hf., Landsbanki Íslands hf. and Straumur Investment Bank hf., and that the mergers provided for are authorised by the Icelandic Competition Authority and the Financial Supervisory Authority.

In confirmation of this schedule, the Boards of Directors of Burðarás hf., Straumur Investment Bank hf. and Landsbanki Íslands hf. affix their signatures.

Reykjavík, 1 August 2005

The Board of Directors of Burðarás hf.

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______

______

______

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The Board of Directors of Straumur The Board of Directors of Landsbanki Investment Bank hf. Íslands hf.

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______

______

______

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Report of Assessors cf. Article 122 and the second paragraph of Article 133, cf. Articles 6-8 of Act No. 2/1995

To the Boards of Directors of Burðarás hf. and Straumur Investment Bank hf.

Reykjavík, 1 August 2005

Re: Expert Report on the Division of Burðarás hf and its Merger with Straumur Investment Bank hf., cf. Article 122 and the second paragraph of Article 133, cf. Articles 6-8 of Act No. 2/1995 on Public Limited Companies.

We have examined the division and merger schedule of the above-listed companies, with today’s date, and wish to state the following in this connection:

According to the division and merger schedule, the companies’ management have agreed to submit to shareholders’ meetings in their respective companies a motion to split Burðarás hf. into two parts and merge them, on the one hand, with Landsbanki Íslands hf. and, on the other hand, with Straumur Investment Bank hf.

As a result of the merger, Burðarás hf.’s shareholders will receive shares in Straumur Investment Bank hf. and Landsbanki Íslands hf. Shareholders in Burðarás hf. will receive shares totalling ISK 4,575,747,810 nominal value in Straumur Investment Bank hf. in exchange for their shares of ISK 3,004,095,332 nominal value in Burðarás hf. The exchange ratio for shares in Straumur Investment Bank hf. is thus 1.52317.

A summary provided by the companies’ Boards explains and justifies the division and merger schedule. It accounts, for instance, for the assets and liabilities which go to the respective recipient companies and the results of assessment of the exchange ratios for the shares. The decision on the exchange ratios has been based primarily on the listed market price of shares in the companies, their financial positions, performance, market position and future outlook. In addition, it takes into consideration the companies’ audited annual financial statements for 2004 and their examined interim financial statements for the six months ended 30 June 2005, as well as other information on the companies’ operations and financial position.

It is our opinion that the exchange ratio and mutual compensation is properly determined and fair, based on the available data and information, and that it has been substantiated.

There is no indication that the split of Burðarás hf. into two parts and the merger of one of these parts with Straumur Investment Bank hf. impairs in any way the possibilities of the companies' creditors to enforce their claims.

Yours sincerely,

KPMG Endurskoðun hf.

Report of Assessors cf. Article 122 and the second paragraph of Article 133, cf. Articles 6-8 of Act No. 2/1995

To the Boards of Directors of Burðarás hf. and Landsbanki Íslands hf.

Reykjavík, 1 August 2005

Re: Expert Report on the Division of Burðarás hf and its Merger with Landsbanki Íslands hf., cf. Article 122 and the second paragraph of Article 133, cf. Articles 6-8 of Act No. 2/1995 on Public Limited Companies.

We have examined the division and merger schedule of the above-listed companies, with today’s date, and wish to state the following in this connection:

According to the division and merger schedule, the companies’ management have agreed to submit to shareholders’ meetings in their respective companies a motion to split Burðarás hf. into two parts and merge them, on the one hand, with Landsbanki Íslands hf. and, on the other hand, with Straumur Investment Bank hf.

As a result of the merger, Burðarás hf.’s shareholders will receive shares in Straumur Investment Bank hf. and Landsbanki Íslands hf. Shareholders in Burðarás hf. will receive shares totalling ISK 2,120,677,803 nominal value in Landsbanki Íslands hf. in exchange for their shares of ISK 2,940,400,149 nominal value in Burðarás hf. The exchange ratio for shares in Landsbanki Íslands hf. is thus 0.72122.

A summary provided by the companies’ Boards explains and justifies the division and merger schedule. It accounts, for instance, for the assets and liabilities which go to the respective recipient companies and the results of assessment of the exchange ratios for the shares. The decision on the exchange ratios has been based primarily on the listed market value of shares in the companies, their financial positions, performance, market position and future outlook. In addition, it takes into consideration the companies’ audited annual financial statements for 2004 and their examined interim financial statements for the six months ended 30 June 2005, as well as other information on the companies’ operations and financial position.

It is our opinion that the exchange ratio and mutual compensation is properly determined and fair, based on the available data and information and that it has been substantiated.

There is no indication that the split of Burðarás hf. into two parts and the merger of one of these parts with Landsbanki Íslands hf. impairs in any way the possibilities of the companies' creditors to enforce their claims.

Yours sincerely,

KPMG Endurskoðun hf. PricewaterhouseCoopers hf.

Division Balance Sheet for Burðarás hf. cf. the second paragraph of Article 121 of Act No. 2/1995

Purchase of assets Burðarás hf. Division of Burðarás hf. All amounts are in million ISK Burðarás hf. of Fjárfest.félagið after increase Burðarás hf. - LÍ Burðarás hf. - ST 30.6.2005 Grettis hf. 30.6.2005 30.6.2005 30.6.2005

Cash and balances with the Central Bank...... 1,398 ( 725) 673 0 673 Current account...... 0 0 17,354 0 Loans...... 0 0 0 0 Financial assets held for trading...... 0 0 0 0 Financial assets designated at fair value through profit and loss...... 111,607 10,725 122,332 20,451 101,881 Hedging derivatives...... 0 0 0 0 Investments in associates...... 0 0 0 0 Property and equipment...... 150 150 137 13 Intangible assets...... 0 0 0 0 Non-current assets held for sale & assets being sold...... 0 0 0 0 Tax assets...... 0 0 0 0 Other assets...... 3,618 3,618 0 3,618 Total assets 116,773 10,000 126,773 37,942 106,185

Deposits from financial institutions...... 0 0 0 0 Deposits from customers...... 0 0 0 0 Current account...... 0 0 0 17,354 Borrowings...... 40,194 40,194 0 40,194 Subordinated debt...... 0 0 0 0 Trading financial liabilities...... 0 0 0 Hedging derivatives...... 645 645 0 645 Tax liability...... 6,417 6,417 942 5,475 Liabilities included in disposal groups...... 0 0 0 Other liabilities...... 4,715 4,715 0 4,715 Total liabilities 51,971 0 51,971 942 68,383

Share capital...... 5,335 610 5,945 2,940 3,005 Share premium...... 19,194 9,390 28,584 14,139 14,445 Changes in valuation and reserves...... 0 0 0 0 Retained earnings...... 40,273 40,273 19,921 20,352 64,802 10,000 74,802 37,000 37,802 Minority interest...... 0 0 0 Total equity 64,802 10,000 74,802 37,000 37,802 Total liabilities and equity 116,773 10,000 126,773 37,942 106,185

Merger Balance Sheet for Burðarás hf. and Straumur Investment Bank hf. cf. the second paragraph of Article 121 of Act No. 2/1995

Auditors’ Report

To the Boards of Directors of Burðarás hf. and Straumur Investment Bank hf.

We have examined the accompanying merger balance sheet for Burðarás hf. and Straumur Investment Bank hf., which is based on the division balance sheet for Burðarás hf. as of 30 June 2005 and the consolidated interim financial statements of Straumur Investment Bank hf. as of 30 June 2005. The interim financial statements of the companies for the six months ending 30 June 2005 are available, examined by the companies’ auditors. The merger balance sheet accounts for the changes in equity and other balance sheet items which are expected to result from the merger.

In our opinion, the balance sheet gives a true and fair view of the assets and liabilities of both companies, the changes expected to result from the merger and the balance sheet of Straumur Investment Bank hf. following the merger.

Reykjavík, 1 August 2005

KPMG Endurskoðun hf.

Straumur Straumur All amounts are in million ISK Invest. Bank hf. Burðarás hf. - ST Merger Invest. Bank hf. 30.6.2005 30.6.2005 Adjustments post merger

Cash and balances with the Central Bank...... 0 673 673 Current account...... 0 0 0 Loans...... 45,085 0 45,085 Financial assets held for trading...... 40,175 0 40,175 Financial assets designated at fair value through profit and loss...... 33,822 101,881 2,500 138,203 Hedging derivatives...... 0 0 0 Investments in associates...... 0 0 0 Property and equipment...... 1,072 13 1,085 Intangible assets...... 0 0 14,165 14,165 Non-current assets held for sale & assets being sold...... 0 0 0 Tax assets...... 126 0 126 Other assets...... 575 3,618 4,193 Total assets 120,855 106,185 16,665 243,705

Deposits from financial institutions...... 0 0 0 Deposits from customers...... 0 0 0 Current account...... 0 17,354 17,354 Borrowings...... 65,639 40,194 105,833 Subordinated debt...... 5,139 0 5,139 Trading financial liabilities...... 50 0 50 Hedging derivatives...... 0 645 645 Ttax liability...... 2,913 5,475 ( 2,730) 5,658 Liabilities included in disposal groups...... 0 0 0 Other liabilities...... 1,270 4,715 5,985 Total liabilities 75,011 68,383 ( 2,730) 140,664

Share capital...... 6,096 3,005 1,571 10,672 Share premium...... 23,401 14,445 38,176 76,022 Changes in valuation and reserves...... 0 0 0 Retained earnings...... 15,640 20,352 ( 20,352) 15,640 45,137 37,802 19,395 102,334 Minority interest...... 707 0 707 Total equity 45,844 37,802 19,395 103,041 Total liabilities and equity 120,855 106,185 16,665 243,705

Merger Balance Sheet for Burðarás hf. and Landsbanki Íslands hf. cf. the second paragraph of Article 121 of Act No. 2/1995

Auditors’ Report

To the Boards of Directors of Burðarás hf. and Landsbanki Íslands hf.

We have examined the accompanying merger balance sheet for Burðarás hf. and Landsbanki Íslands hf., which is based on the division balance sheet for Burðarás hf. as of 30 June 2005 and the consolidated interim financial statements of Landsbanki Íslands hf. of 30 June 2005. The interim financial statements of the companies for the six months ending 30 June 2005 are available, examined by the companies’ auditors. The merger balance sheet accounts for the changes in equity and other balance sheet items which are expected to result from the merger.

In our opinion, the balance sheet gives a true and fair view of the assets and liabilities of both companies, the changes expected to result from the merger and the balance sheet of Landsbanki Íslands hf. following the merger.

Reykjavík, 1 August 2005

Yours sincerely,

KPMG Endurskoðun hf. PricewaterhouseCoopers hf. Landsbanki Landsbanki All amounts are in million ISK Íslands hf. Burðarás hf. - LÍ Merger Íslands hf. 30.6.2005 30.6.2005 Adjustments post merger

Cash and balances with the Central Bank...... 8,211 0 8,211 Current account...... 0 17,354 17,354 Loans...... 828,342 0 828,342 Financial assets held for trading...... 119,208 0 4,168 123,376 Financial assets designated at fair value through profit and loss...... 16,080 20,451 ( 9,674) 26,857 Hedging derivatives...... 6,055 0 6,055 Investments in associates...... 3,696 0 3,696 Property and equipment...... 4,497 137 ( 127) 4,507 Intangible assets...... 7,035 0 3,293 10,328 Non-current assets held for sale & assets being sold...... 12,508 0 122 12,630 Tax assets...... 0 0 0 Other assets...... 16,440 0 5 16,445 Total assets 1,022,072 37,942 ( 2,213) 1,057,801

......

Deposits from financial institutions...... 92,755 0 92,755 Deposits from customers...... 262,655 0 262,655 Current account...... 0 0 0 Borrowings...... 521,870 0 521,870 Subordinated debt...... 49,394 0 49,394 Trading financial liabilities...... 10,089 0 10,089 Hedging derivatives...... 1,642 0 1,642 Tax liability...... 3,726 942 4,668 Liabilities included in disposal groups...... 2,036 0 2,036 Other liabilities...... 16,885 0 16,885 Total liabilities 961,052 942 0 961,994

Share capital...... 8,664 2,940 ( 1,144) 10,460 Share premium...... 16,808 14,139 18,852 49,799 Changes in valuation and reserves...... 1,834 0 1,834 Retained earnings...... 31,648 19,921 ( 19,921) 31,648 58,954 37,000 ( 2,213) 93,741 Minority interest...... 2,066 0 2,066 Total equity 61,020 37,000 ( 2,213) 95,807 Total liabilities and equity 1,022,072 37,942 ( 2,213) 1,057,801