Welcome Address Bjorgolfur Gudmundsson Chairman Landsbanki’s Profile & Halldor J. Kristjansson Strategic Objectives Group Managing Director & CEO Landsbanki’s Financial Sigurjón Þ. Árnason Group Managing Director & CEO Results 2005 Landsbanki’s International Brynjolfur Helgason Managing Director Int. Banking & Alternate Operations CEO Landsbanki’s Profile and Halldór J. Kristjánsson Strategic Objectives Group Managing Director & CEO 1 Landsbanki – A Changing Group 2 Managing Risk in a Growing Economy 3 Strategy and Objectives A Growing North European Bank Creation of a pan-European platform to further Moody's expand on Landsbanki´s products and services Long Term A2 - Teather & Greenwood Short Term P-1 - Kepler Equities Outlook Stable Bank Financial Strength C - Merrion Capital Subordinated Debt A3 Operations in 12 countries covering all major financial centers of Europe, as well as Jr Subordinated Baa1 representation in New York and Canada. Latest Review Feb 2005 Ratings Upgraded: A2 from A3 March 2005 Continued success and profitability of all Landsbanki franchises, including operations in Northern Europe and strong footing in domestic Fitch market Long Term A A record year in capital market funding activities Short Term F1 Strengthening of Capital Base Individual B/C Support 2 Credit Ratings Improved Outlook Stable Latest Review June 2005 Ratings Upgraded: B/C from C Nov 2005 Extensive Domestic and International Operations Iceland – HQ & home market Core Income by Location* - A universal bank offering a full range of financial products and services 2003 2005 - Most extensive branch network with 46 branches 4% 5% UK & Ireland 16% - London, Edinburgh and Dublin Mainland Europe - France, Germany, Netherlands, Switzerland, Italy, 19% Spain and Luxembourg 65% N-America & Canada 91% - Offices in NY and Halifax Lending by Location Iceland UK / Ireland Continental Europe 14.000 Market Share in Iceland 2005 2002 12.000 35% Deposits 31% 27% 10.000 Lending 33% 26% Foreign 8.000 Equity Trading 35% 19% Iceland 6.000 Fixe d Incom e 23% 19% 22% Corporate Advisory 40 - 50% 7% 4.000 Mutual Funds 34% 31% 2.000 FX Trading 42- 45% 40 - 43% 0 Suppl. pension savings 25% 18% 2003 2005 *Excluding trading gains. Subsidiaries pro forma on a full year basis Top Nordic Banks (by market capitalisation 25 .0 0 0 0 20 4 1 .0 . 0 0 23 15 .0 0 0 3 9 .2 10 18 .0 0 0 5. 0 0 0 394 13. 531 0 12. 71 .4 12 Nordea 7 3 .0 ) Danske Bank 12 Handelsbanken 110 DnB NOR 9. 3 3 0 SEB 8. Swedbank 652 Sampo 5. Kaupthing 152 4. € m 1 0 illion SKandia 8 3. Landsbanki 700 2. Íslandsbanki 7 7 5 2. Straumur-Burdarás 504 2. Jyske Bank 477 OKO Bank 1. Sydbank 948 Carnegie 6 65 Spar Nord 1 Landsbanki – A Changing Group 2 Managing Risk in a Growing Economy 3 Strategy and Objectives Economic Outlook Positive - In Iceland and Abroad China and Asia lead the upswing GDP growth 1995-2006 GDP growth picking up in Europe 8% - Expansion of Icelandic companies abroad will Average 1995-2004 continue 2005 - Growth opportunity for Landsbanki's European 2006 platforms 6% Outlook for continuing high GDP growth in Iceland through 2010 4% - Likelihood of additional power-intensive industrial projects has increased - Public authorities considering major developments 2% - Good employment situation will continue, with record-high purchasing power - Better equilibrium developing on the real estate 0% market, reducing inflationary pressure Euroland UK OECD Iceland Ireland Source: OECD, Ministry of Finance Excellent Performance of the Equity Market Equity indices The success of Icelandic business and industry is Equity indices in Europe and the US reflected in equity market developments Listed companies raised around ISK 350 billion on the Iceland Stock Exchange (ICEX) - ISK 227 billion through bond and bill issuance - ISK 123 billion by issuing new share capital ICEX-15 index rose by 64.7% For the most part, share price increases have been as a result of increased profitability P/E ratios for 2006 15.9 15.9 16.2 16.2 14.6 The P/E ratio of ICEX-listed companies is currently 13.4 13.7 around 15.9 as compared to 15.9-16.2 for companies on European markets While equities are priced on the high side, there are no signs of a price bubble UK Germany Sweden Ireland France Iceland Finland Source: Bloomberg, Landsbanki Research Continued Internationalisation & Diversification of the Icelandic Economy FDI and portfolio capital owned abroad by residents Strong growth of FDI and Portfolio € billion 12 capital abroad – 90% of GDP 2005 10 Portfolio capital Firm resolve by Alcan, Alcoa and 8 Foreign direct investment Century Aluminium to further 6 expand in Iceland 4 2 - Foreign investment lead growth 0 will continue through 2010 1997 1998 1999 2000 2001 2002 2003 2004 2005e Source: The Central Bank of Iceland - Annual GDP growth expected to FDI as % of GDP continue to exceed OECD average 40% until 2010 Inward investment Outw ard investment Continued growth underpinned by 24% strong inward and outward FDI 15% 9% 3% 4% 1997 2003 2006e Source: Economist Intelligence Unit, Landsbanki estimates for Iceland Diversification of Corporate Earnings Cash Flow of Listed Companies Operations of the largest companies listed on ICEX are predominantly international Assets of Icelandic banks are primarily 25% foreign currency denominated 75% - Over 50% of local lending is foreign currency denominated ISK Foreign Currencies - 30 – 70% of total bank assets are employed in foreign operations Sources of Continued Growth Growing pension funds which are fully - Above 75% of total bank assets are in funded foreign currency Icelandic entrepreneurs with successful About 75% of cash flow of listed international investments companies is in foreign currencies Capital gains from privatisation, restructuring and M&A Successful exits from established sectors have created wealth Centralised Risk Management Credit limits for the group managed through Landsbanki’s centralised Credit Committee - Market Risk positions for the Group are managed through the banks ALCO committee - Market risk may not exceed 15% of its total risk-weighted asset base. - Market risk assessment and control is done through Head Office Risk is actively managed, assessed and controlled centrally at group level Emphasis on consolidated measurements, controls and reporting Management of Key Risk Factors Credit Risk – responsible loan growth Equity exposure as % of Total Assets - Iceland’s largest and strongest companies (35%) - Foreign portfolio (40%) - Retail in Iceland and some in UK are in large part 6,0% mortgages where substantial portion of portfolio has 4,0% been hedged (25%) The level of equity risk as the predominant market 2,0% risk factor has remained constant 0,0% Equity exposure has shifted from domestic to 2000 2001 2002 2003 2004 2005 foreign equities (15% Æ 47%) Underlying good growth in fees and commission – Equity Exposure Portfolio operations acquired in 2005 are principally fee- Domestic vs. Foreign based operations 100% 80% Emphasis on broader funding sources 60% For eign Deposits currently fund 2/3 of London banking - 40% Domest ic operations and growing 20% - Increased access to securitization - part of London 0% operations already funded through securitisation 2003 2004 2005 Fully Capitalised Against Adverse Market Developments Last year Landsbanki strengthened it’s capital base considerably and can withstand adverse Borrowers of Foreign Currency movements in capital markets. The regulator’s stress test assumes simultaneous Individuals Companies adverse market developments 2% with partial hedge - 25% fall in equity prices, 20% loss of NPL and 12% 7% fall in bond prices - Application of the test and adding 25% depreciation of ISK markets affects CAR by about 2,5%, from 13,1% to 10,6% Stress test of lending portfolio where equity is collateral or underlying hedge, confirms ability to withstand considerable adverse development Companies with currency Adverse developments in FX markets has a limited hedge effect on customers – majority of borrowers of 86% foreign currency loans are hedged against currency Exposures 1 Landsbanki – A Changing Group 2 Managing Risk in a Growing Economy 3 Strategy & Objectives Overall Strategy & Objectives Domestic Strategy To reinforce and build upon Landsbanki’s position as the leading provider of universal financial services to households, corporations and institutional investors, based on long-term business relationships International Strategy Using the expertise and resources of the domestic universal bank to create Corporate Inv. a profitable international bank with strong corporate and investment banking banking emphasis and present in such major financial centers that support the overall strategy Continue organic growth in international banking operations and acquire Banking low-risk banking assets that increase stable, recurring revenue streams operations -Diversification of risk and greater economies of scale -Positive impact on credit ratings -Improved access to markets International Corporate Investment Banking operations - Overview Institutional Sales, Trading and Market Making Corporate Brokerage Corporate Finance Advisory Equity Research Pan European Investment trusts and Closed-End Funds corporate investment banking services Structured Lending Cross-border Corporate Advisory Asset Backed Lending Deposits Strategic Brand and product harmonization while preserving individual identity and specialty Priorities Strategic co-operation and consolidation of operational platforms 2006 Add additional corporate advisory