House of Fraser tries to reassure suppliers over Icelandic links

Baugur's connections to Iceland's troubled banking sector have raised fears that it may sell some of its UK high street assets

The chairman of House of Fraser, the department store backed by the Icelandic investment firm Baugur, made a statement yesterday to try to reassure suppliers about its financial foundations.

Don McCarthy's comments came after speculation that the Icelandic government will nationalise Kaupthing, one of Iceland's biggest banks, next week. The concerns over Kaupthing added to speculation that the ailments of other Icelandic banks could cause Baugur, which owns large swaths of the UK high street, to sell some of its retail assets.

Baugur has a controlling interest in Iceland, the frozen food retailer, Hamleys, the toy specialist, and Karen Millen, the fashion chain. It also has links with the Icelandic banks Landsbanki, Kaupthing and Glitnir. Baugur used loans from Kaupthing to fund some of its retail investments in the UK.

Mr McCarthy said: "There has been continued coverage in the media on the economic crisis in Iceland and speculation of what impact this may have on Baugur. House of Fraser would like to clarify that these issues have no impact on the strength of its business, its operations or its trading performance.

"The relationship between Baugur and House of Fraser is solely that of a supportive shareholder. There is no day-to-day trading relationship between House of Fraser and Baugur, and the relationship between the two companies can not impact directly on the operations of the House of Fraser business."

A Baugur spokesman said yesterday: "The situation in Iceland has no direct impact on the operational businesses in which Baugur is invested." He stressed that the vast majority of funding for Baugur's UK retail investments is through international banks.

While there is no suggestion that the Icelandic banking crisis will affect the day-to-day operations of Baugur-backed retailers in the short term, the long-term implications are unclear.

Gavin George, head of retail at the accountancy firm Ernst & Young, said: "There are about 15 businesses in the Baugur portfolio that have strong links with the three Icelandic banks in the news [Glitnir, Kaupthing and Landsbanki] and on top of the issues that UK retailers have to deal with at the moment, this is an added layer of uncertainty."

The first cracks in Iceland's banks started to appear earlier this week, when Glitnir, the country's third-largest bank, was nationalised and Stodir – which was previously called FL Group and was the biggest shareholder in Glitnir – filed for administration.

Glitnir was joint financial adviser and joint underwriter to the acquisition of House of Fraser by Baugur, while Baugur's executive chairman, Jon Asgeir Johannesson, controlled Stodir. In July, Stodir said it was acquiring 39 per cent of Baugur, but the business hit the buffers this week a day before the transaction was to be completed. This week, Landsbanki sold the bulk of its international operations, including London-based Landsbanki Securities, to its smaller rival Straumur-Burdaras.

Baugur has denied that any of its UK retail investments are affected by the turmoil in Iceland. This week, Gunnar Sigurdsson, chief executive of Baugur, said: "Baugur would like to state for clarity that its assets are based in the United Kingdom, Scandinavia and the United States and as such have no exposure to the Icelandic economy." He added: "For Baugur, it is business as usual."