Treatment of goodwill

As a part of the merger of Íslandsbanki hf. and Byr hf., Íslandsbanki plans to make fair value adjustments to assets from Byr in the opening balance sheet of the combined entity. The resulting difference between assets and liabilities from Byr will result in goodwill, which is based on the expected impact of the merger on the future cash flow of the bank. The Board of Directors of Íslandsbanki hf. has decided to write off nearly all of the goodwill associated with the merger. This is in line with the Bank's ambitions of minimising intangible assets on its balance sheet. This write-off will result in a charge to the income statement in the fourth quarter of 2011 and therefore impact the earnings in that period.

The one-off charge will not impact the Bank's cash flow or liquidity and the total capital ratio will remain well above the 16% limit set by the Icelandic Financial Supervisory Authority. The write-off is in line with the Bank's merger plans which are expected to bring about substantial cost and income synergies.