Iceland takes over Straumur, its last big bank

STOCKHOLM (Reuters) - Iceland's financial watchdog said on Monday it had taken over investment bank Straumur Burdaras STRB.IC, the last major Icelandic bank left standing after the country's financial collapse in October.

The Icelandic Financial Supervisory Authority said in a statement it had been informed by Straumur that the bank's liquidity position was no longer strong enough to sustain its operations.

"The Icelandic Financial Supervisory Authority (IFSA) has therefore decided to assume the powers of a meeting of the shareholders of Straumur and immediately suspend the board in its entirety," the authority said.

"Further, the IFSA hereby appoints a Resolution Committee, which will take over all authority of the Board of Directors."

Straumur Chief Executive William Fall resigned, effective immediately.

As recently as last month, Fall had expressed optimism that the bank would fare well as a more focused, slimmed-down operation. Straumur lost 616 million euros ($779 million) before tax in the fourth quarter after hefty loan losses and asset writedowns.

"Last week it became clear that Straumur was running out of funds and could not be helped without substantial government assistance. The government did not consider that a good option, and thus the bank was forced to close," Icelandic Commerce Minister Gylfi Magnusson told Reuters TV on Monday.

Magnusson said the impact on government finances would be fairly limited. "Straumur was not operating with a government guarantee, except for deposits, and deposits were a very small part of its financing."

"This is not good news but this is not a blow that we did not expect," he added.

The financial watchdog said that all deposits at Straumur were fully secured in line with an Icelandic government statement from October last year.

The North Atlantic island nation's financial system and currency were shattered five months ago as Iceland's main commercial banks collapsed under the weight of billions of dollars of debt in a matter of days.

The Nordic stock exchange said, separately, that trade in Straumur shares had been suspended.

The shares fell sharply after the October turmoil and never regained their footing. They were last at 1.71 Icelandic crowns, down from a high of 23.45 in mid-2007.

Straumur had a balance sheet of 3.4 billion euros at the end of 2008, with 1.4 billion euros of loans listed as assets. It had planned to continue to trim its balance sheet and focus on advisory and broking operations.

($1=.7909 Euro)

(Reporting by Niklas Pollard and Adam Cox; Editing by Jon Loades-Carter and Simon Jessop)