UPDATE 1-Iceland's Straumur-Burdaras swings to profit in Q1

By Adam Cox

STOCKHOLM, April 30 (Reuters) - Icelandic investment bank Straumur-Burdaras STRB.IC swung into profit in the first quarter with net earnings of 22.3 million euros ($35 million), but said the banking sector still faced tough times.

"Market conditions for most banks are more difficult than they have ever been," Chief Executive William Fall said in a statement on Wednesday.

Speaking to Reuters after the results, Fall said he did not see any fast turnaround for the sector and this was why the firm was taking a conservative approach in terms of loan loss provisions and risk-taking.

"We think that this market is going to be in difficulty for a foreseeable time. I don't think this market is going to turn around any time soon," he said.

Net profit was down sharply from 69.2 million euros a year earlier, but it was a big improvement from the fourth quarter when the investment bank made a 600,000 euro loss due mostly to a 4.4 million loss in trading and income from financial items.

TOUGH TRADING

Straumur-Burdaras made 10.9 million euros in trading and net financial items in the first quarter. But much of this was due to a 14.5 million gain for foreign exchange and the result included an 8.4 million loss in financial trading.

Fall said that as a company Straumur had a slightly long position on its balance sheet in euros and that this accounted for the foreign exchange gain. "We haven't taken large speculative positions on foreign exchange," he said.

The chief executive said the bank's proprietary trading business had started the year well, with good performances in January and February, but that high volatility in March had hit hard. "We found March was a tough month."

Fall told Reuters the bank still wanted to retain a proprietary trading presence, but he added: "It's very hard in these markets to make money."

Income from customers dropped to 53.9 million euros from 59.8 million in the fourth quarter but was up from 41.5 million a year earlier.

"Our transformation to a client-oriented investment banking platform continues," Fall said.

"Our client-driven revenues have been sustained and accounted for 82 percent of operating income in the first quarter of 2008, providing a stable revenue stream during a period when the performance of our proprietary activities was inevitably more volatile."

Fall said the bank's financial position was strong with a provision ratio of 1.71 percent, sound liquidity, modest leverage and diversified funding sources.

Fall acknowledged that 1.71 percent was high by industry standards, with large players typically having 1.00 to 1.25 percentage points these days. But he said that was part of the bank's conservative approach given that it does not see an upturn on the immediate horizon.

Shares in Icelandic banks have fallen sharply in recent months and their funding costs have risen steeply as markets have worried about their balance sheets.

Straumur's shares were flat at 12.93 Icelandic crowns at 1039 GMT.

Reuters monitors statements from Icelandic firms and organisations via the Internet from its Stockholm bureau.

(Editing by Richard Hubbard)