Why the Icelandic turmoil should spook UK retail

The news today that Kaupthing has been placed into receivership could have a particular impact on some fashion retailers.

Kaupthing owns a 20 per cent stake in Mosaic and has provided financial backing to Baugur for its investments in House of Fraser, All Saints and Whistles.

Kaupthing is closely linked to Baugur and its investments in UK retail – many analysts I have spoken to expect the bank now to sell some of its minority stakes and some believe Baugur itself may make disposals.

However, Baugur continues to insist that it will not be affected by the Icelandic banking crisis.

In the short term, JJB seems to be at the top of the critical list as a result of the Icelandic fallout, having agreed a£20 million bridging loan just a fortnight ago from Kaupthing. It is unclear what effect Kaupthing’s problems will have on the beleaguered business and JJB would not comment this morning on the implications.

Another Icelandic investor, Exista, which has also been affected by Iceland’s problems, was behind JJB chief executive Chris Ronnie’s acquisition of a 29 per cent stake in the retailer, which he bought from Dave Whelan last year.

Speaking to Pali analyst Nick Bubb this morning, he told me it is all very bad news for JJB, “both in terms of the£20 million loan and the pressure on Exista, but maybe they can sell the Fitness clubs to get out of jail?”

The immediate impact of the Icelandic trouble and the wider banking crisis on the rest of the UK high street is yet to be unravelled. Many believe that any fire sales or attempts by the banks to call in loans will come after Christmas, when retail businesses will be at their most liquid. That is when the true impact of this crisis could become clear.

Retailers that have agreed loans and are still comfortable enough to make repayments are likely to be safe. It will be in the event of any retailer breaking its banking covenant that the banks could be given cause to claw back as much cash as they can, and retailers could be forced to sell their businesses.

Sir Philip Green this week asked the media not to frighten consumers into a recession, but with the present news flow it is hard for people not to panic or to glean many bright spots in the gloom.

What does seem clear is that the shape of the UK high street will be facing a transformation over the next year of a scale not seen at least since the early 1990s.