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By Jana Weigand

Date: Monday 06 Oct 2008

LONDON (ShareCast) - Trading in the shares of six of Iceland’s major financial institutions has been suspended as the government is drawing up a plan to help the island’s troubled banking system.

The Icelandic Financial Supervisory Authority said trading in Kaupthing, Landsbanki, Glitnir, Exista, Straumur and SPRON has been suspended to “safeguard the equality of investors while awaiting an announcement”.

Earlier today, Banking Minister Bjorgvin Sigurdsson told state radio that a plan to create a package of stability measures to deal with the current financial crisis was "well under way".

Iceland's government said late last night that the country’s largest banks have agreed to sell some of their overseas asset and bring the money raised back home following emergency weekend talks.

Other options reportedly discussed over the weekend include a government bail-out and a possible merger of the country’s two biggest banks, Kaupthing and Landsbanki.

The crisis talks with political, financial and trades union leaders were prompted by worries about the financial health of Kaupthing, Iceland’s top bank by value.

The government already had to step in to rescue Glitnir, the country's third largest bank, prompting credit agencies to cut their ratings on the island's banks. It bought 75% of Glitnir for €600m last week and is now thought to be looking for a buyer for the group.

Landsbanki, the country’s second biggest bank which has already sold some operations, said it will also sell businesses in the UK, continental Europe and Ireland.

Problems in the Icelandic banking system are likely to have severe implications on a number of UK companies and savers who have deposited money with the country’s banks.

Kaupthing has invested in companies including Mitchells & Butlers and Debenhams and backs retail giant Baugur, which owns UK stores such as Hamleys, Oasis, Karen Millen and House of Fraser.

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