The Icelandic government may take direct stakes in UK retailers as part of its plans to reform its devastated financial system.

Today's Financial Times reports that the government would end up taking stakes if a debt-for-equity swap took place between Baugur and the country's now-nationalised banks.

The government is reluctant to sell Baugur's holdings because it fears it would not get a good price for them in the current market.

Baugur's UK retail investments include House of Fraser, Mosaic Fashions, Hamleys and Iceland.

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