The Icelandic government has seized control of Kaupthing, the bank that is closely connected to swathes of the UK high street.

Through its own direct investments and backing of Baugur deals such as fashion groups Mosaic and Jane Norman, Kaupthing has been one of the most prominent banks in retail. It also backed deals such as John Hargreaves’£800 million buy-out of Matalan.

However, the bank has been swept up in Iceland’s economic meltdown and in recent days has rushed to rake in cash.

Yesterday Kaupthing forced speculator Robert Tchenguiz to sell his 10 per cent stake in Sainsbury’s, costing the tycoon an estimated£800 million.

The implications of state control of Kaupthing for British retailers are unclear. It is likely, however, that some store groups will have to seek additional sources of finance and may face harsher terms.

JJB Sports’ shares were battered yesterday because of fears over an emergency bridging loan provided by Kaupthing.

Separately, Kaupthing’s UK division has been put into administration.

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