UK administrator on standby for Landsbanki

LONDON (Reuters) - The government has put accountants Ernst & Young on standby to step in as administrator of the UK assets of troubled Icelandic bank Landsbanki LAIS.IC, the Times newspaper said on Thursday.

A move into administration could damage the already strained diplomatic ties between Britain and Iceland and also complicate possible bids for Baugur, the retail investor whose interests include Hamley's toy shop and House of Fraser department stores and which is part-funded by Landsbanki, the Times said.

Without citing its sources, the newspaper said Britain might seek to seize and sell on Landsbanki's assets to cover money deposited by its local authorities with Icelandic banks and now in the hands of the Icelandic government, which has nationalised its major banks in the global financial crisis.

The finance ministry was not immediately available for comment. Ernst & Young declined to comment.

The Times said billionaire retailer Philip Green had asked the government to support his attempts to take on Baugur's debts, and thereby gain effective control of its investments.

The newspaper said Green and rival bidders, which it said included private equity firms Alchemy, Permira and TPG, feared the International Monetary Fund could try to claw back businesses sold by the Icelandic government if the north Atlantic island nation turned to it for help.

The Times also said that Mosaic Fashions, one of Baugur's investments, was talking to numerous parties about a deal to secure long-term financing.

"We continue to work closely with our colleagues at Baugur and have held talks with a number of parties, but would like to make clear that none of these has reached a conclusion," it quoted Mosaic Chief Executive David Lovelock as saying.

"The business has sufficient funding in place to meet all foreseeable obligations," Lovelock added, according to the report.