Kaupthing, the Icelandic bank, was hit by a loss in its capital markets business and suffered a fall in profits in its investment banking division as it became the second of the nation's financial institutions to show pain from the credit crunch in the three months to March.

Profit from capital markets fell from a ISK13.4bn (€116m) profit in the first quarter of last year to a ISK4.5bn loss this year, as Kaupthing was hit by what it described as “challenging conditions” in the financial markets.