Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer

Spanish, Italian and Portuguese banks are loading up on bonds issued by their own governments, a move that shifts more of the risk of sovereign default to European taxpayers from private creditors.

Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January, data from Spain’s treasury show. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February, according to Bank of Italy data.

Meanwhile, German and French lenders have cut their holdings of those countries’ bonds, as well as of Irish and Greek debt, by as much as 50 percent since 2010 in some cases. That leaves domestic firms on the hook for a debt restructuring like Greece’s last month and the banks’ main financier, the European Central Bank, facing potential losses. As happened in Greece, governments would end up bailing out their financial institutions with funds borrowed from the European Union.

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At the beginning of July, Lansdowne Partners, one of Europe's oldest and best-known hedge fund managers, announced that it was closing its flagship hedge fund after a run of poor performance. The closure is the latest in a string of high-profile hedge funds that have decided to shut up shop in recent years. Billionaire investor Read More


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