2012-04-12 — telegraph.co.uk
Credit experts say the Spanish and Italian banks are trapped with large losses on sovereign bonds bought with ECB funds under the three-year lending programme, or Long-Term Refinancing Operation (LTRO).
Andrew Roberts, credit chief at RBS, said Spanish banks used ECB funds to purchase five-year Spanish bonds at yields near 3.5pc in February and 4.5pc in December. The same bonds were trading at 4.77pc on Wednesday, implying a large loss on the capital value of the bonds.
It is much the same story for Italian banks pressured into buying Italian debt by their own government. Any further dent to confidence in Italy and Spain over coming weeks -- either over fiscal slippage or the depth of economic contraction -- could push losses to levels that trigger margin calls on collateral.
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