Monday, November 28, 2011

IMF to provide an aid package to Italy?

Over the weekend there was a rumor that the IMF was preparing a 600 Billion Euro aid package for Italy. However this morning, the IMF has officially denied it. 

So what is the outlook for Italy if it doesn't receive a bailout like Greece and Ireland? Not too good. Italy has amassed $2.2 Trillion in debt, 120% of GDP and now its 10-year bond is now sitting firmly above the 7% rate, the rate at which signaled peril for Ireland and Greece. The market has lost confidence and is demanding more to lend. 

About half of the debt is held domestically. But who are the other large Italian debt holders?

1. France, $105B
2. Germany, $51B
3. Japan, $30B
4. Belgium, $17B
5. US, $14B

source: Wallstcheat

To note, Belgium was just downgraded by Standard & Poor's from AA+ to AA. 

What does it mean to your investment portfolio? An exposure to Italian banks would be something to avoid. As of Friday (Nov 25), Fitch downgraded 8 mid-size banks citing a rise in cost of funds and the risk of the Italian economy heading into recession. 

According to Professor Paolo Manasse, of Bologna University, Unicredit (UCG) owns as much as 40 Billion Euros in government bonds, while Intesa Sanpaolo (ISP) 64 Billion Euros. 

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