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How Will Spain's Aggressiveness Affect Your Portfolio?

Jordan DiPietro
January 20, 2011

At the end of last year, Ireland required a Greek-style bailout from the EU/IMF that could end up being as much as $100 billion, and accordingly, banks like Allied Irish Banks (NYSE: AIB  ) and the Bank of Ireland (NYSE: IRE  ) plummeted into despair. The tangential repercussions of this bailout is that now both Portugal and Spain are under the microscope, as investors and bondholders are getting more and more nervous about another massive bailout.

Portugal, which is part of the EU, but whose economy is relatively small, is not as big of a concern as Spain, which is one of the largest economies in the EU and is the 14th largest in the world. So, what exactly is Spain doing to quell the nerves of investors and bring down their borrowing costs?

The immediate plan
Spain recently announced that it would be pouring billions of dollars into its troubled savings, or cajas, banks, and would force them to be more transparent about their lending practices. In the next few days, the country is going to issue $4 billion in debt and plans to possibly raise as much as $40.4 billion.

In addition, Spain plans on simplifying the structure of the cajas to boost investor confidence. Oftentimes, these banks have very complex ownership structures, and they disclose much less information than a traditional bank. The goal is to make them more traditional