* Goldman buys $2.3 billion in Italian sovereign debt
* Reduces exposure to Greece, Ireland, Portugal
* Will need to post more collateral in case of downgrade
By Lauren Tara LaCapra
May 10 Goldman Sachs Group Inc bought
$2.3 billion worth of Italian sovereign debt during the first
quarter, increasing its overall market exposure to troubled
European countries, even as it reduced exposure to other risky
nations, including Greece.
The Wall Street bank had $2.7 billion worth of bonds,
equities, credit derivatives and other securities pegged to
Greece, Ireland, Italy, Portugal and Spain as of March 31,
according to Goldman's quarterly filing with the U.S. Securities
and Exchange Commission on Thursday.
That compares with market exposure of $580 million to those
countries at year-end.
Most of the increase came from Goldman's purchase of Italian
sovereign bonds. Its total positions in Italian securities
accounted for $2.4 billion of market exposure to the five
so-called "peripheral" euro zone nations. At year-end, its
exposure to Italy was nil.
During the quarter, Goldman reduced exposure to Greece and
Ireland by $126 million and $478 million, respectively. The bank
also added to its short position on Portugal and reduced its
short position on Spain, which came in the form of credit
derivatives against non-sovereign debt in those countries.
Goldman also increased estimates for the amount of
additional collateral or termination payments for derivatives
contracts that the bank would have to pay out if it were
downgraded by Moody's Corp, even though Goldman reduced
exposure to such contracts by $7.7 billion, or 22 percent.
In the event of a one-notch downgrade, Goldman would need to
post another $1.3 billion worth of collateral or termination
payments, up 2 percent from the previous quarter. In the event
of a two-notch downgrade, Goldman would need another $2.2
billion of collateral or termination payments, up 1 percent.
Moody's put 17 global financial institutions, including
Goldman and its main rival, Morgan Stanley, on review for
possible downgrades in February.
Goldman said it lost money on just one out of 62 trading
days during the first quarter and said net revenue exceeded $100
million on 24 trading days. In the year-ago period, Goldman lost
money on one day, but took in net revenue above $100 million on
32 trading days.