Moody’s downgraded the debt of BNP Paribas, Societe Generale, and Credit Agricole on Friday, citing deteriorating liquidity and funding conditions.
Moody’s Investors Service cut its ratings on the long-term debt of BNP and Credit Agricole by one notch to Aa3. Societe Generale’s long-term debt was cut by one notch to A1.
Banks have seen their shares pummeled lately as they are forced to cut their outstanding loans and potential risk as short-term funding continues to evaporate. Banks are facing increasing difficulties in raising funding while the economic outlook continues to worsen.
The French banks’ ratings are still roughly on par with their European peers, reflecting their strong retail operations and stable earnings.
Societe Generale released a statement today saying it was surprised by the decision and challenging the ratings agency’s reasoning, adding that its third-quarter results had shown its “capacity to adjust rapidly its management of short and long-term funding needs in the current unfavorable market environment.” Also, its exposure to crisis-hit sovereigns is “modest and manageable,” the bank said.
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BNP and Societe Generale shares both dipped close to 4 percent when the market opened, but have since recovered, up 4.08 percent and 0.39 percent as of 1:49 p.m. CET. Credit Agricole was up 3.80 percent as investors weighed the downgrades against steps announced Thursday by the European Central Bank to boost banks’ liquidity.