Moody’s Downgrades French Banks Citing Exposure to Greek Economy
Moody’s has downgraded French banks Société Générale and Crédit Agricole, citing their exposure to Greek debt. Both were downgraded by one notch, SocGen to Aa3 and Crédit Agricole to Aa1. Moody’s maintained its Aa2 rating on BNP Paribas, saying the bank had “an adequate cushion to support its Greek, Portuguese and Irish exposure,” though the bank will remain on review for a possible downgrade.
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Bank of France governor Christian Noyer says the ratings are “good news”, as the downgrade wasn’t as extreme as had been expected. “French banks have an excellent rating, the same level as other major European banks – HSBC, Barclays, Deutsche Bank, Credit Suisse,” he said. Furthermore, Noyer noted that Moody’s had a higher rating for the banks than the other major agencies, so the small downgrade only “put them on the same level or slightly better than the others”.
But the downgrade is likely to put further pressure on the banks, which have already seen their share prices plummet this year, as investors tend to limit how much they lend or invest based on a bank’s credit rating. Crédit Agricole quickly responded to the downgrade by extending a guarantee to its investment banking subsidiary. BNP joined SocGen in announcing large asset sales in order to reduce their total exposure. BNP plans to sell 70 billion euros of assets, or roughly 10% of its entire balance sheet. On Tuesday, BNP denied a report claiming that U.S. banks were pulling back on lending to it.
Noyer remains confident in the banks’ abilities to stay afloat, and says there has been no talk of nationalizing the three banks, which are considered integral to the French economy, as they lend billions of euros to businesses and individuals. The French government has said it will never let any of them fail.
German Chancellor Angela Merkel and French President Nicolas Sarkozy are working to prevent a Greek default, which they consider the most effective means of protecting their own banks and economies. SocGen has a total of 6.6 billion euros worth of Greek government and commercial debts, Crédit Agricole has 27 billion euros in Greek assets, and BNP has a 8.5 billion euros. On Wednesday, the Merkel and Sarkozy are scheduled to hold talks with Greek Prime Minister George Papandreou.
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Moody’s will continue to keep an eye on all three of France’s major banks in order “to consider the implications of the persistent fragility in the bank financing markets, given the banks’ continued reliance on wholesale funding”. Further review could result in an additional downgrade.