AFP/London
Standard & Poor’s rating service downgraded its long-term credit ratings on four Greek banks to CCC from B just days after slashing debt-stricken Greece’s sovereign rating by three notches.
German Finance Minister Wolfgang Schaeuble (left) talks with his Greek counterpart George Papaconstantinou during the extraordinary eurozone finance ministers meeting at the EU Council in Brussels to discuss Greece’s fiscal adjustment programme
S&P said the downgrade of banks NBG, Eurobank EFG, Alpha and Piraeus reflected the view that faced “significantly heightened risks to their financial profiles, particularly in terms of their liquidity from domestic retail operations and their capital positions.”
The agency noted that Greek depositors were increasingly withdrawing money from the banks, with an outflow of €13bn ($18.6bn) in the first three months of 2011 compared to €28bn for all of 2010.
S&P expressed concern that Greek banks have resorted almost exclusively to the European Central Bank (ECB) for funding, reflecting “severe difficulties in accessing wholesale funding in the last few years,” a statement said.
The banks were “directly and significantly exposed to Greece’s deteriorating credit-worthiness through their large portfolios of Greek government bonds,” it added.
On Monday, S&P’s slashed Greece’s sovereign debt by three notches to CCC, saying there was a significantly higher probability of a default in the struggling eurozone member.
S&P analysts said that the exact effect on Greek banks of a sovereign debt restructuring would largely depend on the nature of the solution hammered out by European leaders.
“The magnitude of the impact would largely depend on the amount of debt affected and the terms and conditions of any restructuring,” S&P said in a separate statement yesterday.
Despite hints of an emerging deal for a new €105bn financial rescue to prop up Greece’s economy, EU ministers meeting in Brussels on Tuesday failed to agree on how to involve private investors in the bailout.
Meanwhile, agency Moody’s warned yester it may downgrade the rating of major French banks Credit Agricole, BNP Paribas and Societe Generale because of their exposure to Greek debt.
The announcement came after European finance ministers failed to agree on the terms of an eventual second bailout.
Moody’s said it had “placed the standalone financial strength ratings and long-term debt and deposit ratings of three French banking groups ... on review for possible downgrade.”
It said it would review the banks’ exposure “to Greek government debt and the Greek private sector and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels.”
It added: “Today’s actions reflect Moody’s concerns about these banks’ exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector directly or through subsidiaries operating in Greece.”
The statement said Credit Agricole’s Aa1 long-term rating and BNP’s Aa2 rating faced a possible downgrade of one notch while Societe Generale’s Aa2 rating could fall by two notches.
French Minister for Europe Laurent Wauquiez moved to calm concerns raised by the announcement.
“People shouldn’t stir things up,” he said on France Info radio. “The French banking sector is less exposed than the German banking sector, for example.”
Data from the Bank for International Settlements last week showed that German banks held $22.6bn (€15.8bn) of Greek public debt, while French lenders held 15bn dollars.
Credit Agricole said its exposure to its Greek subsidiary Emporiki was 2% of its total loan assets.
BNP Paribas said its figure for total exposure to Greece was just 0.6%. It said last month it would likely be able to absorb the shock of a restructuring of Greece’s debt.
“We need to stay calm and serene on all these issues,” Wauquiez said. “We have to keep our hand on the rudder ... Our course is to defend our common currency together.”
The government’s spokesman, Budget Minister Francois Baroin, said after a cabinet meeting that the announcement “doesn’t worry us,” judging that any potential downgrade would be “limited” in scale.
Moody’s said that Franco-Belgian bank Dexia could also face a downgrade due to its exposure to the Greek market.
Despite hints of an emerging deal for a new €105bn Greek financial rescue, EU ministers on Tuesday failed to clear the main obstacle of ensuring that private investors pay their share of the planned bailout.
Wauquiez reiterated France’s opposition to a restructuring of Greece’s €350bn debt.
“If restructuring means a country does not pay off its debts, that will not be part of France’s approach,” he said.
In the debate over Greek debt, France has backed the European Central Bank, which has warned that any moves that trigger a default rating by credit agencies would trigger repercussions throughout the eurozone.
Shares in Societe Generale fell by 1.97% on the Paris stock exchange after the announcement, with BNP Paribas down 1.71% and Credit Agricole off 1.48% after they had all risen by comparable amounts on Tuesday.
Meanwhile, the European Financial Stability Fund (EFSF) launched a bond issue yesterday to raise €5bn ($7.6bn) for crisis-hit Portugal, market sources said.
The fund, the main bailout mechanism for the 17-nation monetary union at the heart of Europe, said on Friday that it was organising two offers in the coming weeks to help Portugal as part of a joint EU-IMF rescue plan.
The first sale will be for 10 years and is to raise €5bn. A second offer for €3bn with a five-year maturity will take place before the summer holidays, the fund said.
