Reuters/Paris
Moody’s Investors Service downgraded two of France’s top banks, Societe Generale and Credit Agricole, a new blow to efforts by European policymakers to restore market confidence.
A pedestrian passes a homeless man begging outside a branch of Societe Generale in Paris, yesterday
The ratings agency left France’s largest bank BNP Paribas (BNPP) on review, saying its profitability and capital base provides adequate cushion to support its Greek, Portuguese and Irish exposure.
But all the banks remain at risk of further moves with Credit Agricole still under review for a further ratings downgrade and SocGen on negative outlook.
Shares of French banks have taken a hammering in recent months due to concerns that they were among the biggest creditors of the governments and economies under fire in the eurozone’s sovereign debt crisis.
Moody’s had put the banks under review for possible downgrade on June 15, citing their exposure to Greece’s debt crisis. Outside commentators had said the ratings were ripe for a downgrade.
The agency said that during the review, Moody’s concerns about the structural challenges to banks’ funding and liquidity profiles increased, in light of worsening of refinancing conditions.
Moody’s cut SocGen’s debt and deposit ratings by one notch to Aa3 from Aa2. The outlook on the long-term debt ratings was negative. Moody’s anticipated that the impact of its review on the Bank Financial Strength Rating (BFSR) would be limited to a one-notch downgrade.
However, Moody’s said it believed SocGen has a level of capital that can absorb potential losses it is likely to incur on its Greek government bonds and to remain capitalized at a level consistent with its BFSR even if the creditworthiness of Irish and Portuguese government bonds were to deteriorate further.
For Credit Agricole, Moody’s downgraded its BFSR by one notch to C from C+, and cut its long-term debt and deposit ratings by one notch to Aa2 from Aa1.
The group remains under review, Moody’s added, but any further downgrade was unlikely to be by more than one notch.
Moody’s said that BNP had a sufficient level of profitability and capital that it can absorb potential losses it is likely to incur over time on its Greek, Portuguese and Irish exposures.
In an attempt to restore confidence, both BNP Paribas and Societe Generale have announced plans to sell risk-weighted assets to help ease investor fears about funding challenges.
BNP said yesterday it would sell €70bn ($95.7bn) of assets and reduce US dollar funding needs by $60bn by the end of 2012.
Bank of France Governor Christian Noyer said the Moody’s downgrade was small and highlighted some positive elements of the statement on their position.
“It’s a very small downgrade and Moody’s had a higher rating than the other agencies so it’s just put them on the same level or slightly better than the others,” Noyer said.
France’s lenders – two of which own local banks in Greece – have the highest overall bank exposure to Greece, according to the Bank for International Settlements. They have begun to take writedowns on their Greek sovereign debt holdings as part of a new rescue package but some say not aggressively enough.
Greece vowed on Saturday to stay the course of austerity and avoid bankruptcy as anger at the country’s failure to meet fiscal targets under its EU/IMF bailout reached boiling point.
