French banks in a tricky situation with Moody’s

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In terms of market value, BNP Paribas (BNP) SA, Societe Generale SA and Credit Agricole SA (ACA), are France?s largest banks but Moody?s Investor?s Service is reconsidering their credit ratings because of their Greek holdings, several sources revealed on Saturday.

Moody had placed the three banks? ratings on review in June to monitor the probability for an inconsistency, ?between the impact of a possible Greek default or restructuring and current rating levels,? the rating company said. Those who spoke for the rating company declined to be identified due to matters of confidentiality. They said that cuts were likely to happen as the review period concludes.

At the moment, Moody has given the following ratings to each of the banks: BNP Paribas and Societe Generale (GLE)? Aa2has been given Aa2, Credit Agricole?Aa1. The spokeswoman for respective banks declined to comment on the risk of losing their ratings.

Group of Seven finance chiefs vowed last week to assist banks as Europe?s debt crisis threatened a global recession. Along with this shaky stance of the European market, what is seen as the failure of policy makers to prevent a Greek default and contain their debt woes has driven investors to sell stocks pushing the euro to a six-month low against the dollar.

?We will take all necessary actions to ensure the resilience of banking systems and financial markets,? G-7 finance ministers and central bankers said in a statement released during talks in Marseille, France.


The three banks in question have experienced drops in Paris trading since June 15th. Societe Generale has dropped 55%, Credit Agricole fell 45% and BNP Paribas 42 %. The Bloomberg Europe Banks and Financial Services Index of 46 companies has fallen 30% in the period. “The decision is imminent,” said a Paris-based analyst. “It will probably be a downgrade but it’s not certain yet.”

Moody’s said that the reviews of Credit Agricole and BNP Paribas are unlikely to lead to downgrades of more than one level but their peer, Societe Generale?s debt and deposit ratings may be cut as much as two grades.

Credit Agricole?s main risk arises from its Greek subsidiary Emporiki Bank of?Greece SA, Moody?s said in June. Societe Generale is up against its risks from its stake in General Bank of Greece. BNP Paribas is at risk from direct holdings of Greek government debt.

The chief of the International Monetary Fund, Christine Lagarde is under the opinion that the main way out is for Europe to recapitalise its banking sector to better absorb sovereign debt losses and to cope with tougher capital requirements.

The debt crisis sweeping over Europe has all those involved in knots and French banks, who seem to particularly rely on short-term funding, have been among the hardest hit.

Sources: Reuters, Bloomberg

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