French banks downgraded ahead of euro crisis talks

14th September 2011, Comments 0 comments

Moody's ratings agency downgraded two top French banks, highlighting the risk of a eurozone domino effect amid warnings the crisis could destroy the European Union.

Moody's cut the rating for Credit Agricole bank, one of the biggest in Europe, from Aa1 to Aa2 and Societe Generale's from Aa2 to Aa3 because of fears over their exposure to Greek sovereign debt.

The rating agency left French banking major BNP Paribas on negative watch.

Shares in Credit Agricole were down 0.06 percent in the afternoon after rising slightly in morning trade on Wednesday, while shares in Societe Generale and in BNP Paribas fell by 4.64 percent and 2.68 percent respectively.

Shares in all three banks have plummeted in recent weeks amid turmoil over the eurozone debt crisis on a mix of concerns over their exposure to Greek debt, but also to debt in other eurozone countries, notably Italy.

The banks themselves, the French central bank and the government have assured that French banks are strong enough to withstand any pressures which could arise from the debt crisis.

Analysts at CM-CIC Securities said in a note: "The European situation is getting more complicated every day. There are more and more signs that Greek default could happen much more quickly than expected, perhaps in October," .

However, Aurel BGC trader Dov Adjedj said that investors had anticipated Wednesday's downgrades.

"The Moody's downgrade is not so severe and it was in any case largely expected since a few days," he said.

Government spokeswoman and budget minister Valerie Pecresse insisted that French banks remained "solid" despite the downgrade.

"They still have ratings that are very good, among the best for financial establishments in the eurozone," she said.

"There are no problems with capitalisation, nor with solvency, nor liquidity... There are no problems with trust in French banks."

Polish Finance Minister Jacek Rostowski, whose country holds the rotating EU presidency, told the European Parliament in Strasbourg that "Europe is in danger."

"If the eurozone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine," he said of the currency bloc that comprises 17 of the 27 EU countries.

European Commission head Jose Manuel Barroso described the crisis as "the most serious challenge of a generation. This is a fight... for the economic and political future of Europe."

Moody's warned in June that it was looking at French banks with a view to possible downgrade because of their exposure to the Greek financial crisis and the risks of contagion, and the markets had largely anticipated the downgrade.

German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou are to discuss the Greek emergency at a teleconference scheduled for 1600 GMT on Wednesday.

The teleconference was decided in view of informal talks between EU finance ministers and central bankers in Wroclaw on Friday and Saturday.

Merkel fought on Tuesday to soothe alarm on markets over Greece, saying everything would be done to avoid an "uncontrolled insolvency" and stressing that the eurozone would remain intact.

US Treasury Secretary Timothy Geithner is to attend exceptionally Friday's meeting of EU finance ministers and central bankers.

The emerging economies of Brazil, Russia, India, China and South Africa, which constitute the BRICS group, are to discuss possible aid to Europe to ease the crisis, Brazilian Finance Minister Guido Mantega said.

He and his counterparts are to discuss the issue in Washington on September 22. They will be in the US capital next week for the annual meetings of the International Monetary Fund and World Bank.

Many analysts are concerned that Italy could be the next eurozone domino to fall, with enormous debt which stands at 120 percent of gross domestic product.

Italian Finance Minister Giulio Tremonti met the head of China's biggest sovereign wealth fund CIC last week, but officials denied he had asked Beijing to step in and purchase its bonds.

Battling to prevent a debt crisis that has already claimed Greece, Portugal and Ireland, Silvio Berlusconi's government hopes deputies will on Wednesday pass an austerity package to balance the books by 2013.


© 2011 AFP

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