Moody's warns may downgrade French banks over Greece

15th June 2011, Comments 0 comments

Ratings agency Moody's warned Wednesday 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 for Greece to avert a possible default after talks in Brussels late Tuesday.

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.

France's 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 $22.6 billion (15.8 billion euros) of Greek public debt, while French lenders held 15 billion dollars.

Credit Agricole told AFP its exposure to its Greek subsidiary Emporiki was two percent of its total loan assets.

BNP Paribas said its figure for total exposure to Greece was just 0.6 percent. 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 105-billion-euro 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 350-billion-euro 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 percent on the Paris stock exchange after the announcement, with BNP Paribas down 1.71 percent and Credit Agricole off 1.48 percent after they had all risen by comparable amounts Tuesday.

© 2011 AFP

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