DOWNGRADE:IN ANOTHER sign of how Europe's debt crisis is rippling through the banking system, Moody's Investors Service yesterday downgraded the three largest banks in France, and said there was a "very high" probability that the French government would step in to support them if conditions worsened.
Moody’s cut various ratings for Société Générale, BNP Paribas and Crédit Agricole by one notch, citing the problems each has had recently in raising funds on the open market.
The ratings agency said the banks could face further losses on their holdings of Greek and Italian government bonds should the crisis deepen.
Just a day earlier, Europe’s main banking regulator said all French banks had passed a test designed to see whether financial institutions have enough capital to weather unexpected shocks.
But the Moody’s assessment includes more dire assumptions about the future of the euro than the European Banking Authority used.
Moody’s also repeated a warning that Greece and several other countries could default on their debts and exit the euro zone if politicians failed to find a solution to their problems.
If SocGen, BNP Paribas and Crédit Agricole continued to have trouble getting funding, Moody’s said, the French government would very likely step in to provide them with financial support, raising the spectre of at least a partial nationalisation of France’s biggest banks.
The French government has a long history of stepping in to support its banks, considering them integral to the economy.
French officials have said they are ready to backstop the banks if the markets force their hand, but they insist that the banks are sound.
The downgrades came as European leaders attempted yesterday to come up with a solution to end the euro zone crisis.
SocGen, BNP Paribas and Crédit Agricole had “materially” increased their borrowing from the French central bank in September, Moody’s said, adding that it was “unlikely that markets will return to normalcy soon”.
The Standard Poor’s ratings agency last week warned it could downgrade the credit ratings of 15 countries in the euro zone – including France – by two notches, as the bill from the crisis grows and the European economy risks tipping into a recession.
If such a downgrade were to happen, all banks in those countries would experience even more funding problems. – ( New York TimesService)
