French banks face downgrade over Greek debt
Rating agency Moody’s has placed three French banks under review for a possible downgrade over their exposure to Greek debt.
The agency will review the standalone financial strength ratings and long-term debt and deposit ratings of Credit Agricole, BNP Paribas SA and Societe Generale to assess their holdings of Greek government and private sector bonds.
Credit Agricole and Societe Generale are deemed at risk because they operate Greek subsidiaries, Emporiki and Geniki respectively.
BNP Paribas is at risk because it holds a net €5bn (£4.4bn) of Greek government debt, a high proportion of its total €56.6bn of Tier 1 equity capital. It also holds large chunks of other peripheral states’ debt such as Portugal’s.
As the possibility of a partial default of Greece’s debt through a restructuring comes to the fore, banks that hold large amounts of Greek notes may see their capital reserves slashed.
“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,” Moody’s said in a statement.
“Moody’s may take similar actions on other banks with direct exposures to Greece in the coming weeks, if it considers that their ratings may be inconsistent with the potential impact of a Greek default or restructuring.”
It is also reviewing Soc Gen’s level of implicit government support because Moody’s still has a higher level of protection implied in its rating than it believes is correct.
And the agency said its ongoing review of Belgian finance group Dexia would also include an assessment of its exposure to Greek debt.
Moody’s said the review was unlikely to lead to downgrades of more than one notch, apart from Soc Gen which may decline two notches.
“We are closely monitoring the risks that would likely result from a Greek default scenario, e.g. the potential impact on weaker countries, the capital markets, and funding conditions, and are taking those risks into consideration in our ratings of banks across the Eurozone,” it added.