Moody's Downgrade Of French Banks Imminent, Risk Waterfall To Follow?

Submitted by Tyler Durden
09/10/2011 18:53 -0400
Comments: 5 / Reads: 515

As regular readers may recall, back on June 14, before it became http://www.zerohedge.com/article/moodys ... k-exposure an even bigger pariah in the thoroughly discredited rating agency space due to its refusal to downgrade the US, Moody's placed French megabanks SocGen, BNP and Credit Agricole on downgrade review, which means that at some point in the future the rating agency would have to cut the banks' rating from its existing Aa1-2, to Aa3 or even a single A. It is true that when it comes to downgrade reviews the rating agencies are notorious for being as unpredictable in their timing as they are conflicted in their rating: for example even though Belgium was supposed to be downgraded months ago due to the fact that it continues to be the longest running modern anarchy, nothing has occurred, as political interests are obviously pushing the raters to do as paying clients request, not as reality demands. Alas, for France, which is very sensitive to any inkling it may have a less than sterling rating (due to its sovereign AAA requirement without which the EFSF/ESM falls apart), the luck may have run out. Bloomberg reports that the abovementioned banks "may have their credit ratings cut by Moody’s Investors Service as soon as next week because of their Greek holdings, two people with knowledge of the matter said.

Bloomberg continues: "Cuts are expected next week as the review period concludes, said the people, who declined to be identified because the matter is confidential." Needless to say, this event will come at what is possibly the worst time for Europe, which is already scrambling on all fronts to protect itself from a financial and sovereign implosion courtesy of risk contagion and general insolvency. The point is that while the French banks will likely receive the implicit support of the G-7 which is meeting in Marseilles as we type, the ramifications are that an even weaker financial system will case the French sovereign rating in an even weaker light, and a cut to the country's AAA rating will hence be inevitable. When that happens, Europe will have no choice but to completely redo its entire bailout struture, as a French downgrade will throw the EFSF-CDO mechanism, and the European bailout crusade, in terminal flux.

From Bloomberg: http://www.bloomberg.com/news/2011-09-1 ... ody-s.html

Credit Agricole spokeswoman Anne-Sophie Gentil declined to comment, as did BNP Paribas spokesman Antoine Sire. Societe Generale spokeswoman Laetitia Maurel said she couldn’t immediately comment. Voicemail messages left on the mobile and office lines of Moody’s chief European spokesman Daniel Piels today, outside of working hours, weren’t immediately answered.

Societe Generale has dropped 55 percent in Paris trading since June 15, while Credit Agricole tumbled 45 percent and BNP Paribas has declined 42 percent. The Bloomberg Europe Banks and Financial Services Index of 46 companies fell 30 percent in the same period.

The reviews of Credit Agricole and BNP Paribas are unlikely to lead to downgrades of more than one level, Moody’s said when it put the banks under review. Societe Generale’s debt and deposit ratings may be cut as much as two grades because of the “uplift it receives from systemic support, which is currently higher than average for the French banking system,â€