Bloomberg News

Credit Agricole, Societe Generale Debt Ratings Cut by Moody’s

September 14, 2011

Sept. 14 (Bloomberg) -- Credit Agricole SA and Societe Generale SA, France’s second- and third-largest banks by assets, had their long-term debt ratings cut one level by Moody’s Investors Service.

Moody’s lowered Credit Agricole to Aa2 from Aa1 because of its Greek holdings, and will continue to review the impact of funding markets on the rating, it said in a statement today. Paris-based Societe Generale was reduced to Aa3 from Aa2, with a negative outlook, as Moody’s re-evaluated its level of state support. BNP Paribas SA, the largest French bank, had its Aa2 long-term rating kept on review for a possible cut.

French lenders top the list of Greek creditors with $56.7 billion in exposure to private and public debt, according to a June report by the Basel, Switzerland-based Bank for International Settlements. Credit Agricole has an unprofitable Greek subsidiary, Emporiki Bank of Greece SA, while Societe Generale has a controlling stake in Greece’s Geniki Bank SA. BNP Paribas doesn’t have a Greek consumer-banking unit.

Credit Agricole’s new ratings “are more consistent with the bank’s sizeable exposures to the Greek economy,” Moody’s said in the statement. The rating company put the three largest French banks on review for a possible downgrade on June 15.

BNP Paribas has declined 41 percent in Paris trading this year, Credit Agricole has fallen 46 percent and Societe Generale has dropped 55 percent on escalating concern that the European sovereign debt crisis is turning into a banking crisis. The shares advanced yesterday after BNP Paribas and Societe Generale said they can withstand a Greek sovereign default and a reduction in lending from U.S. money-market funds.

Sufficient Profitability

“Moody’s has concluded that BNP Paribas has a sufficient level of profitability and capital that it can absorb potential losses it is likely to incur over time on its Greek government bonds,” Moody’s said. The long-term debt and standalone bank financial strength ratings of BNP Paribas remain on review because of concerns about “the structural challenges to banks’ funding and liquidity profiles.”

The standalone bank financial strength ratings of Societe Generale and Credit Agricole are also under review.

BNP Paribas said today it aims to boost its common equity tier 1 capital ratio to 9 percent by the start of 2013, under Basel III rules, as it scales back U.S. dollar corporate- and investment-banking business. The Paris-based bank is taking steps to cut risk-weighted assets by about 70 billion euros ($96 billion) to increase the capital ratio by 1 percentage point, it said in a presentation on its website. As part of the effort, BNP Paribas is cutting its corporate- and investment-banking balance sheet by $82 billion.

Financing Market ‘Fragility’

Societe Generale has adequate capital to support its exposure to Greece, Portugal and Ireland, Moody’s said today. The bank financial strength rating remains under review as Moody’s examines the impact of “potentially persistent fragility” in bank funding markets. Moody’s said that it anticipates that rating would be cut by no more than one level.

U.S. money-market fund managers, led by Vanguard Group Inc. and Legg Mason Group Inc., have cut their lending to French banks at a pace that may force them to raise capital by selling assets, according to a Sept. 9 report by William Prophet, a desk analyst at Deutsche Bank Securities Inc.

Societe Generale said on Sept. 12 that it plans to free up 4 billion euros in capital through disposals by 2013 to reassure investors about its finances.

Group of Seven finance chiefs vowed on Sept. 9 to support banks and buoy slowing economic growth as Europe’s debt crisis roiled financial markets and threatened a global recession. Doubts that European policy makers can prevent a Greek default and contain the debt woes prompted investors to sell stocks and push the euro to a six-month low against the dollar. European bank and sovereign credit risk reached all-time highs as German bund yields fell to record lows.

--Editors: Frank Connelly, Angela Cullen

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net;


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