French Banks Slide as Greek Holdings Might Prompt Moody’s to Cut Ratings

BNP Paribas (BNP) SA, Societe Generale SA and Credit Agricole SA (ACA) plunged in Paris on a possible ratings cut by Moody’s Investors Service, extending their more than 40 percent slide in the last three months.

Societe Generale fell 11 percent to its lowest level in 19 years. Credit Agricole tumbled 11 percent to its lowest on record. BNP Paribas dropped 12 percent to a 2 ½-year low. Credit-default swaps tied to the senior debt of the three banks, reflecting the cost of insuring against default, rose to records, according to CMA.

France’s three largest banks by market value may have their credit ratings cut as early as this week because of their Greek holdings, two people with knowledge of the matter said. The country’s lenders top the list of Greek creditors with $56.7 billion in overall exposure to private and public debt, according to a June report by the Basel, Switzerland-based Bank for International Settlements.

“SocGen’s market value has lost about 20 billion euros over two months, you can’t explain that only with sovereign risks and a potential downgrade from Moody’s,” said Lutz Roehmeyer, who helps manage about $14 billion at Landesbank Berlin Investment GmbH and owns shares in Societe Generale (GLE), BNP Paribas and Credit Agricole. “The market is playing broader themes. The fear is liquidity, banking crisis and of course recession.”

Asset Sales

Moody’s placed the three banks’ ratings on review in June, citing “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels.” Cuts are likely as the review period concludes, said the people who declined to be identified because the matter is confidential.

Societe Generale said today it plans to sell assets to free up 4 billion euros ($5.5 billion) of capital by 2013 in an effort to reassure investors about its finances. The Paris-based bank has “manageable” exposure to Greece, Portugal, Ireland, Italy and Spain, Chief Executive Officer Frederic Oudea said on a conference call.

Oudea said Moody’s is studying a possible downgrade. Credit Agricole spokeswoman Anne-Sophie Gentil declined to comment as did BNP Paribas spokesman Antoine Sire.

Bank of France Governor Christian Noyer said today that French banks are capable of facing any Greek situation. They don’t have liquidity or solvency problems, he said.

Falling More

Before today, Societe Generale had slid 55 percent since June 15, while Credit Agricole declined 45 percent and BNP Paribas 42 percent. The Bloomberg Europe Banks and Financial Services Index of 46 companies fell 30 percent in the period.

“French banks are falling more than others because Moody’s is planning a downgrade,” said Christophe Nijdam, a Paris-based analyst at AlphaValue. “This isn’t a deterioration of the French banks’ franchises per se because one ought also to bear in mind that Moody’s is acting late compared with other rating agencies.”

Standard & Poor’s Ratings Services lowered its ratings on Societe Generale and BNP Paribas in 2009 and on Credit Agricole in May. Moody’s currently rates BNP Paribas’ long-term debt at Aa2, the third-highest investment grade. Credit Agricole is rated Aa1, the second highest, while Societe Generale is Aa2.

Government Support

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,” the rating company said at the time.

Further declines in the shares of BNP Paribas, Credit Agricole and Societe Generale may depend on Moody’s rationale for the downgrade, said Jerome Forneris, who helps manage $10 billion, including shares in the three banks, at Banque Martin Maurel in Marseille.

“If it’s simply Greece, then I think it’s all in the price, but if they talk about liquidity or funding problems, then it could bring back fears of 2008” when bank shares tumbled after Lehman Brothers collapsed, he said. “But I can’t see a return of 2008. Governments and central banks will never, never, repeat never allow a systemic bank to fail.”

Greek Risks

Group of Seven finance chiefs vowed on Sept. 9 to support banks and buoy slowing economic growth as Europe’s debt crisis roiled markets and threatened a global recession. Renewed fears that policy makers are failing to prevent a Greek default and contain their debt woes prompted investors to sell stocks and push the euro to a six-month low against the dollar.

“We will take all necessary actions to ensure the resilience of banking systems and financial markets,” G-7 finance ministers and central bankers said in a statement released during talks in Marseille, France.

Credit Agricole’s main risk arises from its Greek subsidiary Emporiki Bank of Greece SA, Moody’s said in June. Societe Generale, France’s second-largest bank by market value, faces risks from its stake in General Bank of Greece. Credit Agricole is France’s third-largest bank. BNP Paribas doesn’t have a local unit in Greece and is instead at risk from direct holdings of Greek government debt, Moody’s said.

Bond Prices

Credit default swaps insuring the bonds of the three French banks have widened since the end of July, rising to a record today. Contracts on Societe Generale increased 26 basis points from 390 to 416. Swaps on the senior bonds of BNP Paribas rose 24 basis points to 299 from 275, while those on the securities of Credit Agricole gained 25 from 290 to 315.

SocGen’s 1.25 billion euros of 4 percent, April 2016 senior unsecured bonds declined 0.13 cent to 98.46 cents on the euro, Bloomberg Bond Trader prices show. The Paris-based lender’s 1 billion euros of 4.196 percent subordinated perpetual notes dropped 0.8 cent to 55.7 cents on the euro.

BNP Paribas’s 2 billion euros of 3.75 percent, senior unsecured bonds due in November 2020 fell 0.2 cents to 100.27 cents on the euro, after climbing to a closing-day record of 100.56 cents on Sept. 9, according to Bloomberg Bond Trader prices. The bank’s 375 million euros of 5.2 percent subordinated securities due September 2017 declined 0.04 cents to 100.98, Bloomberg Bond Trader prices show.

To contact the reporter on this story: Helene Fouquet at hfouquet1@bloomberg.net; Gregory Viscusi at gviscusi@bloomberg.net.

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

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