BNP Paribas SA (BNP), France’s largest bank, was among the country’s lenders whose credit rating was cut by Standard & Poor’s on concern it may be hurt by Europe’s prolonged economic weakness and a housing slump at home.
BNP Paribas’s long-term counterparty credit grade was lowered one level to A+ from AA-, S&P said in a statement late yesterday. S&P also revised its outlook to negative from stable for 10 other French banks, including Credit Agricole SA (ACA) and Societe Generale SA. (GLE) Shares of the three banks tumbled in Paris.
France’s 13-year-high unemployment rate, government debt approaching 90 percent of gross domestic product and trade deficits “are being aggravated in our view by the on-going euro-zone crisis, a more protracted recession across Europe, and lower domestic-growth prospects,” S&P said. French banks also face “potentially limited, but still noteworthy, impact from an ongoing correction in the housing market,” it said.
The S&P verdict comes as France’s largest banks have found their funding situation stabilizing, thanks to 1 trillion euros ($1.29 trillion) in long-term loans by the European Central Bank to the region’s lenders and the ECB President Mario Draghi’s agreement last month to buy the bonds, under some conditions, of euro nations whose sovereign yields have skyrocketed.
As the biggest holders of private and public debt in the euro-area’s problem economies, French banks have had the most to gain from the ECB’s moves as the crisis enters its fourth year.
Credit default swaps, which reflect the cost of insuring against a default, for BNP Paribas, Societe Generale and Credit Agricole edged higher today after sliding last week to the lowest since July 2011, when prospects for euro-area crisis contagion blocked the banks’ access to debt markets and froze them out of U.S. dollar funds.
Shares of the three banks slid in Paris today, with BNP Paribas falling as much as 3.6 percent and trading down 2.7 percent at 38.56 euros by 11:03 a.m. to give the bank a market value of about 48 billion euros. Societe Generale, France’s second-largest bank by market value, fell 2.8 percent to 24.19 euros and Credit Agricole declined 3.5 percent to 5.79 euros.
BNP Paribas’s spokeswoman Julia Boyce declined to comment on the S&P downgrade.
S&P’s stripping of French government debt of its AAA rating in January has had little impact on the country’s borrowing costs. On Aug. 3, the yield on French 10-year bonds slid to a record low of 2.002 percent. U.S. borrowing costs tumbled after the biggest economy was stripped of the top credit grade 14 months ago.
S&P today estimated that French house prices may fall between 10 percent and 15 percent in the next two to three years. It added, however, that “French banks will continue to benefit from sound domestic asset quality.”
France has provided more than 60 billion euros of support for three of the nation’s specialized lenders including home- loans company Credit Immobilier de France.
The move came as Europe’s second-largest economy slumps, forcing consumers to tighten their purse strings. The economic weakness, as well as low interest rates, will put pressure on French banks’ revenue in 2013 and 2014, S&P said.
Banque Solfea SA’s long-term grade was reduced one level to A- from A, according to S&P’s statement. Cofidis SA’s was cut one step to BBB+ from A-.
BNP Paribas, Cofidis and Banque Solfea were downgraded by S&P as “these groups are more vulnerable to the impact of rising economic risks in the eurozone, particularly in France and countries in southern Europe,” the ratings agency said.
Both BNP Paribas and Credit Agricole operate Italian branch networks. French banks held $540 billion in private and public debt in Greece, Ireland, Italy, Portugal and Spain at the end of June, the highest amount among foreign lenders, Bank for International Settlements data show.