As predicted two major French banks were downgraded today by Moody’s due to their large holdings of Greek debt.
French banks have the largest exposure to Greek debt of about $56.7 billion according to a June report by the Basel, Switzerland-based Bank for International Settlements.
The credit ratings agency cut Societe Generale’s long-term credit ratings from Aa2 to Aa3 and downgraded Credit Agricole to Aa2 from Aa1. A third French bank, BNP Paribas, which was also expected to be downgraded, was spared for now with its Aa2 long-term rating kept on review for a possible downgrade later.
“We extended the review to take into account the system fragility in the banks’ financing markets,” Nicholas Hill, senior vice president at Moody’s in Paris.
Share prices in all three banks have fallen sharply in recent days and the markets for short-term cash lending between European banks have become increasingly stressed this week due to concerns of a default by Greece.
Since February this year, Credit Agricole and Societe Generale have seen their share prices fall by about two-thirds, while BNP has fallen by more than half.
In the first hour of trading on Monday, BNP dropped a further 3.1% and Societe Generale 1.7%.