August 11, 2022

Moody’s to Review French Banks Over Greece Exposure

PARIS — French banks were punished Wednesday for their exposure to Greek debt after Moody’s Investors Service placed three of the largest on review for a possible downgrade.

Moody’s cited “concerns” about the exposure of BNP Paribas, Société Générale and Crédit Agricole to the Greek economy, either through holdings of government bonds or loans to the private sector there, directly or through subsidiaries operating in Greece.

It said the reviews would also examine “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels.”

After the announcement, shares in BNP Paribas and Société Générale were both down 1.6 percent, and Crédit Agricole shed 1.3 percent. The CAC 40 index in Paris was relatively flat at midday. The euro stood at $1.4354 from $1.4441 late Tuesday.

According to data from the Bank for International Settlements, French banks could potentially lose more from a collapse of Greek banks and a sovereign default than other countries, including Germany, the United States and Britain.

The French government has consistently opposed plans to expose private investors to any restructuring of Greek debt, despite a strong push led by Germany. Although it has never said as much publicly, the assumption is that Paris has taken that stance to protect its banks.

Crédit Agricole controls Emporiki Bank of Greece and Société Générale owns a majority of the Greek lender Geniki Bank. BNP Paribas does not have a local unit in Greece, but is at risk from direct holdings of Greek government debt, Moody’s said.

The French economy minister Christine Lagarde did not refer to the Moody’s announcement in a statement Wednesday following the conclusion of a regular International Monetary Fund assessment of France’s economy.

But she said that the fund had given a “positive” assessment of the domestic economy and the financial system, including moves to impose international capital adequacy standards. She added that French lenders needed to remain “vigilant” and continue applying supervisory standards.

In its statement, Moody’s stressed that there were “potential mitigants” to the concerns about Greece, including the French banks’ strong overall financial profiles, substantial scale and earnings diversification.

It added that the examinations of Crédit Agricole and BNP were unlikely to lead to downgrades of more than one notch. Société Générale’s debt and deposit ratings could be cut by as much as two levels because it has been more reliant on government support than the other lenders, Moody’s said.

A meeting of euro area finance ministers broke up Tuesday night without reaching a deal for the second financial rescue package for Greece. The ministers are expected to meet again Sunday, but before that, the French president, Nicolas Sarkozy, will visit the German chancellor, Angela Merkel, in Berlin on Friday.

Paris is currently backing the position of the European Central Bank, arguing that a rescheduling must be avoided at all costs and that a voluntary private-sector “rollover” of maturing debt should instead be considered. Berlin is pushing a more stringent approach in which old debt would be swapped into new 7-year bonds — something that credit agencies are more likely to interpret as a “credit event,” or default.

“We are closely monitoring the risks that would likely result from a Greek default scenario,” Moody’s said, including “the potential impact on weaker countries, the capital markets, and funding conditions, and are taking those risks into consideration in our ratings of banks across the euro zone.”

Moody’s also said that exposure to Greece would also be included in an ongoing review for possible downgrade of Dexia, a French-Belgian lender.

In a study released last month, another agency, Fitch Ratings, said that Crédit Agricole was the most vulnerable French bank, with around €25 billion in private and public sector liabilities Greece. Both BNP and Société Générale had exposure of around €6 billion to €8 billion, it said.

“At this stage Fitch does not envisage any rating action on French banks purely as a direct result of their exposure to Greek risk,” it said at the time. “French banks also have very limited direct exposure to Portuguese and Irish risk.”

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