Moody's downgrades two French banks as debt crisis reaches deeper into euro core

09/14/2011 2:08 pm EST


Jim Jubak

Founder and Editor,

Today’s credit rating downgrade of French banks Credit Agricole and Societe Generale by Moody’s Investors Service tells you, in case you had any doubts, that the euro debt crisis is now a banking crisis. And that the crisis has moved from the periphery of the EuroZone (Greece) to the core (France.)

Moody’s cut the long-term credit rating of France’s second- and third-largest banks by one grade to Aa2 and Aa3, respectively. Moody’s kept its rating for BNP Paribas, the biggest French bank, at Aa2. The BNP Paribas and Credit Agricole ratings are under review. Societe Generale got a ‘negative outlook” opinion.

Moody’s cited the big exposures of these two French banks to the Greek banking system and their large exposure to Greek government and private sector debt in its downgrade. Credit Agricole owns an unprofitable Greek subsidiary, Emporiki Bank of Greece, while Societe Generale has a controlling stake in Geniki Bank.

The downgrade brings Moody’s ratings in line with those of Fitch Ratings and Standard & Poor’s.

In a separate announcement the European Central Bank said it will lend dollars tomorrow to two EuroZone banks that are having trouble borrowing dollars in the currency markets. Because of the increasing unwillingness of U.S. money market funds and U.S. banks to lend to European banks, those banks have found it harder and more expensive to borrow in dollars to cover their dollar-denominated lending activities. The European Central Bank has so far refused to identify the two EuroZone banks. It’s tempting to put today’s downgrade of two big French banks together with the central bank’s announcement and conclude that the dollar lending will go to these big French banks. But there are plenty of other candidates that are finding it even harder to borrow in dollars.

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