France insists banks are solid after Moody's downgrade

Thu, Sep 15, 2011, 01:00

RATINGS:FRANCE SAID its banks were “solid” and well-capitalised yesterday after concerns over their exposure to Greek debt led Moody’s to downgrade two of the country’s biggest institutions.

Central bank governor Christian Noyer said concerns over French banks, whose shares suffered steep falls this week amid speculation about a Greek default, were overdone. He said the “very small” one-notch downgrades for Société Générale and Crédit Agricole – France’s second and third biggest banks respectively – still left them at the same level as some of the best performers in Europe.

“French banks have an excellent rating, the same level as other major European banks HSBC, Barclays, Deutsche Bank, Crédit Suisse,” he told French radio.

“There’s no really bad news on the way, and Moody’s says the level of capital of French banks allows them to absorb any potential losses on sovereign debt.”

Although not unexpected, the downgrades reflected worries about French banks’ exposure to sovereign debt in some of Europe’s most troubled economies, mainly Greece, Italy and Spain. Moody’s cut Société Générale’s rating to Aa3 from Aa2 and Crédit Agricole’s to Aa2 from Aa1, citing concerns over their exposure to Greek debt. Crédit Agricole is heavily involved in the Greek private sector through its subsidiary Emporiki.

The agency said it was keeping the long-term Aa2 ratings of BNP Paribas – France’s largest bank – under review, adding that the bank’s profitability and capital base gave it enough cushion to support its Greek, Portuguese and Irish exposure. To help ease investor fears about its funding, BNP later announced a plan to sell €70 billion in assets.

Mr Noyer said major French banks had posted profits of €11 billion in the first six months of the year, compared to a net exposure to Greek debt of €8 billion.

Rumours circulated this week that the French state could be forced to step in to recapitalise or nationalise some of its banks, but Mr Noyer described the idea of nationalisation as “surreal”.

His reassurances were echoed by government spokeswoman Valérie Pécresse, who said the banks were fundamentally sound.

Shares in Crédit Agricole ended 1.2 per cent higher yesterday, but Société Générale fell 2.8 per cent and BNP Paribas 5 per cent.