BNP Paribas (BNP) SA, France’s biggest bank, and local rivals Societe Generale SA and Credit Agricole SA (ACA) may have their credit ratings cut by Moody’s Investors Service because of their investments in Greece.
Moody’s placed the three banks’ ratings on reviews that will focus on their holdings of Greek public and private debt “and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the ratings company said in a statement today.
The move reflects Europe’s deepening debt crisis, centered on Greece, where bond yields touched a record for the euro area yesterday. Pressure on European governments to craft a second rescue plan for the country intensified this week after Standard & Poor’s slapped Greece with the world’s lowest credit rating.
“This is a ripple effect of the Greek crisis spilling into European banks,” said Sarah Hewin, a senior economist at Standard Chartered Bank in London. “Clearly there would be an impact if there is an escalation” of the situation, she said.
The reviews of Credit Agricole and BNP Paribas are unlikely to lead to downgrades of more than one level, Moody’s said. Societe Generale’s debt and deposit ratings may be cut as much as two grades because of the “uplift it receives from systemic support, which is currently higher than average for the French banking system,” it said.
BNP Paribas fell 1.7 percent to 51.73 euros at 10:52 a.m. in Paris trading, while Societe Generale (GLE) dropped 1.8 percent to 39.07 euros. Credit Agricole slid 1.4 percent to 10.01 euros.
Moody’s currently rates BNP Paribas’ long-term debt at Aa2, the third-highest investment grade. Credit Agricole is rated Aa1, the second highest, while Societe Generale is Aa2.
Euro-area finance chiefs meeting in Brussels late yesterday said they may need more time to reach a deal on how to enroll investors in a Greek rescue without triggering a default. Yields on 10-year Greek bonds touched 17.46 percent yesterday, a record in the 17-nation euro area’s history.
“Today’s actions reflect Moody’s concerns about these banks’ exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector,” Moody’s said. “Potential mitigants to these concerns are the strong financial profiles, substantial scale and earnings diversification of the French banking groups.”
Credit-default swaps on BNP Paribas rose 6.5 basis points to 120.5, according to CMA prices at 9:30 a.m. in London. Contracts on Societe Generale increased 4 to 150 and Credit Agricole climbed 7 to 155. An increase signals deterioration in perceptions of credit quality.
Credit Agricole’s main risk arises from its Greek subsidiary Emporiki Bank of Greece SA, which was downgraded earlier this month, Moody’s said. Societe Generale, France’s second-largest bank by market value, faces risks from its stake in General Bank of Greece. Credit Agricole is France’s third- largest bank.
BNP Paribas doesn’t have a local unit in Greece and is instead at risk from direct holdings of Greek government debt, Moody’s said.