Sat, Dec 10, 2011 - Page 10 News List

Moody’s downgrades French banks


The ratings agency Moody’s has downgraded three leading French banks, citing the worsening eurozone debt crisis.

After a review, Moody’s knocked down the overall strength rating and the debt ratings of BNP Paribas, Societe Generale and Credit Agricole.

The agency said in three statements that the downgrades were prompted by deteriorating liquidity and funding conditions, and “the fragile operating environment for European banks.”

It took action yesterday, a day after a regulator said European banks have to raise about 114.7 billion euros (US$152.5 billion) — more than expected — to meet a new standard meant to inoculate the lenders against market turmoil.

European banks have billions of euros of risky government bonds on their books and investors are increasingly concerned the lenders will not be able weather all of the expected losses on those loans.

The European Banking Authority (EBA) said in a statement on Thursday that its final recapitalization plans were part of “coordinated measures to restore confidence in the banking sector” ravaged by the eurozone debt crisis.

The final figure was more than 8 billion euros higher than the EBA’s initial guidance given two months ago.

The EBA examined the balance sheets of 65 banks across Europe, with particular focus on exposure to European government bonds, and said it found capital shortfalls at more than 30 lenders.

The regulator added that the banks would be given until Jan. 20 to tell their national regulatory authorities how they intended to raise the additional funds.

The London-based EU financial regulator ruled that Spanish and Italian banks needed to raise 26.2 billion euros and 15.4 billion euros respectively.

German banks needed to raise a total of 13.1 billion euros, which was far more than the 5.2 billion euro estimate given in October. French lenders required new capital of 7.3 billion euros.

Germany’s biggest lender, Deutsche Bank, needed 3.2 billion euros in extra capital, the EBA calculated, up from the October estimate of 2.8 billion euros.

And the country’s second--biggest bank, Commerzbank, would need 5.3 billion euros, much more than the previous estimate of 2.9 billion euros.

Germany’s banking federation BdB slammed the EBA’s findings as “arbitrary,” and claimed that the results “have not contributed to a stabilization of the markets.”

Turning to French banks, the EBA estimated that the BPCE group needed 3.7 billion euros, Societe Generale 2.1 billion euros and BNP Paribas 1.5 billion euros, while Credit Agricole required no new capital.

The EBA recommended national authorities require banks “to strengthen their capital positions by building up an exceptional and temporary capital buffer against sovereign debt exposures to reflect market prices as at the end of September.”

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