Moody's Investors Service on Wednesday threatened to downgrade France's three largest banks, BNP Paribas, Societe Generale and Credit Agricole (CASA), because of their exposure to Greek debt. France downplayed Moody's action, calling for calm and saying that German banks had even greater exposure.
Reuters reported that Moody's took the action in the wake of finance ministers' failure to come up with a solution on Tuesday to Greece's debt crisis as they tried to work out a deal. But with Germany calling for private investors to share the losses, supported by some other countries in the 17-nation euro zone, and all three ratings agencies saying they would regard any such action as a default on the part of Greece, the meeting broke up without resolution.
In a note, Moody's said, "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 directly or through subsidiaries operating in Greece, a key factor for CASA and SocGen due to their local Greek banks." However, the agency also cited the banks' strong financial profiles, substantial scale and earnings diversification as potential factors in the banks' favor.
It added that CASA's and BNP's reviews would most likely not lead to downgrades of more than one notch; on the other hand, SocGen's debt and deposit ratings could fall by as much as two. "Moody's may take similar actions on other banks with direct exposures to Greece in the coming weeks, if it considers that their ratings may be inconsistent with the potential impact of a Greek default or restructuring," the note said.
"Additionally, we are closely monitoring the risks that would likely result from a Greek default scenario, e.g., 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," the note said.
France, for its part, insisted the French banks were not at risk. Secretary of State for European Affairs Laurent Wauquiez repeated on French radio Paris' opposition to any kind of restructuring that could be classed as a default by the agencies, and said in the report, "French banks are exposed to Greece ... [but] they are less exposed than the German banking sector, for instance. On all these subjects we need to stay calm." When asked about involvement of private investors in absorbing losses in any new bailout, Wauquiez replied, "If [Greek debt] restructuring means that the country does not repay its debts, then this is not part of the French government's vocabulary."
Wauquiez may not be strictly accurate. According to figures from the Bank for International Settlements, France has the highest overall net exposure to Greece with $65 billion. Germany holds $40 billion, and the U.S. holds $41 billion.