France has insisted that it does not need to bail out its banks, even as two of its largest financial players were downgraded by ratings agency Moody's over fears for their exposure to Greece and their ability to raise enough cash on the money markets to keep going.
While the one-notch downgrades of Société Générale and Crédit Agricole had been expected, confirmation of the action came to a market already showing signs of nerves and led to further pressure on the shares of French banks, which have fallen sharply in the last two months.
Amid heightened speculation that the French would need to step in to inject more capital to avert another credit crunch, the governor of the Bank of France was adamant that this would not be necessary. "That is something which makes no sense. It is totally surreal. French banks do not need any outside capital to face up to risks," said Christian Noyer.
Confirmation from the European Central Bank that two unidentified banks had tapped it for dollars intensified concerns about the appetite of US investors to keep lending money to banks in Europe, in a scenario with echoes of the treatment that the UK's banks faced in the run-up to the October 2008 bailout.
Noyer described the downgrade of the two banks – France's largest bank, BNP Paribas, remains on review but escaped a downgrade – as positive because Moody's had not suggested that the banks needed more capital. SocGen's debt and deposit rating was cut to Aa3 from Aa2 and Credit Agricole's by the same amount to Aa1.
Shares in Crédit Agricole ended 1.2% higher but SocGen fell 2.8% and BNP Paribas 5% even after it announced plans to downsize its balance sheet by €70bn (£61bn). BNP's chief executive, Baudouin Prot, told a banking conference in New York that its exposures to Greece were "manageable". Some 24 hours after his counterpart at SocGen had addressed the same investor meeting, Prot insisted that the bank could add one percentage point to its core tier one capital ratio – currently at 9.6% – through the downsizing. He said that the bank had €4bn exposure to Greece and that if took a 55% "haircut" on the exposure, that would cause €1.7bn of losses – the equivalent to just 0.15 percentage points off its capital.
SocGen stressed that Moody's believed its exposure to Greece – as well as a worsening in the situation in Ireland and Portugal – was "manageable" but that there were concerns about how it raised funds to keep operating. "SocGen underlines that it has proven its capacity to successfully manage the current situation and has taken the appropriate measures to support its funding profile," the bank said.
In its review of Crédit Agricole, Moody's also cited concerns about the "structural challenges to banks' funding and liquidity profile increased in light of worsening refinancing conditions".