The Euro, Banks and Markets Drop in the EU
Early this morning, Moody’s downgraded the financial ratings, and long-term debt and deposit ratings for BNP Paribas, Societe Generale and Credit Agricole.
Moody’s reduced the long-term debt rating of BNP Paribas, France’s largest bank by market capitalization, to Aa3. Societe Generale, the second-largest, was downgraded to A1, and Credit Agricole to Aa3.
These downgrade are after the European Banking Authority said it estimated French banks needed to increase their capital by just €7.32 billion–significantly below its October estimate of €8.8 billion–to comply with tougher rules intended to help stabilize the euro zone.
While the downgrade only brings Moody’s in line with other agencies’ ratings of the big three, it once again highlights significant concerns about French banks.
Despite their efforts to shrink their balance sheets in a bid to increase capital buffers and reduce financing needs, French banks continue to face major liquidity and funding constraints, and remain significantly exposed to the sovereign debt of troubled Southern European states, Moody’s said.
The downgrade is the consequence of increasingly difficult market conditions and the recent move by Standard & Poor’s to put France’s own rating on review for a downgrade.
The markets are expecting comments today by S&P in response to Friday’s outcome of the EU Summit.
Markets on Friday were little affected and Asian markets soared this morning catching up on Friday’s news. But as the morning progressed, the markets began to show disillusion with the response by the EU.
Everyone is in agreement that the new “fiscal pact” will be good in the future to keep the eurozone countries inline and within a balanced budget but the outcome has little effect on the current situation.
Even though the ECB has pledged to maintain liquidity in the banks, there are too many factors weighing on the financial systems and Europe seems to be sidestepping the immediate problems
The euro maintained strength on Friday, but as the markets began to open on Monday, the euro began to fall.
Problems began to develop shortly after the announcements on Friday of the future plans for the EU. Within hours the IMF was having problems getting additional funding from non EU members as there was not a direct plan or goal to help the countries by the EU. The EFSF was not defined or expanded and the new EU pact will not be finalized until spring, leaving markets and investors in turmoil.
Banks moved lower, with HSBC Holdings PLC dropping 1.3%, Banco Santander SA down 1.4% and Standard Chartered PLC off1.7%.
The German DAX 30 index fell 1.2% to 5,912.53.
Shares of Societe Generale SA lost 2% in Paris, pulling down the French CAC 40 index 1% to 3,139.27.
The FTSE 100 index fell 0.4% to 5,506.28 Banks also fell in the UK, with Lloyds Banking Group PLC Royal Bank of Scotland Group PLC each dropping around 2%.