This time it was the turn of Moody’s Investors Service to cut, by a notch, its
long-term debt assessments of the French banks BNP Paribas, Société Générale
and Crédit Agricole.
Perversely, the move came 12 hours after the same lenders fared relatively
well in the European Banking Authority’s latest plan for the
recapitalisation of banks in the region.
French banks
While the EBA now believes that German banks need a higher than expected
€13.1bn capital boost, and that Italian banks need €15.4bn more, French
banks are short by a manageable €7.3bn. That is lower even than the EBA’s
October estimate of €8.8bn.
The difference is that the EBA has given credit for the swift shrinkage,
mainly of US dollar trading assets, at some of the French banks. As a
result, its estimated capital shortfalls at BNP Paribas and Société Générale
are about 30 per cent and 35 per cent lower, respectively, than in October.
Moody’s, however, sees the same deleveraging exercise and questions whether it
is sustainable – given the flood of unwanted assets on the market – without
the banks notching up higher than foreseen losses.
The apparent inability of the EBA to predict the extent of this system-wide
problem, as it pursued quicker compliance with tougher capital standards,
raises the further, more infernal question of whether states may again be
forced to support their domestic banks.
Germany and Italy
That now looks to be a bigger issue for Germany and Italy than for France.
Commerzbank, in particular, is deemed to require an extra €5.3bn, yet
continues to deny that it may need further state aid. Of course, Germany’s
triple A rating is a lot less vulnerable than France’s.
If eurozone dithering results in prolonged recession, all bets may be off. But
French lenders at least look to have got the bit between their teeth and,
for once, acted ahead of time. Vive la différence!
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