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Domino #2: S&P Downgrades Largest French Retail Banking Group, Credit Agricole, To A+ From AA-, Due To "Greek Exposure"

Tyler Durden's picture


Yes, banks are indeed on the hook should Greece file. Keep an eye on those Deutsche Bank puts.

From S&P:


  • On May 9, 2011, we lowered our sovereign ratings on Greece to 'B/C' from 'BB-/B' and maintained them on CreditWatch negative, reflecting rising rescheduling risk for Greece's sovereign debt.
  • We consider that French banking group Crédit Agricole (GCA) has a significant sensitivity to Greece's creditworthiness and economic prospects, primarily through subsidiary Emporiki's funding needs and exposure to local credit risk.
  • We are lowering our ratings on Crédit Agricole S.A. and its related core subsidiaries to 'A+/A-1' from 'AA-/A-1+'.
  • The stable outlook reflects our view that GCA's businesses are performing well, and that the group has a strong retained earnings capacity which would allow it to absorb possible losses from Greek exposures and build up capital at a pace, and up to a level, which we see as consistent with the 'A+' rating.

Rating Action

On May 20, 2011, Standard & Poor's Ratings Services lowered to 'A+/A-1' from  'AA-/A-1+' its long- and short-term counterparty credit ratings on French bank  Crédit Agricole S.A. and all Caisses Regionales de Crédit Agricole, core subsidiaries Crédit Agricole Corporate and Investment Bank (CACIB), CA Consumer Finance, CACEIS, Crédit Lyonnais (LCL), and Cassa di Risparmio di Parma e Piacenza SpA (Cariparma). The outlooks on all of these ratings are stable.

At the same time, we lowered the long-term counterparty credit ratings to 'A' from 'A+' on subsidiaries Banque de Financement et de Trésorerie and Agos-Ducato SpA. The outlook on both entities is stable. Under our group rating methodology, we cap the long-term ratings on both entities, which in our view benefit from extraordinary parental support, at one notch below that on their parents.


The downgrades reflect our view that reduced creditworthiness of the Greek sovereign puts pressure on GCA's financial profile, given its exposure to the troubled Greek economy, mostly through its subsidiary Emporiki Bank of Greece (not rated).

We lowered our long- and short-term sovereign credit ratings on Greece to 'B/C', from 'BB-/B' on May 9, 2011 ("Ratings On Greece Lowered To 'B/C' From 'BB-/B' On Rising Rescheduling Risk; CreditWatch Negative Maintained"). Both the long- and short-term ratings on Greece remain on CreditWatch, with negative implications. Our projections suggest that a restructuring of Greece's sovereign debt could involve an estimated 30%-50% recovery to restore Greece's government debt burden to a sustainable level.

The downgrade reflects our view that persistent deterioration of the Greek economy induces negative prospects for the local banking sector, which could translate into further material credit losses at Emporiki and/or a sharp decrease in its customer deposits. At end-March 2011, Emporiki's net customer loans exceeded €21 billion and customer deposits were close to €12 billion. We believe that under an aggravated negative scenario for Greece, GCA would be led to provide additional financial support to Emporiki, which might delay the achievement of a core capital position consistent with the 'A+' rating. The impact of a potential rescheduling of Greek sovereign debt on the Greek economy and on Emporiki would depend on how the potential rescheduling plan is organized, though.

In our view, GCA's direct exposure to Greek sovereign debt in its banking and trading books is much more limited than that resulting from Emporiki's operations. The insurance division also bears some net exposure to the Greek sovereign (the last amount publicly disclosed by the group, in May 2010, was slightly less than €400 million, net of policy-holder profit-sharing and tax). We believe that GCA would have the flexibility to absorb losses if Greek sovereign debt was restructured, even with a 30%-50% recovery.

Our ratings on Crédit Agricole S.A. don't include any explicit uplift above the group's stand-alone credit profile for potential external institution-specific support. We see GCA as having high systemic importance in France's banking sector, which we classify as supportive under our methodology.

In our view, GCA's risk profile is average. It combines relatively low-risk domestic retail banking activities in France and limited exposure to emerging markets, with riskier corporate and investment banking (CIB) business and significant exposure to the Greek economy through Emporiki.

We expect that GCA will demonstrate a resilient performance in 2011 but that  Emporiki will continue to weigh on earnings. The net income group-share for the first quarter of 2011 was a solid €1.5 billion, but still included a high €220 million in cost of risk from Emporiki. In 2010, GCA's net income group-share had already improved substantially to €3.6 billion, reflecting a 9.3% rise in revenues and a moderate increase in expenses. Credit risk was still high but 20% below the 2009 peak. In addition, the group's performance was hurt by a €1.2 billion impairment on its stake in Intesa Sanpaolo SpA (A+/Stable/A-1) after reclassification of the investment to available-for-sale financial assets from equity affiliates. We exclude this impairment from our definition of the group's core profit. Revenues from the group's ongoing CIB activities decreased 11% in 2010 to €5.7 billion after adjustments for changes in fair value of own debt and credit default swaps that CACIB bought to protect its corporate loans. This performance reflected a positive trend in the structured finance business and sluggish revenues from capital market activities. Lower losses from discontinued operations helped net CIB income to recover to €1 billion from negative figures in previous years.

GCA's liquidity and funding benefit from its ample deposit base, strong network placement capacity, and conservative risk management. The bank is also reliant on wholesale funding given the size of its consumer lending and CIB activities. Although GCA could be led to provide significant additional funding if deposit outflows at Emporiki continue or accelerate, we believe the group's large liquidity reserves could cushion negative effects.

At end-2010, Standard & Poor's estimated a risk-adjusted capital ratio for GCA at about 6% before diversification benefits and about 8% after diversification. In light of a likely increase in capital requirements under Basel III, we expect GCA to gradually strengthen its capital base up to a level more consistent with the 'A+' rating.


The stable outlook reflects our view that GCA will sustain its overall solid performance, and that CACIB will manage to deliver resilient earnings in line with the current satisfactory level. The outlook factors in our expectations that Emporiki will continue to weigh on the group's financial profile, but also that, in our view, GCA benefits from strong retained earnings capacity. This would allow it to absorb possible losses related to its operations in Greece, and to continue building up capital at a pace, and up to a level, which we see as consistent with the 'A+' rating.

We could lower the ratings if impacts stemming from the group's exposures to the troubled Greek economy go beyond our current expectations and hamper a strengthening of capitalization to the level that we expect. We could move the ratings up if the risks related to Greek sovereign creditworthiness are alleviated or become remote, if Emporiki turns around legacy asset quality and profitability concerns, and if GCA strengthens its capital position beyond our current expectations.


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Fri, 05/20/2011 - 13:35 | 1296078 falak pema
falak pema's picture

good to know which french banks will now be shaking in their shoes. Explains why our banking account costs keep rising...

Fri, 05/20/2011 - 13:42 | 1296125 dlmaniac
dlmaniac's picture

Funny to watch these banks backstabbing each other now. Do Europeans have their own grading agency to downgrade US banks as retaliation?

Fri, 05/20/2011 - 13:49 | 1296153 LawsofPhysics
LawsofPhysics's picture

Yep, "rich" eating each other now?

Fri, 05/20/2011 - 14:59 | 1296411 Hard1
Hard1's picture

Banker...and French!!!! eewwwwww!!!

Fri, 05/20/2011 - 15:13 | 1296458 Rodent Freikorps
Rodent Freikorps's picture

French, socialist big wig banker who can post $1mm bail in cash, ftw.

I am losing my compassion for the proles.

Fri, 05/20/2011 - 15:56 | 1296591 falak pema
falak pema's picture

His wife is worth USD 40 million AT LEAST, painting collection, inherited from grandfather collector. So cool it. Its NOT his money. Some men have rich wives and a hundred mistresses...c'est la vie!

Fri, 05/20/2011 - 15:57 | 1296607 Rodent Freikorps
Rodent Freikorps's picture

Why do I get the feeling that he knows the taste of Soros' dick?

All the world's most evil are socialist/communist. Always.

It is an evil ideology that has failed every single time it has been tried.

Fri, 05/20/2011 - 16:05 | 1296633 falak pema
falak pema's picture

If you think Soros is a socialist then the Pope is a Puritan quaker! Your bible has some pages missing.

Fri, 05/20/2011 - 15:15 | 1296466 Manthong
Manthong's picture

Greek exposure, NY call girl exposure, African housekeeper exposure..

Geez, these French banking guys are exposed to everything.

Fri, 05/20/2011 - 16:07 | 1296638 falak pema
falak pema's picture

Don't worry as garlic eaters they can resist vampires from the NYPD.

Fri, 05/20/2011 - 13:33 | 1296086 SheepDog-One
SheepDog-One's picture

Banks on the hook? The horror....

Fri, 05/20/2011 - 13:48 | 1296148 camaro68ss
camaro68ss's picture

aww let them eat cake

Fri, 05/20/2011 - 13:54 | 1296156 jus_lite_reading
jus_lite_reading's picture



Fri, 05/20/2011 - 16:14 | 1296649 falak pema
falak pema's picture

Concerning the Fukushima incident there is a report on french TV by Areva president that this company, state nuclear monopoly now has a contract to send its team into ALL three reactors to start the dismantling work. TO remove over 100000 tons of contaminated water. So its a huge job. The radiation levels currently witnessed by this french team are impressive. Work has begun, based on initial robotic measurements within the reactor area. 

The french team seem to be front line now in TEPCO as subcontracted experts to do the clean um hands on.

Fri, 05/20/2011 - 13:34 | 1296090 Rodent Freikorps
Rodent Freikorps's picture

I think I'm gonna start listening to Hugo.

Fri, 05/20/2011 - 13:38 | 1296093 mynhair
mynhair's picture

This will be good for a green close.

Fri, 05/20/2011 - 13:36 | 1296106 Oh regional Indian
Oh regional Indian's picture

When swimming in a sea of debt, it is good to remember 3 things:

1) Un-intended consequences

2) The power of compounding interest, which bites both ways.

3) Rating sharks from the deep.

Such an interesting feeling to watch slow-motion, geo-political dominoes tumble...


Fri, 05/20/2011 - 13:39 | 1296107 LRC Fan
LRC Fan's picture

Yet another false alarm.  Buy the fucking dip in the Dow. 

Fri, 05/20/2011 - 13:37 | 1296109 Bindar Dundat
Bindar Dundat's picture


What Canada really thinks about the U.S. economic policy....

Fri, 05/20/2011 - 13:40 | 1296111 RobotTrader
RobotTrader's picture

Looks like another buying opportunity for some of the PIIGS banks.

BBVA dividend yield is now 7.36%

STD dividend yield is a whopping 11.76%

Some "enterprising speculator" is going to load up on these and clip coupons the rest of his life....


Fri, 05/20/2011 - 13:37 | 1296112 treemagnet
treemagnet's picture

How many dominoes are there again?

Fri, 05/20/2011 - 13:38 | 1296116 Dick Darlington
Dick Darlington's picture

This shud guarantee a green close. The worse it gets the more Timmah&Sackman will rape ES futures. No.downtics.allowed.

Fri, 05/20/2011 - 14:00 | 1296209 scatterbrains
scatterbrains's picture

well yea, the only ones left in the market are the ring fenced 19 shooting shares back and forth while the america sits on the sideline watching. Who's left to sell anything ?

Fri, 05/20/2011 - 13:38 | 1296119 aint no fortuna...
aint no fortunate son's picture

and market rallies...

Fri, 05/20/2011 - 13:40 | 1296131 Jim in MN
Jim in MN's picture

The French?  Overindulging in risky Greek exposure?


It's in the blood.

Fri, 05/20/2011 - 13:43 | 1296140 Flore
Flore's picture

If those greek savers switched their savings into gold coins and bars.. they would be king of the world in a couple of years


Fri, 05/20/2011 - 13:47 | 1296160 silvertrain
silvertrain's picture

Greece is tbtf and they know it, in the end they will get what they want...

Fri, 05/20/2011 - 13:52 | 1296173 oogs66
oogs66's picture

maybe it's too big to save

Fri, 05/20/2011 - 13:56 | 1296190 Lucius_Junius_Brutus
Lucius_Junius_Brutus's picture


Fri, 05/20/2011 - 16:06 | 1296627 Roger Knights
Roger Knights's picture

Too PIIG to bail.

Fri, 05/20/2011 - 13:49 | 1296170 Lucius_Junius_Brutus
Lucius_Junius_Brutus's picture

Their buisness is performing well... Considering the fees they charge me I'm sure it does!

Fri, 05/20/2011 - 13:50 | 1296174 silvertrain
silvertrain's picture

Meanwhile back at the ranch Iceland.s economy is moving right along on the road to recovery...

Fri, 05/20/2011 - 13:53 | 1296175 centerline
centerline's picture

Hot potato.  EU's turn to juggle.  Then toss it back to us in few months.

Fri, 05/20/2011 - 13:53 | 1296188 zaknick
zaknick's picture

Wonder how three "credit rating" scumbags "overlook" this:

Fri, 05/20/2011 - 13:53 | 1296189 buzzsaw99
buzzsaw99's picture

The French banks won't take a loss if Lagarde has anything to say about it. the imf and federal reserve will bail out europe.

Fri, 05/20/2011 - 13:58 | 1296197 LRC Fan
LRC Fan's picture

The Dow will be wildly positive by  Monday afternoon.  My guess is they announce a new IMF chief sometime between the close today and Sunday afternoon right around 5pm eastern.  That will "reduce uncertainty" and send the Dow soaring. 

OT: Let's all take a moment of silence for the Macho Man, Randy Savage.  Dead in a car crash.  :(

Fri, 05/20/2011 - 14:20 | 1296291 SheepDog-One
SheepDog-One's picture

What are you fucking crazy? Who cares about the DOW on Monday, world ends Saturday.

Fri, 05/20/2011 - 14:36 | 1296329 Rodent Freikorps
Rodent Freikorps's picture

No man knows the time. These people are not representative of Christians in general.

Armageddon will come only after the US abandons Israel, or so I am informed.

Fri, 05/20/2011 - 14:37 | 1296333 SheepDog-One
SheepDog-One's picture


Fri, 05/20/2011 - 14:00 | 1296221 gwar5
gwar5's picture

We could just downgrade everybody at the same time in a race to the bottom. Everybody wins. Nobody loses. Nobody figures it out. Like currencies.

Just Revealed: Possible reason for global economic chaos -- Dark Energy. It's driving the whole universe apart.

Fri, 05/20/2011 - 14:00 | 1296222 Clockwork Orange
Clockwork Orange's picture

Most fraudulent market I have ever seen.

Fri, 05/20/2011 - 14:09 | 1296246 williambanzai7
williambanzai7's picture

Well they got bailed out of AIG big time, might as well bail em in Greece too.

Fri, 05/20/2011 - 15:12 | 1296471 MrTrader
MrTrader's picture

Bla, bla, bla, bla, bla.  When, If, if at all, now, then tomorrow, last week, no - in 2013. What babblers! Greece will go through all of it until 2013 and then be rescued by the EFSF. For all newbies in the business:


Fri, 05/20/2011 - 15:39 | 1296551 Sudden Debt
Sudden Debt's picture

These guys need a crash course in banking, here it comes:


STEP 1: CHANGE YOUR NAME IN TBTF ______ (fill in name here)






Fri, 05/20/2011 - 16:03 | 1296618 falak pema
falak pema's picture

The other french banks are gleefully looking at this exposure of their rival...It may mean that the last big one on the block will be invited by Sarkozy to restructure with government aid to get a bigger national market share. Wait for the shit to unfold...there are three other dominoes...Mamma Mia...After the USD goes west, the Yen goes east, now the euro goes south...Maybe the Yuan is heading north. Anyways, Zimbabwe is looking very promising.

Fri, 05/20/2011 - 17:08 | 1296769 Volaille de Bresse
Volaille de Bresse's picture

"The other french banks are gleefully looking at this exposure of their rival..."


So true! BNP & SocGen are dying to lay their grummy hands on CA's network of agencies in rural areas. 

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