Credit Agricole, Expectedly, Joins SocGen On The Moody's Downgrade Path

Tyler Durden's picture expected from the previous post. Now, BNP downgrade a matter of seconds.

Moody's downgrades long-term ratings to Aa2 on Greek exposures, ratings
remain on review to consider impact of funding challenges on Credit Profile

Further to the review initiated on 15 June, 2011

Paris, September 14, 2011 -- Moody's Investors Service has announced:

(i) A downgrade of the Bank Financial Strength Rating (BFSR) of Credit
Agricole SA (CASA) by one notch to C from C+, and

(ii) A downgrade of the long-term debt and deposit ratings by one notch
to Aa2 from Aa1.

Moody's believes these ratings are more consistent with the bank's
sizeable exposures to the Greek economy.

At the same time, Moody's announced that CASA's C BFSR and Aa2 long-term
debt and deposit ratings remain on review for possible downgrade to
consider the implications of the potentially persistent fragility in the
bank financing markets, given the continued reliance on wholesale funding
of Groupe Credit Agricole (GCA).

The review is unlikely to lead to a downgrade in the long-term ratings of
more than one notch.

The Prime-1 short-term ratings have been affirmed.

Meanwhile, the Aa3 long-term debt and deposit ratings on Credit Agricole
Corporate and Investment Bank remain on review, now direction uncertain
(previously on review for downgrade), as they may be aligned with the
ratings on CASA following the potential extension of full cooperative
support from GCA to this entity.

Moody's will publish separate press releases on other institutions
covered by the review announced on 15 June, 2011.


In its press release of 15 June, 2011, Moody's announced a review of the
BFSRs and long-term ratings of three French banking groups (BNP Paribas,
CASA and Societe Generale) because of our concerns about the potential
inconsistency between their ratings and their exposures to the Greek
economy (Greece is rated Ca, outlook developing), either through their
holdings of government bonds or the credit they had extended to the Greek
private sector. The review incorporated loss assumptions that were
significantly higher than the impairments the bank had already recognised.

Moody's has concluded that although GCA has considerable capital
resources to absorb potential losses arising over time from these risks,
the exposures themselves are too large to be consistent with existing
ratings. Moody's has therefore downgraded the BFSR of CASA, GCA's
central body, to C from C+. CASA's Adjusted BCA, which takes into account
co-operative support and thus the strength of GCA as a whole, has been
lowered to A1 from Aa3.

However, during the review, Moody's concerns about the structural
challenges to banks' funding and liquidity profile increased, in light of
worsening refinancing conditions. The continuing review of the BFSR will
focus directly on these funding and liquidity challenges for CASA, which,
given the current environment, could become long-term constraints to the
performance of its franchise.

Greek Exposures Material Issue For Risk Profile

Since the start of the review for downgrade, GCA, along with many other
financial institutions, has expressed its intention to participate in a
proposed restructuring of Greek debt. This led to its recognition of
EUR202 million before tax in impairments in the second quarter of 2011
(1). GCA's net residual exposure to Greek government bonds is now
relatively low, at EUR891 million net of policyholders' surplus in its
insurance activities (as of 30 June 2011), less than 2% of group Core
Tier 1 capital (2).

GCA's banking and trading book exposures to government bonds issued by
Ireland and Portugal are also relatively modest, at EUR1.0 billion in
total, although exposures are greater to the more highly rated Spain
(EUR1.8 billion) and Italy (EUR8.7 billion) (3). In its review, and in
the context of a stress test covering GCA's global loan book and
structured finance exposures, Moody's considered a severe case scenario
for certain government bond holdings, using haircuts significantly higher
than the impairments the bank has already recognized: 60% for Greece, 50%
for Ireland, 50% for Portugal, 10% for Spain and 7% for Italy. Taking
into account the impairments already made against some Greek bonds, we
believe resultant pretax losses would total around EUR1.5 billion, only
2% of GCA's core Tier 1 capital after tax and 18bps of risk-weighted
assets, with further mitigation possible via reduced dividends.

Loss assumptions for private sector credit were based upon those
previously published by Moody's, see "European Banking Credit Loss
Assumptions", published on 2 August, 2010. Indeed, the greater impact on
GCA was the result of a material worsening of the credit quality of GCA's
private sector exposures to Greece, as it booked larger-than-expected
credit losses against its loan book in its local subsidiary, Emporiki
Bank of Greece (E / Caa1 / B1, on review for possible downgrade), which
had a gross loan book of around EUR24 billion and an NPL ratio of 26% at
year-end 2010 with a coverage ratio of 45% (4). Emporiki's cost of risk
for 2011 year to date is 413 basis points of loans, further indication of
the deep-rooted credit issues in its loan book. Private sector loan book
exposures to Ireland and Portugal, at EUR3.6 billion and EUR2.1 billion
respectively, do not appear to pose material credit quality problems.

In Moody's view, CASA's exposures to the risks arising from the
deterioration in Greece's credit quality are more consistent with a BFSR
of C than the previous level of C+. The BFSR of C is equivalent to a
standalone Baseline Credit Assessment (BCA) of A3 on the long-term
ratings scale. Furthermore, the same issues had led Moody's to believe
that the Adjusted BCA, which incorporates the mutual support mechanisms
available to CASA and therefore reflects the credit quality of the entire
group, is more consistent with A1 than the previous Aa3.

The Adjusted BCA reflect the group's very strong domestic retail banking
and insurance franchise, its international retail and insurance
activities and other leading positions in selected financial services.
The rating also incorporates the group's diversification, witnessed by
its wide range of products and services offered in various geographic
markets, which partly offsets the weaker overall credit fundamentals of
its capital markets activity, which in common with those of many other
banks, is characterised by a certain complexity and opacity of risk
profile, as well as a relatively confidence-sensitive customer base. The
Adjusted BCA takes into account the Greek and other peripheral exposures
discussed above.


In addition to the concerns noted above, GCA's wholesale funding, the
majority of which is short-term, is still high in absolute terms and may
pose a vulnerability given considerable market tension. During the
summer, concerns over sovereign exposures and the health of sovereign
balance sheets grew significantly. This was most manifest in the
behaviour of US money market funds, which are an important source of
short-term US dollars for GCA. These funds became particularly
risk-averse, resulting in reduced availability and shorter tenors for
this type of financing. For more details, see Moody's Special Comment,
"EU Banks: Stronger Liquidity and Central Bank Actions Mitigate Recent
Volatility but Longer-Term Concerns Remain".

Moody's notes that GCA has substantial holdings of central bank eligible
assets (EUR81 billion at 31 July 2011), and other liquid assets of EUR42
billion (5). In addition, it has full access to Eurosystem central bank
liquidity in major currencies. As such, Moody's believes that GCA can
withstand the short-term credit negative impact of the contraction in
dollar funding, and notes that euro funding remains plentiful. Even so,
the amount of the bank's wholesale funding requirements makes it
vulnerable to a deterioration in market sentiment. At end--2010, from a
strictly accounting view, debt securities and interbank borrowings
totalled EUR310 billion, or 25% of its total balance sheet excluding
insurance technical reserves and derivatives, 59% of which falls due
within three months, and 76%, within one year (6).

Moody's expects GCA to continue to enhance the amount and quality of its
liquidity, reduce its reliance on the wholesale markets, and lengthen the
duration of its borrowings, in anticipation of the challenges posed by
the Net Stable Funding Ratio and Liquidity Coverage Ratio to be
introduced by Basel III. However, given the likelihood that bank
financing conditions will remain fragile and prone to disruption so long
as concerns persist over European sovereigns, and the potential for that
disruption to become more marked and sustained over time, Moody's is
maintaining its review on CASA's BFSR. The extended review will assess
the potential for further, increased disruption to undermine CASA's
business model and creditworthiness given its continued reliance on
short-term funding, as well as the potential impact on other credit
considerations, notably profitability.


Under its Joint-Default Analysis (JDA) methodology, Moody's assigns two
notches of cooperative support to CASA from GCA, reflecting the greater
strength of the group, which notably benefits from a very strong
franchise in French lending and savings. This results in an Adjusted BCA
of A1.

Moody's regards France as a high support country, and GCA plays a major
role as an intermediary in the French economy and is integral to the
banking system. Moody's therefore assesses the probability of systemic
support for CASA in the event of distress as being very high. As such the
bank receives a two-notch uplift from its Adjusted BCA, which brings the
Global Local Currency deposit rating to Aa2. This remains on review for
possible downgrade, as under our JDA methodology, a reduction in the
Adjusted BCA to A2 would result in a downgrade in the long-term ratings
to Aa3.


Given the current review for potential downgrade on CASA's BFSR and
long-term debt and deposit ratings, an upgrade in either is unlikely.
The main factors which could lead to lower long term ratings include:

- a reconsideration of the bank's funding and liquidity profile within
the context of its broader business model, and the impact of its current
and future funding structure on other credit considerations, chiefly risk
management and profitability;

- a prolongation or intensification of challenges to refinancing
conditions, resulting in a weaker liquidity and / or funding position in
Moody's view;

- increased sovereign risk in the euro area

- a deterioration in GCA's overall risk profile as a result of risk
management failures and/or acquisitions;

- a resurgence of volatility within capital markets activities;

- a deterioration in our assessment of the intra-group support
mechanisms, which we consider unlikely;

- a lowering of our assessment of the probability of systemic support
that would be provided to GCA in the event of need.

The review is unlikely to lead to a downgrade in CASA's long-term ratings
of more than one notch.


As noted, Moody's Aa3 long-term debt and deposit ratings on CACIB remain
on review, direction uncertain (previously on review for downgrade). The
BFSR of D on CACIB is unaffected. The review will consider the potential
extension from GCA of full cooperative support to CACIB, which would lead
us in turn to align the long-term ratings with those of CASA. Depending
on whether Moody's would assume full cooperative support and depending on
the outcome of the rating review of CASA's long-term ratings, CACIB's
long-term ratings could therefore either be aligned with CASA's
long-term ratings or be rated up to two notches below CASA, as has been
the case up until now, resulting in long-term ratings of either Aa2, Aa3,
A1 or A2. The Prime-1 short-term rating was affirmed as it would be
maintained at each of these rating levels.


The ratings on the dated subordinated obligations are notched off the
bank's fully supported, long-term GLC deposit ratings and therefore
remain on review for downgrade.

The ratings on the bank's hybrid obligations are notched off the Adjusted
BCA of A1 for CASA, in accordance with Moody's Guidelines for Rating Bank
Hybrid Securities and Subordinated Debt published on 17 November 2009.
The ratings remain on review for downgrade.


For all other entities affected by this rating announcement, please refer
to the rationale above.


The methodologies used in these ratings were Bank Financial Strength
Ratings: Global Methodology published in February 2007, Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology
published in March 2007, and Moody's Guidelines for Rating Bank Hybrid
Securities and Subordinated Debt published 17 November 2009. Please see
the Credit Policy page on for a copy of these


(1) Source: unaudited interim financial statements

(2) Source: unaudited interim financial statements

(3) Source: unaudited interim financial statements

(4) Source: Emporiki unaudited interim financial statements

(5) Source: unaudited company presentation

(6) Source: audited 2010 financial statements

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PeterB's picture

This one makes it even better

JW n FL's picture



Investors urged to adopt a financial risk-based approach to environmental, social and governance factors
The financial crisis has led to a greater awareness of the need for a much broader analysis of corporate performance and risk that encompasses environmental, social and governance (ESG) factors, rather...

Here comes the Oil Money Pitch for the SAVE!! LOL!! Let the Evil Towel Heads hold the debt so that the circus continues on!! LOL

JW n FL's picture



Sharia / UCTIS (4) / 3 (a) Comp! BITCHEZ!!

EscapeKey's picture

... tomorrow, we'll see Credit Agricole upgrade Societe Generale, and vice versa. Oh, and they'll pledge collateral with the ECB hinging upon those two institutions remaining solvent.

PeterB's picture

Do I detect a touch of cynicism or are you just positive in general?

EscapeKey's picture

I guess technically it's gallows humour.

PeterB's picture

Thought just as much...carry on the good work

IQ 145's picture

No, unfortunately that's not possible. The great depression, or world wide credit smash-up, started with Creditanstalt Vienna; and not on the us stock market, and not with the british going off the gold standard; Everything played out like a pre-developed movie film after this major European re-financing center bank failed. This is not a subject which is good for my sense of humor. I suggest we all pray as follows; Oh, Mary, mother of insolvent bankers, don't let us down now in the hour of our need; we have sinned and we repent of our sins, but please God in the name of the Son and the Holy Ghost, most holy mother of God, do not let these banks fail." We should probably repeat this fifty times while fingering some beads. This probably won't work, but it's worth a try. It's not going to be funny if these major re-financing center banks start going oops!, we dropped the soap.

Thomas Jefferson's picture

Shaping up to be a doomy Wednesday.  Excellent.

Spirit Of Truth's picture

Indeed.  There are the makings of a 2008-style liquidity crisis.

Now here's the uncanny part.

The 2008 financial crisis really kicked off with the Lehman bankruptcy which occurred with the Hunter full moon on September 15th that year:

The Hunter full moon this year occurred the day before yesterday.

Notably the 2008 crisis didn't take full form until we entered the "black" month of October.  I'm presuming a similar pattern could unfold this year:

caerus's picture

interesting post...was wondering what may happen monday after checking ephemeris...will keep up with your blog

JOYFUL's picture

"I am the Hunter";


A bumbling bloodhound who carried a card which read "Have Nose, Will Hunt", The Hunter worked for Officer Flim Flanagan. He was continually in pursuit of The Fox, a cunning con-man who once stole the Brooklyn Bridge. The Fox would eventually be nabbed by the end of the cartoon, in spite of The Hunter's bumbling.

As usual, the great minds working for slave wages at HannaBarbera and those other 50's sweat shops laid it all out for us kids to 'git' ....although 'Biggie Rat & Itchie Brother remain personal favorites, there's a dozen other examples of prescient forecasting (sponsored by General Mills & Kellogs) that shoulda, coulda, woulda told us how it was goin go down...

too bad that 'happy ending' rule was enforced by the paymaster in order to dull our sharp young senses! As we ALL know now,  "da Fox" is running the henhouse...

JoeSexPack's picture

Doomier the better. Correction, price discovery & bad debt liquidation.


Be still my beating heart, been hoping for years.



lolmao500's picture

How come they don't downgrade Swiss banks?

JoeSexPack's picture

Rumor has it they occupy a special safe zone, protected under Rothschild cabal & Vatican (Swiss Guards, etc).

IQ 145's picture

Heathen ! Apostate ! renegade ! Heretic ! You speak the unspeakable. Is nothing Sacred?

Yamaha's picture

Just looked outside and saw two black swans mating".............

chump666's picture

...I am tripping, just saw Apophis (look it up) f*cking the EZ

chump666's picture

as in Greek mythology (look it up)

T2's picture

More like a clusterflock...

The Shootist's picture

Pardon my ignorance, but how could the downgrade of these two french banks have a worse effect than when S & P downgraded the U.S.? I'm skeptical this week will be too bad, but we'll see.

I'm all for banks crashing and PM's blasting. Fingers crossed.

IQ 145's picture

The downgrade is alright; except it forces us to think about "bad things". If BNP actually goes, whoops; you'll be very pleased with  effects on your metals price. Or at least that's my opinion. Fear and loathing drive metals up.

ZeroPower's picture

Its all about the convenants. 

IQ 145's picture

As far as I know timing is completely impossible. This week we just get "conversation"; which is harmless enough. But the week when we get the anouncement that French Banks are temporarily closed to conduct a special review of the air-conditioning system; or whatever; and the actual situation becomes apparent I would supposed silver would double in one or two days.