Moody's Downgrade Of French Banks Imminent, Risk Waterfall To Follow?

Tyler Durden's picture

As regular readers may recall, back on June 14, before it became an even bigger pariah in the thoroughly discredited rating agency space due to its refusal to downgrade the US, Moody's placed French megabanks SocGen, BNP and Credit Agricole on downgrade review, which means that at some point in the future the rating agency would have to cut the banks' rating from its existing Aa1-2, to Aa3 or even a single A. It is true that when it comes to downgrade reviews the rating agencies are notorious for being as unpredictable in their timing as they are conflicted in their rating: for example even though Belgium was supposed to be downgraded months ago due to the fact that it continues to be the longest running modern anarchy, nothing has occurred, as political interests are obviously pushing the raters to do as paying clients request, not as reality demands. Alas, for France, which is very sensitive to any inkling it may have a less than sterling rating (due to its sovereign AAA requirement without which the EFSF/ESM falls apart), the luck may have run out. Bloomberg reports that the abovementioned banks "may have their credit ratings cut by Moody’s Investors Service as soon as next week because of their Greek holdings, two people with knowledge of the matter said.  

Bloomberg continues: "Cuts are expected next week as the review period concludes, said the people, who declined to be identified because the matter is confidential." Needless to say, this event will come at what is possibly the worst time for Europe, which is already scrambling on all fronts to protect itself from a financial and sovereign implosion courtesy of risk contagion and general insolvency. The point is that while the French banks will likely receive the implicit support of the G-7 which is meeting in Marseilles as we type, the ramifications are that an even weaker financial system will case the French sovereign rating in an even weaker light, and a cut to the country's AAA rating will hence be inevitable. When that happens, Europe will have no choice but to completely redo its entire bailout struture, as a French downgrade will throw the EFSF-CDO mechanism, and the European bailout crusade, in terminal flux.

From Bloomberg:

Credit Agricole spokeswoman Anne-Sophie Gentil declined to comment, as did BNP Paribas spokesman Antoine Sire. Societe Generale spokeswoman Laetitia Maurel said she couldn’t immediately comment. Voicemail messages left on the mobile and office lines of Moody’s chief European spokesman Daniel Piels today, outside of working hours, weren’t immediately answered.

 

Societe Generale has dropped 55 percent in Paris trading since June 15, while Credit Agricole tumbled 45 percent and BNP Paribas has declined 42 percent. The Bloomberg Europe Banks and Financial Services Index of 46 companies fell 30 percent in the same period.

 

The reviews of Credit Agricole and BNP Paribas are unlikely to lead to downgrades of more than one level, Moody’s said when it put the banks under review. Societe Generale’s debt and deposit ratings may be cut as much as two grades because of the “uplift it receives from systemic support, which is currently higher than average for the French banking system,” the rating company said at the time.

 

Credit Agricole’s main risk arises from its Greek subsidiary Emporiki Bank of Greece SA, which was downgraded earlier this month, Moody’s said in June. Societe Generale, France’s second-largest bank by market value, faces risks from its stake in General Bank of Greece. Credit Agricole is France’s third-largest bank. BNP Paribas doesn’t have a local unit in Greece and is instead at risk from direct holdings of Greek government debt, Moody’s said.

And since in finance it is always about relative value, or lack thereof, we remind readers that yesterday we speculated that Credit Agricole, whose 3M USD Libor fixing soared to the highest of all BBA member banks, may soon become the next most prominent target of shorts (after Dexia of course, which is in for a rollercoaster of its own in the coming week).

Sure enough, the imminent downgrade provides an explanation why the bank scrambled to procure last capital funding before the funding doors shut. Alas, what matters far more is what the market response will be. Unfortunately for the bank, it will hardly be favorable; and with shorting already illegal, there is very little that European authorities can do reactively to pretend they still have any semblance of control over this slow motion train wreck.

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equity_momo's picture

We're gonna need a bigger popcorn bowl.

cossack55's picture

....and a little more butter. Watch that sodium though.

Sudden Debt's picture

Indeed, a lot of investors will get a hart attack next week... RIP...

LeBalance's picture

one must take care with the rascally English Languish:

hart

[hahrt] Show IPA noun, plural harts, ( especially collectively ) hart.
a male deer, commonly of the red deer, Cervus elaphus,  especially after its fifth year. (http://dictionary.reference.com/browse/hart) /smile/

knukles's picture

Like when I have a Deer Sized Harton?
Fixed.

markmotive's picture

Risk off for everything not nailed down.

I'm waiting patiently for gold to hit peak gold-to-S&P 500 ratio (originally hit in early 1980s) before going long risk assets.

http://seekingalpha.com/article/288542-s-p-500-to-gold-ratio-has-not-yet...

Market Efficiency Romantic's picture

as long as gold does not hit the real ratio to fiat currencies, fiat creators will be tempted to confuse their crash by manipulating gold and other reserves, as the gold price has become popular and increasingly creates a de-facto standard among people. Such price confusion is a logical strategic move. Due to its emancipation from gold-backing and as long as the real ratio is not hit, fiat has the power to confuse about its doomedness. Inception becomes reality or the perfect example for the tail wagging the dog.

chinaguy's picture

Moody's only leaked in advance so they can sell (not downgrading) to the highest bidder(s).

disabledvet's picture

Wasn't it Moody's who downgraded the US but not Europe...and just in time for the biggest rally in treasuries since the early 80's?

MsCreant's picture

S&P did it and it got their head exec. fired and demands that they go in front of congress and explain themselves (accusations of frontrunning it). 

Smiddywesson's picture

If you are saying TPTB are likely to become even more interventionalist in the gold markets, I agree.  They have no choice.

Marco's picture

TPTB own more gold than anyone ... their private banks might be short PMs ... but the private banks are set up to fall with everything else in the collapse. They will retreat to their private islands, gated communities and resorts in friendly oil based dictatorships as chaos rampages through the world ... but the collapse will not make them poor and it will certainly not reduce the percentage of true wealth they control (including gold).

 

This fantasy that the collapse will wipe out TPTB is complete lunacy. It won't do a damn thing about wealth distribution, it's just going to crater productivity. They'll still wash down caviar and truffels with champaign, it will be the poor that suffer. Some of us might be able to hitch a ride with PM investment, but the only people guarantueed to not lose are TPTB ... except in a true revolution. That's why they are TPTB.

rocker's picture

Maybe it was just a typo. I do it all the time. And no, I don't proof read everything.

This is ZH, the point is what matters. Eh.  LOL  Just look at the makets. Less than Perfection.

Ratscam's picture

riots in zurich, cause unknown, as of now,
looking for athens, meeting any westhern town.
edit 11 AM: no biggy just an illegal party with 1500 people that became quite violent. the real deal will show after the euro has crashed

nmewn's picture

"Maybe it was just a typo."
Yeah, no big deal. He's Belgian, he does pretty damn good...lol.
Besides, I have a sticky "C" key...anything an happen ;-)

Motley Fool's picture

Perhaps it was intentional. The deer in headlights picture comes to mind. :P

LetThemEatRand's picture

I think the missing letter was an 's', not an 'e.'

"Indeed, a lot of investors will get a shart attack next week... RIP..."

Ursa Major's picture

Is that the one frozen in the headlights?

macholatte's picture

Belgium was supposed to be downgraded months ago due to the fact that it continues to be the longest running modern anarchy,

 

So how is Belgium doing?

Riots? Bloodshed? Starvation? Flesh eating zombies in the streets? Mad Max?

The meticulous care with which Belgian cooks select their foods can best be illustrated by a walk through a Belgian supermarket, where even every-day items like butter and cream are carefully labeled with the proud producer's name, where an incredible array of exquisitely garnished cold meats, pates, sausages, salads, and prepared appetizers delight the eye, and where varieties of canned, packaged, and bottled goods line up in colorful profusion unparalleled elsewhere. Advertisements proudly proclaim:

"Butter from Namur" ... "Asparagus from Malines" ... "Pork and pork products from Pietron" ... "Walnuts from Bastogne" ... "Strawberries from Wepion."

http://www.food-links.com/countries/belgian/belgian.php

 

oogs66's picture

shows what a country can do without a government

Bendromeda Strain's picture

Big deal, Japan does that. They just slip the word "not" in there.

Byte Me's picture

@macholatte

YEAH -- we're having it real tough over here in Belgium.

PS -- you forgot all the beer and chocolate. Nearly a year without be.gov too, Tough times for sure...

Yen Cross's picture

Those Brits have their austerity package lock, stock and barrel! I'll be playing those GBP trades over the next few months.

 Great post S/D as always!

Snidley Whipsnae's picture

European bankers are just as greedy as US Bankers... US bankers offered time bombs that looked like 'sure fire money making CDOs/MBS, etc' to the European bankers and the greedy European fools took them onto their books.

The time delay fuses have set the synthetic garbage held on European banks balance sheets off and the mission of taking down the Euro fiat currency is almost accomplished.

While military warfare is usually sporadic, economic warfare is continuous... and there are no rules.

Next time Europe decides to construct a currency to compete with the dollar they should do due dilligence on factors they are vulnerable to... For instance: No one is more succeptable to a scam than a scammer... The European banker scammers got caught in a scam perpetrated by US banker scammers...all is fair in economic warfare.

 

jhm's picture

Well, Snidley, it is not precisely that the US is without problems. Let's wait and see. In german there is a saying: "Nicht zu früh freuen" - that is not to crow too soon. Or: "Wer im Glaushaus sitzt, sollte nicht mit Steinen werfen" - talk about the pot calling the kettle black. ;-) Never underestimate historical memory and experience ...

Snidley Whipsnae's picture

jhm... To the contrary, I am not 'crowing' about what is transpiring. I am simply pointing out what I believe has happened.

I certainly do not approve of a movement by US banks, in collusion with regulators, to create toxic time bombs aimed at wrecking a competing currency to the dollar.

The consequences of what the US has done to wreck the Euro are wide ranging and certainly effect 99% of the worlds population due to decreased purchasing power of various fiat currencies including the dollar. The damage caused can be seen in higher energy prices, higher food costs, political unrest, etc... and could easily spiral into global conflict.

I did not mean to give the impression that I approve or that I am gloating.

Color me a disapproving observer... but, what can individuals do? We go to the polls to cast our votes and there are no candidates that we approve of, no candidates that are not bought and paid for by bankers, no candidates that offer meaningful change.

So, I watch and make comments on events. I read an article and sometimes offer a different slant on what I believe is happening... Strictly my opinons...Disinformation is everywhere and I hope not to add to it. 

I believe European bankers were patsys for a scam perpetrated by US bankers... with prior approval and encouragement from the highest level...all in an attempt to prolong the life of the dollar as the world reserve currency and to eliminate competition to the dollar from all other currencies.

 

TwelfthVulture's picture

Snidley, very interesting.  Nice take on "recent" events.  Be careful with the red team blue team analysis though.  US bankers, Euro bankers.  All major TBTF banks are global these days.  Not saying your thesis, € v $, is wrong, just don't think there is such a thing anymore as a European bank, or a US bank, or an Asian bank.

Dingleberry's picture

Snidely is doing the simple (and usually correct) rationalization since time immemorial:  FOLLOW THE MOTHER FUCKING MONEY.  In other words:  WHO BENEFITS????  You can then deduce the wherefore's, why's, and how's.  

jhm's picture

Understood (great to read that!) and thank you for your answer, very much appreciated. Food for thought, always a gain for the brain. :-)

See, to watch this multitude of levels in this "game" i have a strange feeling that no matter how sophisticated the US bankers (and politicians) seem to be and no matter how utterly clever their preparations were (since a very long time) they will sooner or later lose their funny game. As will their european friends (minions) in the relevant positions everywhere in all european countries. And with all of them the whole western political and banking scam will fall in a way the world has not seen since the dragon wars.

Chaos is not a certainty, given historical experience with people in Europe in situations of dire crisis. I am realistic about human nature, but am hopeful, too. In the worst times when all expect the (human) beasts to rave and rape in the streets often the best comes out in people nonetheless very fast, against all odds.

Looking at Germany i would strongly advise to take Russia, China, India and Turkey into the game, especially the russians and the indians are far underestimated in the great game. The ages-old anglo-american nightmare is a eurasian bloc with the russians and the germans in it working together, with Poland and France at the russo-germanic coat-tails as partners in crime.

To prevent that eurasian nightmare ever happening the anglo-american (empire) has done and would do everything, including as to go so far to try to ruin the planet at all cost just to stay in their illusion of power. This is not the whole story, there are myriads of levels here to watch, but it is one major part of the whole drama. Well, known (and lesser known) human history stands like a giant rock against all these efforts (by the anglo-american "elite" and its minions) to keep control, no matter what. No winning game here, for none of the players.

 

Smiddywesson's picture

If that were so Snidley, and the whole CDO/MBS fiasco was a plot to take out the Euro, then why did the Fed secretly funnel all that money to shore up EU banks?  Why not just let them fail?  Why all the cooperation to massage gold prices lower while central banks buy up gold if the plan is for the USD to be the sole currency standing?  In that case, central banks wouldn't need the gold.  I don't buy it.  The system isn't solvable and the Fed and ECB intend to remain at the top of the new system.  The Fed can't go it alone, it needs the ECB to get its way.  

I see this crisis as a tag team match led by the Fed and the ECB on one side, and any country stupid enough to follow them vs. all of the rest, led by China, and perhaps Russia.  Winner takes all.  

Guess who's going to win?  My money's on the Bernank

Snidley Whipsnae's picture

Smiddywesson... I am as interested as anyone to see how this plays out.

I have presented a hypothesis that cannot be proven at this time. In time we will see if the dollar is still around when the Euro is extinct. The proof, if indeed there is any, will be in what currency is still standing when others have disappeared.

If you dig into how the Euro was structured you will see that it was a sound system, lacking only physical/fiscal union. The Euro was attacked at it's weakest point...is this an accident?

Another bomb that was planted in the EU was Greece. Greece was aided by Goldman Sucks in hiding off balance sheet it's true debt...which allowed Greece entry into the EU when it should have been denied. Was this an accident?

US based and European based multination banks were instrumental in spreading toxic derivative instruments throughout European economies. A housing bubble similar to the one in the US was spread to Europe... a toxic economic virus.

Iran set up a program to sell oil for Euros and they were invaded. Lybia wanted gold for oil and they are invaded. Any country that introduces a currency that competes with the dollar runs into 'bad luck'... Could this all be coincidence?

Were the swap lines that Benny opened with European Central Banks for saving the Euro or for saving multinational banks? European countries were settleing trade with China in Euros, leaving the dollar out of the loop and endangering the dollar as reserve currency...

Lot to consider here and I have barely scratched the surface...

JoBob's picture

Interesting hypothesis, Snidley. The facts fit, so keep fleshing it out.

Max Hunter's picture

The Euro was attacked at it's weakest point...is this an accident?

Without ouside influence, everything will travel the path of least resistance.

Léonard's picture

People believe a world war is about to come but that war has already started and it is a silent war without apparent death, a financial-economic-cultural war, with the USA vs. Europe and the USA vs. the World.

jekyll island's picture

Woah!  The takdown of the euro was collateral damage caused by the law of unintended consequences.  Remember, CDO's were developed based on the theory of a Chinese national Ph.D quant, who developed a formula to allow them to do risk analysis of the piles of dogshit, errr, subprime mortgages they mixed in with regular mortgages based on CDS priced by the market.  It was hailed as a major breakthrough, all prior attempts failed due the large number of variables.  Clearly they were too smart for their own good and didn't test the algorithm against a falling market.   Greedy dumbasses.  Anyway, CDOs and CDSs, all these opaque derivatives are developed for one thing:  wealth transfer to the banks and Wall Street.  

So why did the Fed transfer all that FRN$ to the EU banks?  There are probably multiple reasons, but seeing as how they are all banks, I believe it was to protect the interests of their controllers.  The owners of the Fed most likely have multinational exposure and the collapse of EU banking system who have wounded them deeply.  Why should the banking elite suffer when they can transfer that pain to the taxpayers?  Isn't that why the Fed was developed in the first place?   It's about the money.  It's always about the money.  

 


 

 


I did it by Occident's picture

to keep with the military theme, the banks are sitting on non-IM (Insensitive Munitions) compliant stockpiles and they didn't read their quantity-distance tables correctly.  Thus when one gets set off, the rest of the magazine will go high-order via sympathetic detonation.  In other words, BOOM!

Martin T's picture

http://macronomy.blogspot.com/2011/09/markets-update-credit-chandrasekhar.html

"European banks seems to be facing a US dollars funding problem as no investors is willing to lend (buy a CP/CD) with a duration over 1 week. That information, if confirmed, is of significant importance as it has major implications not only in the money market (the spread OIS/Libor is at the widest for almost 2 years and keeps on worsening- 1rst confirmation), but also FX basis market (the basis swap between currencies has been deteriorating significantly and stands at -60 bps versus -10 bps 4 months ago -2nd confirmation). IF the trend remains unchanged in the coming weeks, the casualties may be the following:

  • 1- a US dollar rally against most currencies as there is both a lack of US dollars in the funding market, but also because most of the players are short US dollars versus currencies with higher yields ( Haaa … the famous carry trade may suffer a blow, and unwinding positions may be costly and create dislocations).
  • 2- a leg down in the commodities universe (except for Gold) as a most of those are US $ denominated.
  • 3- a leg down on the equity market as the losses from a higher US dollar will have to be offset by some unwinding on liquid assets (Welcome margin calls !!!). In addition, a higher US dollar versus Euro means lower earnings for the US corporations (non-withstanding slower growth in Europe, a major trade partner for the USA).
  • 4- a worsening credit market as banks funding problems have a direct effect on the overall spectrum of the economy."
jackinrichmond's picture

if the same people that own the fed also own the european banks, why would they want to wage war on themselves ?

Ben Bermonkey's picture

hahahah, check out this funny video of the Frenchman Chairsatan Trichet:

http://www.youtube.com/watch?v=jelCDnwpsxo

"Arithmetically, mathematically, it's not an esay job! Do you remember that?"

digalert's picture

"Que Sera Sera"

Sudden Debt's picture

The Future's not ours to see?

WE'VE GOT ZEROHEDGE BABY!!!

 

DoChenRollingBearing's picture

Yes we do Sudden!  ZeroHedge, the antidote to State Run Media shilling.  Without ZH I would not have learned so many things.

In less than 24 hours we will see how futures are reacting.  LOL.

YES, above comments re SPOT-ON about lots of popcorn!  Another interesting week ahead!

Manthong's picture

Watch for a $60.00 spike down in gold.

That means that the downgrade will be announced 5 minutes later, just like with the SNB CHF peg.

Smiddywesson's picture

Yes, absolutely.  When TPTB are brash enough to crash gold in the overnight markets, seconds before the SNB announcement, we have arrived at a whole new plateau of price manipulation.  

TPTB didn't spend decades denying gold manipulation just to blow all their credibility on one currency move.  TPTB didn't want to do that, events forced them to do it.  (which of course undermines my previous post that the SNB coordinated the move, but being wrong is part of this game too).

The downgrades will no doubt be coordinated with the central banks, so the gold manipulation may not be as obvious to the public as the SNB event, but with gold prices sitting this close to the $2k level, they are going to have to be a lot more obvious about things from here on out.

I also think they will use a margin hike or two to defend the $2k level, otherwise, where do they use them next, $3k?

Manthong's picture

Here’s where it gets interesting. They desperately do not want $2K breached.

What else would explain the waterfall drops that cannot possibly be profit motivated?

Everybody accepts “policy action” manipulation of interest rates.. why on earth would someone doubt “policy” is being carried out in any other area of the illusory “free Market”?

I hate this market but I am loving this action.