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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Ahmeexnal's picture

Don't forget to put your shorts on. Triple shorts with FAZ.

cosmictrainwreck's picture

interesting......... but (so far) VXX, FAZ, TZA out-perform. I didn't even bother comparing TVIX - in a class of it's own

HyperLazy's picture

DRV has potential but it is limited since a fair volume of real estate is Marked to Magic and sheltered by a banker stasis field. However, once the banks are dead and their holdings are released then its game on. If there is an economy left...

Edit: In regards to VXX, quoting my immaculate self -

Disclosure: I doubt I will pick up VXX again. Barclays is the instutition behind VXX and VXZ. These are non-secured ETN instruments. Don't get caught holding the bag.

To which a reply was posted -


I agree. DO NOT BUY VXX and hold even overnight. It has a big problem with decay AND it is a Barclays etn which means it is only as reliable as Barclays solvency... I have no inside scoop or anything, just what I read and see, and the experience of having been a sucker and held vxx last year...



DCFusor's picture

I've found VXX to be a good short-term short right after a big spike.  The fear-adrenaline wears off after a few hours, for a few hours.  There's a nice little window in there you can make money off in a trade, often as not.  Decay helps you if you get stuck in it.  Great way to play a dead cat bounce in the market.

DeadFred's picture

An ignorant question I've wondered about is somewhat related. What happens if you hold a put on an iffy stock (VXX, GLD, BAC etc.) and they go bankrupt? Does your put go to maximum value or does it enter some untradable purgatory?

LookingWithAmazement's picture

In case, there will be a lifeline for the French banks, just as the G7 or the central banksters recently announced. No Armageddon. I'm even not eating popcorn anymore, I just ignore all the news and do useful things.

Hephasteus's picture

Yes. Japan will provide money that's not locked up in old japanese peoples safes as well as fresh food and drinking water and assist with electricity that doesn't brown out.

France will bring treasure maps to gaddafi's gold.

Us will have haliburton fuck up the entire mediteranean with toxic chemicals.

England will bring 50 EU cop thugs to strip search people.

It's going to be a really healthy really healing situation. Just watch.

TwelfthVulture's picture

It's looking like it's almost the BOJ's turn to buy Yen hand over fist again.

LookingWithAmazement's picture

To print & dump yens, you mean. Do the SNB. Japan wants one thing: a crashing yen.

TwelfthVulture's picture

No, I meant buy, but I can see your confusion there.

We all agree that ALL central banks are in collusion together.  They have to be for the system to function.

I think from your post that we can also agree that every currency is now in a race to the bottom.

But think like a banker where debts are assets and cash (deposits) are a liability.  Even in a race to the bottom, some one is lagging (i.e. stronger) while some one is leading (i.e., weaker).  The weakness right now is in the Eurozone, the weakness to come (post QE3) will be the US, so the strength must be ... the Yen.  They won't (can't) tank the Yen until AFTER the weakness plays out in the Eurozone (and quite possibly the US), then they will print & dump.  But for now, the BOJ needs be by necessity the garbage collector.

*Remember they're working together.  It's not BOJ v ECB v FED.  It's central banks v the rest of us.

DeadFred's picture

The front-runner in the least ugly contest is currently the dollar. Who would have thought it, buck teeth, zits and obese yet the darling of the ball. But the interview and talent portions of the contest are yet to come!

Bendromeda Strain's picture

Yes of course - funny round wingnut ears also...

TwelfthVulture's picture

I don't know about that.  Look at the 5 year chart.  The Yen and the Swiss Franc have been the place for smart money to be.  2007: ¥100=$0.8, today $1.2.  Today, the Yen buys about half as much gold as it did in 2007, same as the Franc.  The dollar and the other major currencies buy a third.

DeadFred's picture

But I'm a very shallow individual and my attention span is not that long.

SMG's picture

You might be right, but Armageddon will not be postponed forever.   It will come one day or tommorow.   But it is coming. And then hopefully a new a better world.

FearedDevil's picture

Armageddon: A dramatic and catastrophic conflict, typically seen as likely to destroy the world or the human race.


I do not think that means you get to be around to see the new better world.

MsCreant's picture

But the roaches just looove what we have done with the place (especially the new radiation reveling, plastic eating variety!)!

Snidley Whipsnae's picture

"And then hopefully a new a better world."

All things not maintained tend to chaos...

For instance, the population of Germany, after losind WW1 and being subjected to huge reparations payments, suffering through hyperinflation and then a grinding depression, were hopeful that the arrival of Hitler on the scene would improve their lot... and Hitler did for a time... then came a level of chaos that made what went before look tame.

There is absolutely no reason to believe that the destruction of the status quo will result in a 'new and better world'...

Even though we are all hopeful of that outcome.

knukles's picture

I've been trying to do that too, but got raw.  So back to intellectual manipulations, snarks and cynicism.

Roger Knights's picture

"In case, there will be a lifeline for the French banks, ..."

One of these days the lifeline will pull down the rescuer.

Smiddywesson's picture

Agreed, we didn't kick the can all this way to simply stop and behave rationally.  This is all about delay and gold acquisition.  There won't be any major developments as long as TPTB want to delay.

dumpster's picture

these are confidental talks ... lol  but some people will squeal as long as you not name us ..

as the case may or may not be 

The Deleuzian's picture

I don't know about the rest of you guys out there... but pretty soon an apathetic, seen this before, diluted, the new normal type attitude will set in for many...

But even stepping an inch back and looking up scares the shit out of me!!!

Lord Welligton's picture

But even stepping an inch back and looking up scares the shit out of me



And so it should. The new normal is not a place you want your mother or sister to live in.

DoChenRollingBearing's picture

Yes, this whole New Normal meme is scary...

+ another 1, even if it's not working Lord W.

Lord Welligton's picture

another 1


Oh No Not Another One.

Oh No Not Another One.



DoChenRollingBearing's picture

+ $1860 and green, except green STILL not working for you.

GREAT Song!  I even went and took a look around at some of his other stuff there at YouTube.  This guy was one of the best.

Thanks for sharing that!  Soon as I have an excuse, I will put one of his songs up there on my blog.  Treasures like that must be shared.

dwdollar's picture

They don't call it a depression for nothing.  A real depression isn't phony GDP numbers which show umpteen quarters of whatever growth.  It is a society which has given up.

knukles's picture

By numerous conversations of late with regular, ordinary non-ZH'ers, "Normies" if you will, it is devolving to exactly that.... giving up.  Anger and frustration giving way to morose sadness, helplessness.  It's gonna get mega fucking depressing, this depression.

Snidley Whipsnae's picture

"the new normal type attitude will set in for many..." But the new normal is not set in stone and is getting 'worse' daily when compared to the 'old normal' of 40 years ago...

Hence, the comparison to a slow motion train wreck. What happens slowly allows us time to mentaly adjust... even if we do not like the new normal.

If all that has happened since 2000 were compressed into a couple of days most of the world would be in total shock, and many would never recover; instead, they would find mental relief in creating a delusion to live in.

Or, is that what some have already done and others are working on?

TradingJoe's picture

It looks like QE3-people will have a make or brake next week! If they still believe in SantaBen then it hasto happen this coming week, otherwise bye bye QEsomething! If not, next week, after the the FEDsters have NOTHING TO ANNOUNCE the BIG DOWN will commence, I somehow doubt this will be let to happpen by SantaBen, my take is THIS coming WEEK IS IT! TIme is of the essence and they have none left, primaries are around the corne too, by now everybody and their mommies know the bad news to come, and no, it's not "priced in", YET!

Buckle Up, hold your PMs and whatever puts you had the balls to get into and enjoy IT!

Landrew's picture

I am holding BAC puts but, I never have the balls to just hold while there are profits to take. The only way I don't settle for a single is if overnight kills the equity. I was holding Lehman when overnight it died, otherwise I would have sold it for a single instead of the home run! No balls here.

TwelfthVulture's picture

May Buffett lose shitloads money before your puts expire.

DoChenRollingBearing's picture

@ Landrew

Consider selling half your puts, and let the rest ride!  Then you are not on the hook for much if things go against you.

Good move buying BAC puts, H/T.

Smiddywesson's picture

Yes, sell down to the sleeping point. That is always good advice.

snowball777's picture

Courage, man. You can doooo it!

DeadFred's picture

So what are the chances they're doing yet another head fake trip, get everyone to go short with a planted or badly timed article or two then the rabbit comes out of the hat a sharp rally and they harvest all the shorts. I'm not saying I don't believe the party line here but banksters will do what's in their nature to do.

TwelfthVulture's picture

I hear what you're saying Fred, I just don't know what that rabbit will look like?   Short of finding a unicorn that does shit gold shittles out its ass, I can't imagine what the impetus for a rally here could be.

Captain Benny's picture

Maybe they found a real living leprechaun and are now stealing his gold... thats about the only thing I can see them pulling out of a hat able to solve these debt issues.

spanish inquisition's picture

Bubbles are about to go parabolic.