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Moody's Downgrades BNP-Paribas, Credit Agricole and Société Générale

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Moody's Downgrades BNP-Paribas, Credit Agricole and Société Générale

MOODY'S - 15 major Western banks had their rating downgraded by the rating agency.

REUTERS / Mike Segar

Moody's downgraded 15 major Western banks active in global markets, including the US Bank of America and Citigroup, relegated to two notches to junk status, and the French BNP Paribas, Credit Agricole and Société Générale.

Moody's wanted to include better reflect the volatility and risk of large losses related to these activities.

After a review launched in mid-February, the ax of the agency fell Thursday night in five US institutions, three French, two Swiss, three British, one Canadian bank and a German.

The worst affected are the American Bank of America and Citigroup, whose notes were downgraded to "Baa2" and are located only two notches above the so-called speculative category.

In a statement, Citi has expressed his "strong disagreement with the analysis of Moody's Banking Industry" and provides "firmly believe that the lowering of Citi is arbitrary and completely unwarranted." The group added that investors "sophisticated" not highly dependent on agency ratings to assess credit risks.

Three groups of banks, in order of strength

As for the French banks, the agency lowered the rating by two notches of BNP Paribas and Credit Agricole SA, and one that of Société Générale. The three institutions now have the note "A2".

Moody's split into three groups, in order of strength, the 15 banks. The Sino-British HSBC (-1 notch to Aa3, Aa2 against), the US JPMorgan Chase (-2 notches to A2 against Aa3) and the Canadian Royal Bank of Canada (-2 notches to Aa3, against Aa1) were paid into the top group.

The agency believes that despite the significant size of their market activities, the three banks' capacity to absorb shocks than many of their peers, evidenced by income from other activities, generally more stable. "

Moody's considers that they have a solid equity and liquidity, stressing that their exposure to sovereign debt of troubled euro area and the banks of these countries is "contained".

At the other end of the spectrum, the agency has relegated in the last group the American Citigroup, Morgan Stanley and Bank of America and the British Royal Bank of Scotland (RBS).

RBS responded by indicating in a statement "disagree" with its lowering by the agency, which it considers "backward looking" and "without taking into account the substantial improvements made ​​by the material balance in a group, funds and risk profiles. "

Also hit by a one notch downgrade of its rating on long-term debt, Lloyd said that "this change will have a limited impact on (its) financing costs" and noted that Moody's "confirmed his note to short term remained unchanged. "

Moody's argued that their market activities have been inadequate in their risk management or were marked by high volatility. Meanwhile, sources of income other occupations are more tenuous or less stable than their larger competitors.

Morgan Stanley has responded in a statement considering that the new notes Moody's "are better three notches its initial indication," adding that these notes "still does not fully reflect the strategic actions in recent years" by the group.

The heavier hand to Crédit Agricole, exposed in Greece

The three French banks affected by Moody's decision contained in the second of the three groups, in order of strength.

Moody's is now the most severe of the three major rating agencies in respect of French banks. BNP Paribas has rated AA- by Standard and Poor's (SP) and A + by Fitch, two notches and a notch above its rating at Moody's.

Moody's assigned a so-called same credit rating "isolated" (standalone) from Baa2 to BNP Paribas, that is to say without taking into account the probability of any external support in case of difficulties.

She mentioned the importance of market activities in the income of the bank and its greater dependence on short-term funding and liquidity position lower than its major competitors.

The other factor playing against the French bank is its significant exposure to economies "under pressure" in the euro zone, especially Italy through its subsidiary BNL.

BNP Paribas has responded by criticizing Moody's to have "inadequate consideration" of its adaptation plan that will allow it to display at the end of 2012, a capital ratio "hard" (capital and retained earnings reported to Credits) among the highest in the world, and the importance of its available cash.

Moody's cited the same arguments for the other two major listed French banks, but had the heaviest hand to Crédit Agricole, only one to have received a negative outlook (stable for the other two).

For the agency, this differentiation is due to the greater vulnerability of Credit Agricole to Greece and a possible exit from the country in the euro zone.

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