Moody's Investors Service yesterday downgraded the ratings of Société Générale SA and Crédit Agricole SA for the second time in less then three months. The bank cited poor funding conditions and their exposure to sovereign debt for the action.
It also hit France's largest bank by market value, BNP Paribas SA, which it had spared in a September review.
Cutting BNP Paribas and Crédit Agricole's long-term debt ratings by one notch to Aa3 and that of SocGen one notch to A1, it gave the three French lenders a negative outlooks.
The ratings agency also took a dim view of the French banks' recently launched restructuring plans aimed at boosting capital ratios by shedding assets, saying they could struggle to hit their promised targets.
According to Moody's, given the broader deleveraging efforts being undertaken by banks in France and elsewhere, there was an increasing risk that a lack of market appetite for assets might result in a less-than-expected balance-sheet reduction, or sales at depressed prices.
Defending its restructuring plan SocGen disputed Moody's justification for the downgrade saying, "The group is surprised by this decision and challenges the reasons advanced by Moody's. In its third-quarter results [Société Générale] demonstrated its capacity to adjust rapidly its management of short- and long-term funding needs in the current unfavorable market environment," it said. It added that its exposure to sovereign debt in troubled euro-zone countries was "modest and manageable."