Moody's Downgrades French Banks Again Citing Significant Deterioration in Liquidity and Funding Conditions; EU Banks Must Raise $153 Billion of Extra Capital; Banks Running to Stand Still

Moody's downgraded Credit Agricole, BNP Paribas, and Societe Generale today. This is fresh on the heels of a September downgrade of Credit Agricole and Societe Generale in September.

Please consider French bank ratings downgraded again by Moody's

Credit rating agency Moody's has downgraded France's three big banks due to their difficulty borrowing money. The agency cut Credit Agricole and BNP Paribas from Aa2 to Aa3, and Societe Generale from Aa3 to A1.

The move follows a previous rating cut by Moody's for Credit Agricole and Societe Generale in September.

"Liquidity and funding conditions have deteriorated significantly" for each of the banks, Moody's said, adding that the problem was likely to worsen.

"The probability that the bank will face further funding pressures has risen in line with the worsening European debt crisis," the rating agency said of each of the three.

It also assigned a negative outlook to all three banks' ratings, warning that it will continue to monitor the European bank debt markets, and would downgrade them again if conditions look set to worsen.

Last week, the problem prompted the European Central Bank, the US Federal Reserve and four other major central banks to agree to help each other provide cheap emergency loans to their banks in each other's currencies.

The surprise move sparked speculation that one or more major European banks may have been on the point of collapse.

Both BNP Paribas and Societe Generale have announced large asset sales in recent months, in order to reduce their total exposures and their reliance on short-term wholesale funding.

BNP plans to sell 70bn euros of assets, or 10% of the bank's entire balance sheet, with a focus on its dollar-denominated loans.

Banks Running to Stand Still

Bloomberg reports EU Banks Must Raise $153 Billion of Extra Capital

European Union banks must raise 114.7 billion euros ($152.8 billion) in fresh capital as part of measures introduced to respond to the euro area’s sovereign-debt crisis.

German banks need to raise an additional 13.1 billion euros, Italian banks 15.4 billion euros, and Spanish lenders 26.2 billion euros in core tier 1 capital, the European Banking Authority in London said yesterday.

“It looks as if the banks are running just to stand still,” said Matthew Czepliewicz, a banking analyst at Collins Stewart in London. “The backdrop has worsened, therefore banks in the interim have decided to lower their sovereign holdings and some have raised equity, so they’ve reacted and yet the aggregate number hasn’t changed much.”

Other lenders needing to bolster their reserves include Deutsche Bank AG, with a shortfall of 3.2 billion euros, Banco Bilbao Vizcaya Argentaria SA (BBVA), which missed the target by 6.33 billion euros, BNP Paribas (BNP) SA, with a shortfall of 1.5 billion euros, and Societe Generale SA (GLE), which needs 2.1 billion euros. Commerzbank AG (CBK) needs 5.3 billion euros to meet the target, German regulator Bafin said. France’s Groupe BPCE, the owner of Natixis SA, had a 3.7 billion euro shortfall, and Italy’s Banca Monte dei Paschi di Siena SpA (BMPS) needs to raise 3.27 billion euros.

Dexia SA (DEXB), the French-Belgian lender that’s being broken up, said it won’t have to comply with capital rules set by the European Banking Authority because it’s planning to “radically shrink in size.”

Bank of France debts jump tenfold on capital flight

For more on the liquidity issues facing French banks, please consider Bank of France debts jump tenfold on capital flight by Ambrose Evans-Pritchard.

French lenders lost €100bn (£86bn) in short-term deposits in September alone, mostly due to precautionary moves by US money market funds and Asian investors afraid of France's exposure to Italy. "There were huge net capital outflows," said Eric Dor from the IESEG School of Management in Lille.

While the liabilities can in theory keep rising for ever within EMU, they signal grave imbalances, such as the North-South trade gap so long ignored until it proved fatal. They ultimately leave debtor central banks deep under water if the eurozone breaks up. "We are in unknown territory in terms of monetary theory," said Mr Dor.

On the creditor side, the Bundesbank is left holding €465bn in IOUs, and the Dutch central bank €89bn, stoking fears that these countries could suffer a big loss if EU leaders fail to contain the crisis. The national central banks are also on the hook for the ECB's other operations.

Simon Ward from Henderson Global Investors said ECB support has jumped by €465bn since April, with a sharp rise of €102bn over the last four weeks. The total exceeds €1.3 trillion, or 4.5pc of eurozone GDP.

Desperate Times Lead to Desperate Lies

Flashback September 25, 2011: Desperate Times Lead to Desperate Lies

Check out these preposterous lies by Bank of France Governor Christian Noyer as quoted by Bloomberg in Noyer Sees ‘Absolutely No Reason’ to Use Bank Backstop

Noyer Lies

1. “I’m extremely confident” in French banks because “we know them very well. We know their balance sheets, their risk assessments. We know they have no toxic assets.”
2. There is “absolutely no reason” to activate a support system for the nation’s banks that was set up during the financial crisis in 2008.
3. Markets “are over-reacting,” he said. “They need to come back to a sense of reality.”

All of those are blatantly preposterous. However, lie number 1 has to be one of the top lies of the year. "French banks have no toxic assets"?!

For starters, what about Greek bonds about to take a 50% haircut or more in default? That lie is so ridiculous no one on the planet can possibly believe it.

Dexia Bank Blows Up October 3

Two refresh your memory, less than two weeks after Bank of France Governor Christian Noyer made his preposterous statements, Dexia, a combined Belgian-French bank went under. Please see Dexia, Belgium's Largest Lender About to Become First Casualty of Greek Default; Emergency Meeting to Split Bank Now in Progress.


Difficult to Believe Anything

The lies are so blatant now, it is difficult to believe anything a bank says, an EU official says, the IMF says, or the EMU says.

I remind you of the admitted policy of Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the eurozone finance ministers: "When it becomes serious, you have to lie".

Given that things are nearly always serious, the safe thing to do is not believe anything, especially in regards to solvency issues, capitalization needs, and liquidity problem denials.

I have a big hint for all these eurocratic and central bank liars: If you want to restore confidence, the first thing you have to do is tell the truth.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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