14th September 2011
The latest to suffer are the French banks, with the Financial Times (paywall) reporting that Moody's has downgraded its credit ratings on Credit Agricole and Société Générale and kept France's biggest bank BNP Paribas on review for a downgrade.
Jeremy Warner asks ‘Where now for European banks?' in the Daily Telegraph: "With the debt crisis approaching some kind of self evident denouement, there's no-one in charge, only denial and blame. Policymakers seem more concerned with the irrelevancies of moral hazard than on finding solutions. If it wasn't so tragic, it would be laughable. Europe is fiddling while Rome burns."
Masistios comments on a report in the Guardian: "Once they feel sufficiently bold, the ratings agencies will move on to their main target – German Banks – just wait an see. Attacking the French banking giants would have been laughable a few months ago, now look what's happening!"
But what about UK banks?
Mindful Money's economist blogger Shaun Richards says that the downgrade of French banks was widely anticipated, and the impact may hit home soil.
He says: "The debate is fast moving and this downgrade was expected – minds have already turned to which bank or banks were so desperate that they have borrowed US $'s from the ECB today – it symbolises a Europe wide problem.
"The contagion is spreading and the fear is of that should the situation deteriorate a UK bank could find itself exposed too because of the inter-linked environment in which modern banking exists."
For now, it has been reported that UK banks are safe from being downgraded – no doubt prompting them to breathe a sigh of relief.
Following The Independent Commission on Banking (ICB) report earlier this week, Moody's, said this "would not trigger any immediate rating changes for UK banks", partly because they will have until 2019 to implement the changes, says the Independent.
Downgrades from agencies can cause companies' shares to slump, as shown when French banking shares crashed earlier this week amid rumours that Moody's would downgrade them.
However, it seems the UK banks may soon be hit by a series of downgrades as Moody's added they will be under review
Mark Kleinman blogs on Sky News : "…my sources tell me that a swathe of ratings downgrades is likely to be announced within days; given that Moody's has already said it will make public the outcome of its review of about a dozen banks and building societies by the end of the month, they're clearly not off the hook.
"Among those on review for downgrade (based on Moody's assessment of the impact of the withdrawal of state support for the banking system) since May are the state-backed Lloyds TSB (part of Lloyds Banking Group) and Royal Bank of Scotland."
Kim Stephenson, Mindful Money's resident psychologist blogger, says: "The whole financial system is interlinked and immensely complex. It's like a pile of multi-dimensional dominos in phase space, if you knock one over you know that something is going to happen elsewhere, you just haven't got a clue where or even if it will have any effect in your universe.
"If there is a Greek default (one if) then there might be a need to recapitalise French banks (another if) and if that happens there might be big problems in France (another if) and that may have repercussions for Europe (another if) and maybe the US (another if) and so on. And what about the knock on effects of Greece failing (or not) on other areas like Germany, and the knock on effects of whatever happens in the rest of Europe (and the Far East), that will effect whatever ripples spread from the French response to what happens in Greece, and meanwhile China is reacting and that effects the US and that will knock on to Europe and….. Anybody saying that they know what is going on is either smarter than Einstein, Heisenberg, Feynman and Hawking combined, or sadly deluded."
"…Meanwhile, nobody really has any idea of why what has happened has happened, let alone the full implications of what is happening now, and their predictions of what will happen might as well come from Mystic Meg."
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