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Downgrade of French Banks Sends Risk FX Lower

Last updated 9/14/2011 2:49 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Moody’s today downgraded Credit Agricole and Society Generale adding further downward pressure to French banks and sending equities lower in pre European open trade. Moody's cut SocGen's  debt and deposit ratings by one notch to Aa3 from Aa2.

Moody's said that although SocGen's "capital base currently provides an adequate cushion to support its Greek, Portuguese, and Irish exposures ... it will extend its review for downgrade of the C+ BFSR (Bank Financial Strength Rating) to consider the implications of the potentially persistent fragility in the bank financing markets, given its continued reliance on wholesale funding."

For Credit Agricole, Moody's downgraded its BFSR by one notch to C from C+, and cut its long-term debt and deposit ratings by one notch to Aa2 from Aa1. The news pressured risk FX at the start European trade with EUR/USD dropping below 1.3600 level while cable drifted towards 1.5700 as concerns grew about the exposure vulnerability of UK banks as well.

Bank of France Governor Christian Noyer stated that the downgrade was “relatively good news”  noting that it left French banks with similar ratings as its European peers. Financial markets however, reacted negatively  as worries about counterparty risk continued to concern European investors.

Greece remains the focal point of trade as fears of its possible bankruptcy and the unknown ramifications of such an event on the European financial system  continue to push risk FX lower. Today’s  meeting between French, German and Greek officials could provide some relief to the market if officials indicate that bailout funds will be forthcoming, but the mood remains grim as risk aversion threatens to push high beta currencies to fresh  monthly lows as the day proceeds.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.