Moody's Investors Service said on Wednesday that it downgraded the credit ratings of Societe Generale and Credit Agricole, marking the latest in a series of blows to French banks that have recently punished European stocks.
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Moody's cut SocGen's debt and deposit ratings by one notch to Aa3 from Aa2.
The outlook on the long-term debt ratings is negative. Moody's anticipated that the impact of its review on the Bank Financial Strength Rating (BFSR) would be limited to a one-notch downgrade.
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 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.
Credit Agricole said in response to Moody's action, it will implement a formal support mechanism on behalf of Credit Agricole Corporate Investment Bank's (CACIB) "in the form of a general guarantee or through the affiliation of CACIB by Crédit Agricole SA."
The mechanism, Credit Agricole said, mechanism should be in place by early December 2011.
Following Moody's announcements, Bank of France Governor Christian Noyer said the downgrades were expected and that he does not believe bank stocks will be further hit.
Even in the case of a Greek default, Noyer said, French banks would not post losses but would merely reduce the size of their dividends.