Moody's downgrades two French banks

(AP) Moody's on Wednesday downgraded the credit ratings of French banks Société Générale and Credit Agricole following a period of huge volatility in the markets as investors fretted about their potential exposure to the debts of Greece.

Some sort of move by Moody's had been widely expected this week — the agency had put them and rival BNP Paribas on review for downgrade in mid-June.

While cutting its rating on Société Générale's debt and deposit rating by one notch to Aa3 and Credit Agricole's by the same amount to Aa1, Moody's warned that both could have their ratings downgraded by a further notch as it assesses "the implications of the persistent fragility in the bank financing markets, given the banks' continued reliance on wholesale funding."

Though it maintained its Aa2 rating on BNP Paribas because its profits and capital base "provide an adequate cushion to support its Greek, Portuguese and Irish exposure," Moody's said it could suffer a one-notch downgrade too after the assessment.

Following the downgrade, Société Générale said Moody's analysis shows that the bank's exposure to Greece "to be modest and manageable."

Earlier this week, Société Générale's chief executive Frederic Oudea said that the bank was prepared for a downgrade and that it would not change its outlook.

The downgrades come as Europe scrambles to deal with the Greek debt crisis amid mounting fears that the debt-laden nation may have to default. French President Nicolas Sarkozy and German Chancellor Angela Merkel are due to speak with Greek Prime Minister George Papandreou in a teleconference to discuss the crisis.

French banks have been in the spotlight in recent days over their potential exposure to Greece. Both Société Générale and BNP Paribas issued statements seeking to diminish market fears.

Following Moody's statement, shares in Société Générale were trading 2.4 percent lower, while BNP Paribas was also pressured even though it wasn't downgraded. Its share price was down 3.9 percent. Credit Agricole bucked the trend, trading 1.9 percent higher.