French Banks' Exposure to Greek Debt Could Drag CAC-40 Lower Still

By Barbara Zigah

(eToro Blog) French stocks lost ground on Monday once again led by the banking sector, which hold a considerable amount of Greek bonds. The CAC40 lost -29.73 or -0.77% to close at 3,812.97. After Greece, French banks have the most exposure to Greek bonds, more than any other European nation.

The drop in French banking stocks was in part due to Moody's cutting Greece's credit rating from Caaa to Ca or junk, one level above default. The agency stated that the new bailout plan “benefits all euro area sovereigns by containing the contagion risk that would likely have followed a disorderly payment default on existing Greek debt.”

Nevertheless, the ratings agency cited last week's bailout plan arrived at by the EU will inevitably have private holders of Greek debt absorb losses and subsequently made the ratings cut. Saying holders of Greek debt were “virtually certain” to take losses, the agency stated the cut was made, “to reflect the expected loss implied by the proposed debt exchanges.”

Those losses could add up for a number of French banks which was reflected in their stock prices on Monday. BNP Paribas which closed at 46.70, down -2.11 or -4.33 percent, holds over €4.5B in Greek debt while Société Générale, closing at 36.27 was down -1.80 or -4.74 percent and holds over €2.4B in Greek debt. Credit Agricole, was down -0.52 or -5.52% to 8.91, the bank was downgraded by S&P in May for its exposure through its Greek subsidiary Emoporiki Bank of Greece.

With all eyes on Greek debt, France's AAA rating may also be in jeopardy due to their exposure. The premium for holding French bonds over German Bunds more than doubled in the two weeks leading up to the Greek bailout, indicating many investors doubt French debt instruments are as safe as Austrian, German or Dutch bonds.

Gaining stocks on the CAC 40 Monday included Michelin, gaining +2.2% to 64.89, AIR Liquide, up +1.3% to 97.76 and Peugeot, up +1.3% to 30.48. The index of 40 stocks had +37 percent gaining stocks and -63 percent losers.

Despite the decline in the banking sector, French stocks gained over 3 percent last week and overall sentiment is equally divided between bears and bulls. The scale could tip either way depending on the progress of the Greek bailout and the integrity of the Euro. With contagion contained in the Eurozone – at least for the moment — French stocks could see higher prices in the near-term.

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