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Moody's cuts ratings of two French banks over Greek default fears

France's biggest banks came under further pressure as concerns about their exposure to a potential Greek debt default prompted a downgrade.

Moody's cut the ratings of Credit Agricole and Societe Generale yesterday, adding to their woes.

Both banks' share prices have taken a hammering in recent days, losing almost 10pc, but were unchanged yesterday -- helped by hopes that eurobonds will be adopted to stem the debt crisis. Both lenders hold a high level of public and private debt in Greece through subsidiary companies.

Another large French bank, BNP Paribas, escaped a downgrade but has been on review since June.

The French banks are the biggest lenders to Greek creditors, with $56.7bn (€41bn) of public and private debt.

Credit Agricole owns Emporiki Bank of Greece, a loss-making operation; while Societe Generale has a controlling stake in Greece's Geniki Bank.

Yesterday, Moody's said it would continue to keep these banks under review after downgrading Societe Generale to Aa3 and Credit Agricole to Aa2. "We extended the review to take into account the system fragility in the banks' financing markets," said Nicholas Hill, senior vice president at Moody's.

Dollar financing

BNP Paribas avoided a downgrade as Moody's decided it has a sufficient level of profitability and capital to absorb any potential losses it might incur on its Greek government bonds, the agency said.

The European Central Bank said it will lend dollars to two euro-area banks tomorrow, a sign they are finding it difficult to borrow the US currency in the markets.

The ECB allotted $575m in a regular seven-day liquidity-providing operation at a fixed rate of 1.1pc. An ECB spokesman declined to comment on which banks borrowed the funds.

Societe Generale chief executive Frederic Oudea said the bank could resist a freeze in dollar financing from US money-market funds indefinitely.

"Even if it were to go to zero, there would be no problem," Mr Oudea said.

"We have plenty of buffers of liquidity and we are adjusting to the reduction in the money-market fund exposure." (Additional reporting by Bloomberg)

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