European banks suffer huge losses on new Greek fears

European bank shares suffered huge losses on stock markets today, with French banks the biggest losers as new problems emerged over private-sector Greek debt re-scheduling.

With the Dow Jones index down 3.53 percent at around 7:00 pm amid rumours of a French ratings downgrade and a Cyprus downgrade bringing closer another amid the eurozone and US debt turmoil, the tremors were felt by banks right across Europe -- weak-links Italy and Spain's biggest banks faring only marginally worse than those in Britain and Germany.

Analysts, such as Pellon Bannatyne of IG Markets, lined up to blame principally "contagion" from the French banking write-down due to their exposure to Greek debt.

Greece said today that its exchange of bonds under the debt rescue might include instruments with a life stretching beyond the target date of 2020, and that the swap procedures had not yet begun.

Until now, the swapping of Greek bonds for bonds with a longer life under a second rescue agreed at a European Summit on July 21 had been taken to involve existing bonds up to 2020. Greece has debt, excluding the two rescue loans, of about 350 billion euros.

French banks and insurers have agreed to reschedule 15 billion euros' worth of Greek debt as part of an EU rescue package to stabilise the eurozone.

On a CAC-40 index that lost 5.45 percent, Societe Generale's shares actually dived by as much as 20.24 percent before closing 14.74 percent down at 22.18 euros.

The fall rivalled the punishment traders meted out after rogue trader Jerome Kerviel's actions were blamed for the loss of 4.9 billion euros in January 2008.

The Greek bond exchange is part of the overall second rescue worth about 160 billion euros.

The private sector estimates that its participation will cost it 54 billion euros over the next three years and estimates the cost by 2020 at 135 billion euros.

The participating banks estimate their losses in terms of the value of the bonds at about 21.0 percent.

Societe Generale "categorically" denied another rumour claiming it needed bailout support to avoid collapse, after announcing last week that its second quarter net profit slumped 31 percent to 747 million euros ($1.07 billion), largely because of its exposure to debt-stricken Greece.

Other French banks also ended heavily down, BNP Paribas shedding 9.47 percent, Credit Agricole 11.81 percent and insurer Axa more than 10 percent.

After French President Nicolas Sarkozy broke off his summer vacation to meet with ministers, the government in Paris said that the three global credit rating agency giants had said that France was not about to lose its top AAA status after the United States lost the coveted credit rating last week.

The Fitch ratings agency confirmed that France was retaining its top triple-A credit rating and said the outlook was stable.

Hitting its lowest level since April 2009, Italy's FTSE Mib index in Milan was down 6.65 percent, with the country's second-biggest lender, Intesa Sanpaolo, falling 13.72 percent.

That came despite a successful bond issue on Wednesday in which the Italian government raised 6.5 billion euros at lower rates than last month.

Ubi Banca shed 10.17 percent, Banca MPS lost 9.78 percent and Banco Populare gave up 9.36 percent.

UniCredit, down 9.37 percent, saw its shares fall under one euro for the first time since April 2009.

In Spain, the biggest faller was Santander, its biggest bank -- which lost 8.33 percent, with BBVA also falling heavily.

Ironically, bailed-out Portugal's financial sector fared better than most, but the pattern was repeated in the Netherlands, Belgium and and also in the very biggest markets.

With Frankfurt's DAX down 5.13 percent at close, Commerzbank and giant insurer Allianz each lost more than seven percent, while on a London FTSE-100 index down 3.05 percent, Standard Chartered, Barclays, Royal Bank of Scotland also each gave up the same level of value.

Even Switzerland saw UBS end the day down 5.38 percent, with Credit Suisse also posting a 3.45 percent loss.