Ratings agency Moody’s yesterday downgraded the debt of leading French banks BNP Paribas, Societe Generale and Credit Agricole, warning of funding problems and the worsening economic environment.

Moody’s cut its ratings on long-term debt for BNP Paribas and Credit Agricole by one notch to Aa3 and on Societe Generale by one notch to A1.

In all three cases, Moody’s said the downgrade was driven by “funding constraints” and “deteriorating macro fundamentals”, noting that the probability the banks would need to seek public support remained “very high”.

“The severity of the euro-area crisis has increased,” Moody’s noted. As some of the largest banks in the eurozone, the three are “necessarily affected by the fragile operating environment for European banks”.

The Bank of France said Thursday that French banks needed to find an additional €7.3 billion euros in capital to withstand future financial shocks, down from a previous €8.84 billion.

The Moody’s downgrade came after rival ratings agency Standard & Poor’s this week put a large number of European banks on review for a possible downgrade, including BNP Paribas, Societe Generale and Credit Agricole.

The three banks’ stocks fell sharply as the French market opened on yesterday but then recovered and at 0841 GMT. BNP Paribas was up 2.36 per cent to €31.86, Societe Generale was up 0.84 per cent to €19.28 and Credit Agricole was up 0.54 per cent to €4.63.

“The (downgrade) decision was not a surprise and we are reassured by the new figures” reducing capital needs, explained Renaud Murail, the head of trading at Barclays Bourse.

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