Some late action from the ratings agencies. Fitch just cut its ratings on five major European banks -- Danske Bank of Denmark, Credit Agricole of France, Rabobank Group of the Netherlands, Banque Federative du credit Mutuel (BFCM) of France, and OP Pohjola Group of Finland. The move comes just a few hours after Credit Agricole announced €2.5bn of write-downs, and over 2,000 job cuts. Fitch explained that:While ratings for these banks are driven by idiosyncratic factors that determine how they rank in relation to each other and the wider rating universe, the downgrades reflect the broader phenomenon of stronger headwinds facing the banking industry as a whole. Exposure to troubled Eurozone countries through their subsidiaries was a direct consideration in the downgrades of Danske Bank and Credit Agricole. For the other banks, however, Fitch considers the Eurozone crisis is also having negative indirect consequences. Capital markets, in particular interbank markets, are not functioning effectively, and, along with more global factors, the crisis is driving economic slowdown. Here's the details of the downgrades:Banque Federative du Credit Mutuel: cut one notch to A+ from AA-;Credit Agricole: cut one notch to A+ from AA-;
Danske Bank: cut one notch to A from A+;
OP Pohjola Group: cut one notch to A+ from AA-;
Rabobank Group: cut one notch to AA from AA+.
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More gloom descended on Europe as the euro sank below $1.30 for the first time since January, with further falls predicted, and leaders underlined how far apart they remain on a way out of the region's deepening debt crisis.
Expectations grew that France was preparing for an imminent downgrade by Standard & Poor's of its cherished triple-A rating as part of a review of euro-zone countries the company said it would undertake after last week's European Union summit.
In a comment some observers saw as preparing the ground, French Foreign Minister Alain Juppé shrugged off the impact of any downgrade. "It wouldn't be good news, of course, but it would not be cataclysmic either," he said in an interview with French newspaper Les Echos that was conducted Tuesday.
A French official said the government hasn't been informed of a ratings downgrade by S&P, but insisted there was no reason for investors to doubt France's ability to service its debt. S&P typically gives a government 12 hours notice ahead of a change in its ratings
Italy's new prime minister, Mario Monti told the Italian Senate that Germany had believed last week's EU summit, which dragged on until the early hours of Friday, would be enough to calm financial markets.
Mr. Monti's government Thursday will call for a confidence vote on the €20 billion austerity package aimed at shielding the country from the euro-zone debt crisis.
He said that further agreements would be necessary to resolve the crisis, including a plan for common bond issues among euro members, a prospect that would be on the agenda for the EU summit in March.
The idea that the ECB should print money to help finance some debt-ridden euro-zone states should be put to rest for good, Mr. Weidmann said. Central-bank "independence is lost when monetary policy is tied to the wagon of fiscal policy and then loses control over prices," he said.
Borrowing costs for cash-strapped governments continued to rise, with Italy auctioning five-year bonds for a euro-era high of 6.47%. In an illustration of the gap among euro-zone countries, Germany borrowed two-year money for 0.29%.
The euro sank below $1.30 for the first time in 11 months, and stayed below for the rest of Europe's trading day
Meanwhile, in Europe banks continue to be in need of dollars. On Wednesday, demand surged for the seven-day dollar funding offered by the European Central Bank. The ECB said it allotted $5.122 billion at its seven-day fixed-rate dollar swap operation, up sharply from the $1.602 billion allotted last week. And rather than lending it to each other, European banks are parking more of their cash as deposits at the ECB.
he International Monetary Fund slashed its growth forecasts for Greece and warned that ever-deepening recession was making it harder for the debt-ridden country to meet the tough deficit reduction targets under its austerity programme.
In a report likely to fan financial market concerns about a possible debt default, the regular health check by staff at the Washington-based Fund said the situation in Greece had "taken a turn for the worse".
Poul Thomsen, deputy director of the IMF's European department and its mission chief to Greece, said: "We have revised growth down significantly to -6% in 2011 and -3% in 2012. We expected 2011 to be an inflection point when the recession bottomed out, followed by a slow recovery. But the economy is continuing to trend downwards. The hoped for improvement in market sentiment and in the investment climate has not materialised."
Crédit Agricole SA, France's third-largest bank, said it will exit 21 of the 53 countries in which it operates to help shore up its finances. Commerzbank AG, struggling to avoid accepting a bailout by the German government, is in negotiations to transfer suspect assets to a government-owned "bad bank." The Dow Jones Industrial Average dropped 1.1% to 11823.48. Markets in Japan, Australia and South Korea each fell more than 1% in Thursday morning trading. Investors fret that the recent steps taken by Europe's leadership have done little to dissipate the growing strains across the markets. The concern is that with no solution in sight to the sovereign debt crisis, banks, which hold hundreds of billions of dollars of European government bonds, are at risk of suffering massive losses, threatening to cripple the Continent's banking system. In this environment both investors and banks are demanding higher interest rates in return for the risk. Some are just refusing to lend. The retreat threatens to create a vicious cycle for the euro zone and could worsen the impact on the region's already weak economy. Europe is far more dependent on lending from its banks than the U.S. economy, where financial markets play a greater role financing companies and individuals. "The problems are very large and the solutions are very difficult," said Gerard Cassidy, a bank analyst at RBC Capital Markets. European banks are exposed to big potential losses in countries like Italy and Spain. The banks have huge portfolios of government bonds, and an increasingly likely European recession would hurt the value of all their assets.
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