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Michel Euler, Associated Press
People walk past the logo of the French bank Societe Genral at la Defense business district, outside Paris, Wednesday, June 14, 2011. Credit rating agency Moody's says it may downgrade its ratings of France's three largest banks as the widening Greek financial crisis spreads its contagion across Europe. Moody's said Wednesday that BNP Paribas SA and Credit Agricole SA face a downgrade of one-notch and Societe Generale SA up to two notches.

PARIS — Tremors from Greece's debt crisis were felt in France when Moody's ratings agency said it may downgrade the three largest French banks over their potential losses on Greek bonds and banking operations.

BNP Paribas SA and Credit Agricole SA face one-notch downgrades and Societe Generale SA could see a two-notch decline, Moody's said Wednesday.

The risks come from the banks' holdings of government bonds that would turn to losses if Greece can't pay its debts in full, and through their local banking subsidiaries in Greece's troubled economy, Moody's said.

The move followed Moody's decision earlier this month to cut Greece's own rating by three notches from a B1 rating to Caa1 with a negative outlook, citing increased risk that the financially stricken country will be unable to handle its debt problems without an eventual restructuring.

Restructuring means paying creditors less than the full amount, or later than originally planned.

Greece got a €110 billion ($160 billion) bailout last year from the eurozone countries and the International Monetary Fund, but continues to struggle financially and more bailout loans are under discussion.

European finance ministers failed to find agreement on new aid at a meeting Tuesday, with talks hung up over a standoff between Germany and the European Central Bank over whether to make bondholders share in the burden of helping Greece as a condition of more bailout loans.

Germany, the eurozone's biggest country and the largest funder of Greece's bailout, has pushed to make bondholders contribute by getting new bonds that mature later. Another proposal floated has been to ask banks to voluntarily roll over their holdings.

The ECB has vigorously opposed any change in debt terms that leads to a ruling of default by the ratings agencies, and has warned of that the costs to Greek banks could simply offset any money saved by changing bond repayments. German and French banks also hold the bonds.

Societe Generale CEO Frederic Oudea has said a possible Greek debt restructuring "would be unpleasant but manageable" for the bank. A spokeswoman for the bank declined to comment further Wednesday. Spokespeople for BNP Paribas and Credit Agricole didn't immediately return calls for comment.

A government spokesman downplayed the possibility of a downgrade.

"We're not worried," said Francois Baroin after the weekly cabinet meeting. "You know, French banks are among the most highly rated large international banks today, the strongest, they've stood up to all the international tests."

Shareholders took a more cautious view, selling off the banks' shares to the tune of 1.6 percent for BNP Paribas, 1.4 percent for Credit Agricole, and 2 percent for Societe Generale.

Credit Agricole has only a "modest" exposure to Greek government debt, Moody's said, but it owns Athens-based bank Emporiki, which Moody's had already downgraded earlier this month.

Societe Generale also owns a small Greek bank, Geniki, but the main risk comes from its holdings of Greek government debt, reported to be €2.5 billion at the end of the first quarter, Moody's said.

BNP Paribas's holdings of Greek government debt are twice that, €5 billion, but unlike the others it has no local subsidiary.

The impact could spread beyond France, Moody's warned. "Moody's may take similar actions on other banks with direct exposures to Greece in the coming weeks," it said. It is also "closely monitoring" the risks of a Greek default scenario, including the impact on weaker countries, capital markets, and funding conditions. "Banks across the euro zone" are potentially vulnerable, Moody's said.

The ECB's vice president, Victor Constancio, reiterated at a news conference the bank's opposition to any restructuring that costs creditors money or which leads to a default label being slapped on Greece.

Constancio refused to be drawn out on whether the bank would approve of asking banks to renew Greek debt holdings as they expire, on a supposedly voluntary basis. The ECB is not the one proposing bondholder sacrifices, he said, "so it's not really for us to provide solutions to an issue that wasn't raised by us."

The ECB warned Wednesday that the eurozone's financial system faced "extremely challenging" conditions, with the worst risk being the connection between shaky government finances and the banking system.

Troubles in government and bank finances are intertwined because a defaulting government would hit banks holdings of its bonds, while banks that suffer heaving losses could need taxpayer-paid recapitalization.

"The main risk to euro area financial stability remains the interplay between the vulnerabilities of public finances and the finacial sector with their potential for adverse contagion effects," the ECB said in its report.

Still, the ECB said in its regular assessment of the financial system's stability that Europe's 20 largest crossborder banks were in better shape than they were six months ago thanks to stronger earnings.

The European Union is in the process of subjecting banks to "stress tests," or scenarios involving more economic and financial trouble, to assess whether they need to be pushed to strengthen their finances. Results are expected in June.

McHugh contributed from Frankfurt. Greg Keller can be reached at http://twitter.com/Greg_Keller