Courtesy of Benzinga.
It’s not exactly a stunning revelation that some of the biggest non-Greek banks in Europe are holding billions of dollars worth of toxic Greek debt. Making matters worse for French banks is that their investments in Greek bonds could very well lead to credit downgrades as soon as this week.
BNP Paribas, Societe Generale and Credit Agricole, France’s three largest banks as ranked by market cap, could see their credit ratings trimmed as soon as this week, Bloomberg News reported, citing two sources with knowledge of the matter.
Moody’s has had its eye on the trio of French banks since when the ratings agency put the banks on review for possible downgrade. If the downgrades do materialize, that should be very bad news for the iShares MSCI France Index Fund (NYSE: EWQ).
Already down 26.5% in the past three months, the iShares MSCI France Index Fund is heavily exposed to financials as that group is the ETF’s third-largest sector weight at 15.31%.
According to data on the iShares Web site, the three aforementioned French banks combine for over 8% of the iShares MSCI France Index Fund’s weight.
All three banks currently have ratings that are well into investment-grade and Bloomberg reported the BNP Paribas and Credit Agricole probably wouldn’t see cuts of more than notch. Societe Generale could see its rating cut up to two levels.
So this French banking triple play will remain investment grade, more than likely. As for the iShares MSCI France Index Fund, it probably isn’t investment worthy, particularly if these downgrades materialize.
Support for the ETF is $19. The last time EWQ traded below $19 was in January 2009 and from there it slid all the way to the $14.85 area. You’ve been warned.
