Fitch downgrades five major European banks

Kurat:  Ratings agency Fitch piled on the pain for the French banking system today by downgrading Credit Agricole's debt ratings - along with those of four other major European banking groups - the day after the banking giant issued a profits warning.

France's third-biggest lender yesterday said 2,350 jobs will be axed and that it will make a loss this year due to £2.1billion of writedowns as it battles the sovereign debt crisis. It also said its investment banking division will lose around 1,750 staff, some of whom are based in London.

Fitch Ratings has cited the eurozone crisis and stronger headwinds facing the banking sector, as it lowered the long-term issuer default and viability ratings by one notch for Credit Agricole and Banque Federative du Credit Mutuel.

Danish lender Danske Bank, Finland's OP Pohjola Group and Holland's Rabobank Group were the other three lenders downgraded.
French President Nicolas Sarkozy accused David Cameron of being an 'obstinate kid' at the EU summit
David Cameron received two minutes of cheers for his efforts at the summit

Attack: Nicolas Sarkozy has said that David Cameron behaved like an 'obstinate kid' and suffered 'a political defeat' at the EU summit, but the Prime Minister's supporters have shown their backing

Fitch said the downgrades of Danske Bank and Credit Agricole reflect their subsidiaries' exposure to troubled eurozone countries. It said the crisis also is hurting other lenders indirectly, that capital markets are not functioning effectively, and this is driving economic slowdown.

As his country's banking system came under pressure, Nicolas Sarkozy yesterday dismissed David Cameron as 'an obstinate kid' over his refusal to sign the new EU treaty

Sarkozy's attack came on the day that Conservative backbenchers greeted Mr Cameron with two full minutes of cheering and banging on desks to hail his historic veto at last week's Brussels summit.

The Prime Minister told a meeting of the 1922 Committee that he was winning support for Britain's position with other European leaders, following phone calls with Swedish premier Fredrik Reinfeldt and Irish prime minister Enda Kenny. But Mr Sarkozy claimed that Mr Cameron had suffered a 'political defeat' – as France braced itself for a humiliating credit rating downgrade.

Of his refusal to protect Britain's financial services industry in exchange for  the country's support of further financial integration, Mr Sarkozy said: 'It's the first time that we have said “no” to the English.

'Cameron behaved like an obstinate kid, with a single obsession: protecting the City, which wants to carry on behaving like an offshore centre. No country supported him. That is the mark  of a political defeat.'

He is also said to have boasted during a meeting at the Elysee Palace: 'Objectively, it was a good coup. I manoeuvred well. The whole world recognised that my proposal was the only possible course.

'The accord will perhaps not put an end to the crisis, but it is a tool for facing up to it. The dynamism of the Franco-German axis enabled us to rally 26 countries.'

In fact, Mr Sarkozy's plan to allow the EU to seize control of its members' budgets appears to be under increasing strain, as several leaders indicate they could pull out of the deal.

Mr Cameron told the 1922 Committee 'there was no question' of Britain being left in a minority of one, as other countries worry that they signed a blank cheque at the summit. The Irish are understood to be concerned that the deal will lead to higher taxes for their citizens and businesses.

'A number of countries are not at all sure about what they're being asked to do,' the Prime Minister said.
Chancellor Angela Merkel delivers a speech at the German lower house of parliament Bundestag in Berlin today

Chancellor Angela Merkel delivers a speech at the German lower house of parliament Bundestag in Berlin today. She sought to mend fences with Britain saying it remains an important member of the European Union despite Mr Cameron's dramatic use of the veto at the summit.

Meanwhile, the euro continued to slide as France tried to play down the impact of the likely loss of its AAA credit rating, which it has held since 1975. Ratings agency Standard & Poor's warned that 15 eurozone countries faced a downgrade ahead of last week's crunch talks.

Of the six AAA-rated nations, France was singled out for a two-notch downgrade.

Analysts warned that such a move could shatter confidence, push up interest rates for the government, households and businesses, and tip the economy back into recession.One said it would be 'the start of real nightmare' for France.

Mr Sarkozy has previously made keeping hold of the top-notch rating a point of pride, amid warnings that its loss could spell disaster for him in next year's elections.

But foreign minister Alain Juppe said a downgrade 'would obviously not be good news, but it would not be cataclysmic either'. He added that decisions by ratings agencies were 'sometimes subjective and political'.

German Chancellor Angela Merkel struck a different tone to Mr Sarkozy yesterday, saying it was 'beyond any doubt that Britain would remain a very secure partner' in the EU.

A Downing Street source said Mr Cameron would not be responding to Mr Sarkozy's outburst, and preferred to maintain a 'dignified silence'.

The Conservative leader in Brussels, Martin Callanan, dismissed the 'childish insults and sinister threats' against Britain, adding: 'Angela Merkel seemed to extend an olive branch to the UK in her speech and we will happily take it.'

Fitch said that the uncertainty over how the eurozone crisis will be resolved, in addition to austerity measures being taken by some European governments, will badly affect commercial banking, particularly in southern Europe and Ireland.

Europe can emerge stronger from its debt crisis if governments show patience and follow through on their plan to integrate their economies, said Mrs Merkel

Europe can emerge stronger from its debt crisis if governments show patience and follow through on their plan to integrate their economies, said Mrs Merkel

European banks are under mounting pressure. The German government announced yesterday that it is reactivating its financial sector rescue fund, and the European Banking Authority said last week that the continent's banks need to raise about €115billion to protect lenders against market turmoil, including bad government debt.

Though the five lenders involved improved their capital and liquidity positions, Fitch warned that 'the general developments in the global economy and a notable shift in market confidence towards the banking sector as a whole outweigh the positives and have been the primary drivers of today's downgrades.'

Fitch lowered the long-term issuer default ratings for Banque Federative du Credit Mutuel, Credit Agricole and OP Pohjola Group to A+ from AA-.

It cut Danske Bank to A from A+, and Rabobank Group to AA from AA+.

In October, concerns that governments are less likely to come to the rescue of financial institutions prompted Fitch to downgrade its outlook and ratings for Royal Bank of Scotland, Lloyds Banking Group and Swiss lender UBS AG.