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All in the same breath, after Standard & Poor's cut the credit rating of Greece to the fatal CCC, now it is the turn of the four major Greek banks. The credit agency downgraded the National Bank of Greece, Eurobank (EFG Eurobank Ergasias), Alpha Bank and Piraeus from B to CCC. At the same time, it kept the long-term credit rating of the Greek banks at C, while the expectations for the next assessment of the financial institutions (CreditWatch) remain negative.

The lowering reflects our view that the four Greek banks face increased risks for their finances. Especially in terms of liquidity of the domestic activities of the banking system and their capital position, they explained from Standard & Poor's the reasons for reducing the credit rating of the Greek banks. In negative terms, the outlook indicates the likelihood of further deterioration if the credit rating agency believes that they are likely to default their obligations.

While the Greek banks suffered from downgrading the most to date, the French Credit Agricole was also hit. Standard & Poor's lowered the credit rating of the French bank from AA-/A-1+ to A+/A-1, mainly because Credit Agricole was exposed to the Greek government bonds through its subsidiary the Greek Emporiki Bank.

Besides the collapse of the credit rating of Greece and the banks that have "swallowed" a large number of Greek government bonds, the interest rates reached new record levels. The dubious government of George Papandreou, the social unrest and the lack of clarity about tomorrow, broke all the confidence in the financial stability of Greece and the spread on the 10-year Greek bonds over the German ones exceeded 1,530 bps. The cost of insurance for five-year Greek government bonds (CDS) also jumped and reached 1800 bps.