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Standard & Poor’s downgraded the ratings of French banks, including BNP Paribas and Credit Agricole, as the crisis still looms large over the euro zone’s second largest economy.

Apart from this, French consumer confidence declined in October, to its lowest level in nine months and in Italy, the manufacturing sector experienced an unexpected fall in October, due to a worsening outlook for order levels.

“Not only the corporate news, but the economic data continues to be quite weak,” Ricardo Barbieri, strategist at Mizuho said. “Overall I think it’s a confirmation that Q4 is highly likely to see a larger contraction in GDP than Q3, and we don’t have as yet, anything pointing to a recovery in Q1 of next year,” Barbieri added.

Shares of BNP Paribas SA (EPA:BNP) and many of the domestic rivals tumbled after the cut in the ratings by the Standard & Poor. However, BNP’s smaller rivals, like BNP Paribas SA (EPA:BNP)  and Credit Agricole (Euronext: ACA), were spared from the rating cuts, but their outlook was revised to “negative” from “stable” by S&P. France’s No. 1 listed bank, BNP, fell 3.1 percent to 38.39 euros in early Friday trading, while the shares of Societe Generale SA (EPA:GLE) and Credit Agricole SA (EPA:ACA) were down by 3.7 and 3.4 percent respectively.

To counter the crisis, French banks have been constantly reducing their exposure in the crisis-stricken euro-zone economies, like Greece, but still have the biggest cross-border exposures to Italy, which is in recession. The efforts of reducing exposure helped their shares gain between 30 and 45 percent year-to-date. French banks are also under pressure, due to uncertainty, as France’s Socialist government plans to curb banks’ risky trading activities. Around 40 percent of BNP’s nominal balance sheet is made up of trading assets.

“S&P’s negative view of French banks highlights increasing risks,” Espirito Santo analyst Andrew Lim said. “In addition to these risks, we would ourselves add the likely implementation of some form of ring-fencing of trading books at the French banks”.

Many investors have retained their trusts in the French banks, given their strong run for most of 2012. Therefore, despite Friday’s drop, Societe Generale SA (EPA:GLE) shares are still up 57 percent, BNP Paribas’ up 47 percent and Credit Agricole SA (EPA:ACA)’s up 99 percent since late July. These stocks are the best performers over the past three months, on France’s blue-chip CAC 40 index.

“After a strong rise, on a short-term basis, these stocks are more vulnerable to negative headlines,” said Yohan Salleron, fund manager at Mandarine Gestion, who owns shares of  BNP Paribas SA (EPA:BNP). “This does not change my long-term view on BNP Paribas”.