First Republic Bank’s debt reduced to nil by Moody’s

Moody’s Investors Service downgraded its credit rating on First Republic Bank to junk Friday night, citing a “deteriorating financial profile of the bank.”

FRC of the First Republic,
-32.80%
the debt rating was downgraded from Baa1 to B2, Moody’s said. Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s debt earlier this week.

The downgrade reflects “the bank’s deteriorating financial profile and the significant challenges First Republic Bank faces over the medium term given its increased reliance on higher cost, short-term wholesale funding due to deposit outflows. “, Moody’s analysts said in a statement. .

They cited various recent developments with First Republic, including the company’s Thursday disclosure that in the previous week its Federal Reserve borrowings ranged from $20 billion to $109 billion. Also on Thursday, the bank received a $30 billion deposit injection from 11 major US banks.

“Moody’s believes that the high cost of these borrowings, combined with the bank’s high proportion of fixed rate assets, is likely to have a material adverse impact on First Republic’s core profitability in the coming quarters,” analysts said. “Furthermore, the rating agency noted that while the news regarding the banking consortium’s deposits is positive in the near term, the longer-term path for the bank to sustained profitability remains uncertain.”

According to the New York Times, First Republic would seek to raise funds from other banks or private equity firms by selling additional shares.

Shares of the company have plunged 80% since the close of trading on March 8, just before Silicon Valley Bank spooked investors with an update on its business and a planned stock sale. The First Republic lost 33% in Friday’s session despite the depository arrangement with the major banks. Shares were down another 6% in Friday’s extended session.

Moody’s said its outlook was maintained at “rating under review”. This downgrade review, he said, “reflects the continued challenges to the bank’s medium-term credit profile in light of its significantly eroded deposit base, increased reliance on short-term wholesale funding and significant volume of unrealized losses on its investment securities”.

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