UPDATE: First Republic Bank Downgraded to “Junk”

California-based First Republic Bank was one out of six banks placed on “downgrade watch” by Moody’s Investors Service this week.

Additional Banking Collapses Imminent? Six Banks Placed On ‘Downgrade Watch’

Although it had a 50% rebound, First Republic dropped 66% in pre-market on Monday.

UPDATE - First Republic Bank rebounds +50% at market open.

— Disclose.tv (@disclosetv) March 14, 2023

The other banks on Moody’s downgrade watch list include:

• Western Alliance Bancorp
• Intrust Financial Corp
• UMB Financial Corp
• Zions Bancorp
• Comerica Inc

Moody’s puts First Republic Bank and five other US lenders on review for downgrade, the latest sign of concern over the health of regional financial firms https://t.co/NqtuzxJvek

— Bloomberg (@business) March 14, 2023

Bloomberg reported:

Moody’s Investors Service placed First Republic Bank and five other US lenders on review for downgrade, the latest sign of concern over the health of regional financial firms following the collapse of Silicon Valley Bank.

Western Alliance Bancorp., Intrust Financial Corp., UMB Financial Corp., Zions Bancorp. and Comerica Inc. were the other lenders put on review by Moody’s. The credit rating company cited concerns over the lenders’ reliance on uninsured deposit funding and unrealized losses in their asset portfolios.

The move comes after US bank stocks were pummeled, even as the government rescued SVB’s depositors and unveiled a new lending facility to support lenders’ financing and prevent more bank runs. Moody’s also downgraded Signature Bank and withdrew its credit rating, following the lender’s closure over the weekend.

San Francisco-based First Republic dropped a record 62% on Monday, while Phoenix-based Western Alliance tumbled an unprecedented 47%. Dallas-based Comerica slid 28%.

In the case of First Republic, Moody’s said its share of deposits that exceed the Federal insurance threshold make its funding profile more sensitive to rapid, large withdrawals.

“If it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses,” Moody’s said. The bank’s available-for-sale and held-to-maturity securities made up more than a third of its common equity tier-1 capital as of December, it added.

First Republic said earlier that it has enhanced and diversified its financial position through access to additional liquidity from the Federal Reserve and JPMorgan Chase & Co.

On Wednesday, First Republic received the downgrade.

S&P downgraded First Republic Bank to "junk" due to elevated risk of deposit outflows.

REPORT: S&P downgrades First Republic Bank to "junk" due to elevated risk of deposit outflows.

— DailyNoah.com (@DailyNoahNews) March 15, 2023

First Republic Bank was downgraded into junk by S&P Global Ratings on elevated risk of deposit outflows, despite government assistance https://t.co/SD2BDha36R

— Bloomberg (@business) March 15, 2023

Via Bloomberg:

First Republic Bank was cut to junk by S&P Global Ratings and Fitch Ratings amid concern that clients pull holdings from the lender, even after US regulators pledged support for the banking sector.

The California-based bank’s credit rating was lowered by S&P to BB+ from A- by, and it remains on credit watch negative, according to a statement Wednesday. Shortly after, Fitch cut the bank to BB from A-, a step below the S&P rating, and placed it on a negative rating watch.

Both credit assessors said further downgrades are possible as First Republic faces deposit outflows that could affect its liquidity profile and ramps up wholesale borrowing.

“The bank’s business position will suffer after the volatile swings in its stock price and heightened media attention surrounding deposit volatility,” S&P analysts Nicholas Wetzel and Rian Pressman wrote. “Its business stability has weakened as market perceptions of its creditworthiness have declined.”

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Shares of First Republic slumped by as much as 26% Wednesday, with other regional banks also lower in another volatile day of trading. First Republic pared the drop to 17% at $33 per share, as of 12:07 p.m. in New York.

First Republic's stocks took massive hits Wednesday.

Bank Stocks Today:

1. Credit Suisse, $CS: -23%

2. First Republic, $FRC: -15%

3. PacWest, $PACW: -11%

4. Western Alliance, $WAL: -10%

5. Fifth Third, $FITB: -7%

6. Goldman Sachs, $GS: -5%

7. Citigroup, $C: -5%

8. JP Morgan, $JPM: -4%

Most of yesterday's gains are erased.

— The Kobeissi Letter (@KobeissiLetter) March 15, 2023

Stocks making the biggest moves midday: Credit Suisse, First Republic Bank, Halliburton and more https://t.co/vEIqT1RNFz

— CNBC (@CNBC) March 15, 2023

CNBC noted:

First Republic Bank - The regional bank stock tumbled 21.4%, giving back some of Tuesday’s gains as turmoil at Credit Suisse rattled the broader sector and S&P Global Ratings downgraded its debt rating to BB+ from A-.