Moody's Investors Service downgraded its credit rating on First Republic Bank to junk late Friday, citing a “deterioration in the bank's financial profile.”
FRC of the First Republic,
Moody's said that the debt rating has been reduced from Baa1 to B2. Fitch Ratings and S&P Global Ratings downgraded First Republic Bank's debt earlier this week.
Moody's analysts said in a release, “The downgrade reflects a deterioration in the bank's financial profile and significant challenges that First Republic Bank faces over the medium term due to increased reliance on short-term and high-cost wholesale funding.” ,
He cited several recent developments with First Republic, including the company's Thursday disclosure that Federal Reserve borrowings ranged from $20 billion to $109 billion in the past week. Also on Thursday, the bank received $30 billion in deposits from 11 major US banks.
“Moody's believes that the higher cost of these borrowings, combined with the higher proportion of fixed-rate assets at the bank, is likely to have a major negative impact on First Republic's core profitability in the coming quarters,” the analysts said. “Additionally, the rating agency noted that while the banking consortium's deposit news is positive in the short term, the long-term path to sustained profitability for the bank remains uncertain.”
First Republic is reportedly looking to raise money from other banks or private-equity firms by selling additional shares, according to the New York Times,
Shares of the company plunged 80% by the close of trading on March 8, just before the Silicon Valley bank updated investors on its business and a planned stock sale. First Republic lost 33% in Friday's session despite deposit arrangements with major banks. Shares were down 6% in the extended session on Friday.
Moody's said its outlook remains at “rating under review”. The review for downgrade, it said, “reflects continued challenges in the bank's medium-term credit profile in light of its significantly eroded deposit base, reliance on short-term wholesale funding and unrealized losses on its investment securities.” increased by a substantial amount.”