Moody’s cut First Republic Bank’s debt to junk

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

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

The downgrade reflects “the deterioration of the bank’s financial profile and significant challenges facing First Republic Bank over the medium term as it increasingly relies on short-term and higher wholesale funding due to deposit outflows,” Moody’s analysts said in a release. .

They pointed to a number of recent events with First Republic, including the company’s announcement Thursday that its Federal Reserve borrowings rose from $20 billion to $109 billion in the previous week. Also on Thursday, the bank received a $30 billion deposit from 11 major US banks.

“Moody’s believes that the high cost of these loans, combined with the bank’s large portion of fixed-income assets, is likely to have a large negative impact on First Republic’s core profitability in the coming quarters,” the analysts said. “Furthermore, the rating agency noted that while news of the bank consortium’s deposits is positive in the short term, the bank’s long-term path back to sustainable profitability remains uncertain.”

According to the New York Times, First Republic is looking to raise money from other banks or private equity firms by selling more shares.

The company’s shares have fallen 80% since the close of trading on March 8, just before Silicon Valley Bank spooked investors about its business and a planned share sale. First Republic lost 33% in Friday’s session despite deposit arrangements from major banks. Shares fell another 6% in the extended session on Friday.

Moody’s said its outlook remained “assessable”. The downgrade revision “reflects ongoing challenges to the bank’s medium-term credit profile, given the bank’s significantly weakened deposit base, increased reliance on short-term wholesale funding and significant unrealized losses on its investment securities.”

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