Moody’s Investors Service downgraded its First Republic Bank credit rating to junk late Friday, citing a “deterioration in the bank’s financial profile.”
FRC of the First Republic,
Moody’s said its debt rating was downgraded from Baa1 to B2. Fitch Ratings and S&P Global Ratings lowered First Republic Bank’s debt earlier this week.
The downgrade reflects “the deterioration in the bank’s financial profile and the significant medium-term challenges facing First Republic Bank in light of its increased reliance on short-term funding and more expensive wholesale funding as a result of deposit outflows,” said Moody’s- analysts in a press release. .
They cited several recent developments with First Republic, including the company’s revelation on Thursday that its borrowings from the Federal Reserve ranged from $20 billion to $109 billion over the past week. Also Thursday, the bank received a $30 billion deposit infusion from 11 major US banks.
“Moody’s believes that the high cost of these loans, coupled with the bank’s high proportion of fixed-income assets, is likely to have a major negative impact on First Republic’s profitability in the coming quarters,” the analysts said. In addition, the rating agency noted that while news about the bank consortium’s deposits is positive in the short term, the long-term path for the bank to return to sustainable profitability remains uncertain.
According to the New York Times, First Republic is reportedly trying to raise money from other banks or private equity firms by selling additional shares.
Shares of the company are down 80% since the close of trading on March 8, just before Silicon Valley Bank scared the hell out of investors with an update on its operations and a planned share sale. First Republic lost 33% in Friday’s session despite the deposit arrangement with the major banks. Shares fell another 6% during Friday’s extended session.
Moody’s said its outlook was maintained at “rating under review.” That rating for downgrade, it said, “reflects continued challenges to the bank’s medium-term credit profile in light of its significantly eroded deposit base, increased reliance on short-term funding and a significant volume of unrealized losses on its investment securities.”