Moody’s downgrades First Republic Bank’s credit rating to junk

“The bank’s financial decline and First Republic Bank reflect significant medium-term challenges in light of its heavy reliance on short-term and high-cost wholesale funding through deposit outflows,” Moody’s analysts said in a release. .

They cited a variety of recent developments with First Republic, including the company’s Thursday disclosure that its Federal Reserve loans rose from $20 billion to $109 billion in the previous week. On Thursday, the bank received $30 billion in deposits from 11 major US banks.

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

First Republic expects to raise money by selling additional shares from other banks or private-equity firms. According to the New York Times.

The company’s shares had plunged 80% since the close of trading on March 8, just before the Silicon Valley bank spooked investors with updates on its business and planned stock sale. First Republic lost 33% in Friday’s session despite deposit arrangements with major banks. Shares fell another 6% in Friday’s extended session.

Moody’s said its outlook was maintained “under review”. The downgrade review “reflects continuing challenges to the bank’s medium-term credit profile in light of a significantly eroded deposit base, reliance on short-term aggregate funding and significant unrealized losses on its investment securities,” it said.