March 29, 2023

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S&P says First Republic digs deeper into junk, says $30 billion infusion may not solve problems

A First Republic Bank branch is pictured in Midtown Manhattan in New York City, March 13, 2023.

Mike Cigar | Reuters

First Republic Bank saw its credit ratings downgraded even deeper to junk status by S&P Global, which said the lender’s recent deposit infusion of $30 billion from 11 big banks may not solve its liquidity problems.

Standard & Poor’s downgraded First Republic’s credit rating by three notches to “B-plus” from “BB-plus,” and warned of another possible downgrade. Other ratings have also been downgraded.

The agency said the First Republic likely faced “high liquidity pressures with significant outflows” last week, reflecting its need for more deposits, increased Fed borrowing and suspension of common stock dividends.

He said that while the deposit infusion should ease liquidity pressures in the near term, it “may not solve the significant business, liquidity, funding and profitability challenges that we think the bank is likely to face now.”

S&P’s downgrade Sunday was the second in four days for First Republic, which previously held an “A-minus” credit rating.

That could add to market concerns about the San Francisco-based bank, which was quick to reassure investors and depositors about its health after the collapse this month of Silicon Valley Bank, which also served many wealthy clients, and Signature Bank.

Another rating agency, Moody’s Investors Service, downgraded First Republic to junk on Friday.

In a statement following the downgrade by Standard & Poor’s, First Republic said its fresh deposits and cash on hand make it “well-positioned to manage its short-term deposit business. This support reflects the confidence in the First Republic and its ability to continue to provide consistent exceptional service to its clients.” and communities.”

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The statement echoed a joint statement released Thursday by the four largest US banks – JPMorgan Chase, Bank of America, Citigroup and Wells Fargo – which collectively deposited $20 billion.

Shares of First Republic fell 32.8% on Friday to $23.03, reflecting concern that more trouble lies ahead.

Shares have fallen 80% since March 8, when Silicon Valley Bank’s parent SVB Financial Group shocked investors by revealing large investment losses and the need for fresh capital, sending banks into a rush.