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

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

Fresh Mike | Reuters

First Republic Bank has confirmed that its credit rating has been further downgraded to junk status by S&P Global. S&P Global says his recent $30 billion injection of deposits from 11 big banks may not solve liquidity problems.

S&P cut First Republic’s credit rating three notches from ‘BB plus’ to ‘B plus’ and warned of further downgrades. Other ratings have also declined.

Officials said the First Republic may have faced “high liquidity stress due to massive outflows” last week, reflecting a need for deposits, increased borrowing from the Federal Reserve and the suspension of common stock dividends. Said expensive.

Deposit injections should ease short-term liquidity pressures, but “may not solve the substantive business, liquidity, funding and profitability challenges banks appear to be facing today,” he said. Stated.

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

The market for the San Francisco-based bank rushing to assure investors and depositors of its sanity after Silicon Valley Bank and Signature Bank, which also served many wealthy customers, collapsed this month. may add concerns.

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

In a statement after S&P’s downgrade, First Republic said it was “well positioned to manage short-term deposit activity” with new deposits and cash on hand. clients and communities. ”

The statement echoes a joint statement on Thursday in which the four largest US banks (JP Morgan Chase, Bank of America, Citigroup and Wells Fargo) deposited a combined $20 billion.

First Republic shares plunged 32.8% to $23.03 on Friday.

Shares have fallen 80% since March 8, when Silicon Valley Bank’s parent company, SVB Financial Group, shocked investors by revealing huge investment losses and a need for new capital, sparking a bank run. doing.