According to the latest reports, S&P Global further downgraded the First Republic Bank to deeper junk status on Sunday, the rating firm also added that the latest 30 billion deposit infusion by the bank will be insufficient to save it from its liquidity crisis.
The downgrade of the First Republic Bank on Sunday by S&P Global Inc was the second in four days. Before the series of downgrades of the firm, the First Republic Bank had a credit rating of A-minus. From there, there was a change in its credit rating which ended up in BB-plus.
The first downgrade of the bank by S&P Global Inc brought the credit rating of the First Republic Bank by three notches which eventually brought the status up to B-plus from the former BB-plus.
After the credit rating was brought down to BB-plus there was a warning by the rating firm that there could be another possible downgrade in the coming days.
According to the statement made by S&P Global Inc., the First Republic Bank faces serious issues regarding liquidity stress and substantial outflows.
Owing to this reason, the rating firm made an indication suggesting that the bank had to accept different ways to cope with the situation like increasing their borrowing from the Federal Reserves, the urgent need for new deposits, and also the suspension of its common stock dividend.
The shares of the Bank also saw a 15.37% loss in extended trading as the bank closed the market with around 32.8% on Friday. The stock performance of the bank had been at loss during the last month. In the past month, the stock of First Republic Bank was over 81%.
The bank was getting ready to face the liquidity crisis through the 30 billion deposit infusion but S&P Global Inc. was not entirely sold on the concept.
The rating firm suggests that the infusion would be a temporary solution for the near-term, liquidity pressures but that it won’t help the bank in solving many bigger issues like the substantial business, liquidity, funding, and profitability challenges that are faced by the bank now.
After there was another downgrade in four days which reduced its status to junk, the First Republic Bank responded to the situation by stating that the bank was ready to face and manage its short-term deposit activities.
It pointed out that the new deposits and the cash that the bank has with themselves were the two things that could help the bank to keep up.
The bank that was facing the liquidity crisis was said to receive a $30 billion lifeline from some of the biggest banks in the United States. Giant banking firms like JP Morgan Chase, Wells Fargo, Bank of America, Citigroup, and Truist were the firms that guaranteed their support to the First Republic Bank in order to help it overcome the liquidity crisis. The $30 million infusion by the four major banks is expected to make a change in the current liquidity crisis at First Republic Bank.
The First Republic Bank is another bank in the country that had been subsequently affected by the fall of the Silicon Valley Bank.
The main reason why the bank was affected and is expected to have a similar failure is due to the similarities between the banks in their size, their larger wealthy client bases, and most importantly the uninsured nature of their deposit bases.
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As the collapse of the Silicon Valley bank on March 10 has affected other major banks in the nation, the First Republic Bank is also worried about their depositors making their withdrawals and leaving the bank.
The major reason for the collapse of Silicon Valley Bank was the bleeding of funds from their banking venture capitalist firms and also their startups.
The major banks in the country have come forward to help the First Republic Bank by making an investment in them. This gesture is expected to improve the confidence of the regional banks to mail investments there as some of the country’s best and biggest companies were making an investment at First Republic Bank.
The banking firm in the country had been severely affected after the fall of two of the biggest banks – Silicon Valley Bank and Signature Bank.
Among the 11 banks that have offered the First Republic Bank their help, firms like JP Morgan, Bank of America Corp., Well Fargo and Co, and Citigroup Inc., have decided to give in $5 billion each whereas firms like Morgan Stanley, Goldman Sachs Group Inc., will contribute around $2.5 billion., The other five banks will make a deposit of %1 million each.
Even though the deposit has been made, there are doubts about whether it will have the desired effect on the depositors.
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