FRC - First Republic credit ratings cut by Moody's to junk territory

2023-03-19 13:59:24 ET

Moody's Investors Service downgraded all long-term ratings and assessments of First Republic Bank ( NYSE: FRC ) and may cut them further as the bank faces pressures of deposit outflows and higher-cost funding as the value of its assets decline. Last week, S&P Global ratings and Fitch had also cut First Republic's credit ratings to junk.

The bank's long-term issuer rating and local currency subordinate ratings were downgraded to B2 from Baa1; preferred stock non-cumulative rating was revised to Caa1(hyb) from Baa3(hyb).  Moody's credit scale ranges from C (the lowest rating) to Aaa (the highest), with Ba considered having substantial credit risk and B reflecting high credit risk. C-rated bonds are typically in default.

The lower credit ratings reflect "the deterioration in the bank's financial profile and the significant challenges First Republic ( FRC ) faces over the medium term in light of its increased reliance on short-term and higher cost wholesale funding due to deposit outflows," Moody's said .

First Republic's ( FRC ) long-term local and foreign currency counterpary risk rating was downgraded to Ba3 from A3 by Moody's; long-term local currency bank deposit rating went to Baa3 frim A1, long-term counterparty risk assessment to Ba1(cr) from A2(cr), and baseline credit assessment to b1 from a3.

First Republic ( FRC ) faces the eventual need to  sell assets to repay obligations. "This could lead to the crystallization of the unrealized losses on its AFS (available for sale) or HTM (hold to maturity) securities, which as of December 2022 represented 37.7% of its common equity tier 1 capital," Moody's said.

More on the recent banking shock and First Republic:

• Warren Buffett talking to Biden administration on banking crisis.
• On Friday, First Republic ( FRC ) stock extended its decline after talks of private share sales were reported
• First Republic ( FRC ) stock slumped after suspending dividend
• First Republic stock gained after getting $30B in deposits from banks.
• Also last week, the bank was reported to be considering strategic options, including a potential sale.

SA contributor Siyu Li explained why First Republic's ( FRC ) 8-K filing last week is concerning.

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