Moody’s Investors Service has downgraded all of First Republic Bank’s long-term ratings and ratings (NYSE: FRC) and may reduce them further as the bank faces deposit outflows and higher cost funding, the value of its assets are dwindling. Last week, S&P Global and Fitch ratings had also reduced the credit ratings of the First Republic to scrap.
The bank’s long-term issuer rating and subordinated local currency ratings were downgraded from Baa1 to B2; the non-cumulative rating of the preferred shares has been revised to Caa1(hyb) from Baa3(hyb). Moody’s credit scale ranges from C (the lowest rating) to Aaa (the highest), with Ba being considered to have substantial credit risk and B reflecting high credit risk. Obligations rated C are generally in default.
The lower credit ratings reflect “the bank’s deteriorating financial profile and the significant challenges that First Republic (FRC) faces over the medium term given its increased reliance on short-term, high-cost wholesale funding. higher due to deposit outflows,” Moody’s said. .
First Republic’s (FRC) long-term local and foreign currency counterparty risk rating was downgraded from A3 to Ba3 by Moody’s; the long-term local currency bank deposit rating was changed from Baa3 to A1, the long-term counterparty risk rating to Ba1(cr) from A2(cr) and the benchmark credit rating to b1 from a3 .
The First Republic (FRC) faces the potential need to sell assets to repay its obligations. “This could lead to the crystallization of unrealized capital losses on its AFS (available for sale) or HTM (hold to maturity) securities, which in December 2022 represented 37.7% of its shareholders’ equity. Category 1 base,” Moody’s said.
Learn more about the recent banking shock and the First Republic:
SA contributor Siyu Li explained why the First Republic (FRC) 8-K filing last week is concerning.