Junk debt rating: Moody’s downgrades First Republic Bank’s credit rating

Debt rating at junk level
Moody’s downgrades First Republic Bank’s credit rating

First Fitch, then S&P Global, now Moody’s: Because the First Republic Bank is now dependent on more expensive loans, its debt rating is downgraded to junk level. Despite the rescue measures, the bank faces major challenges in the medium term.

Moody’s has downgraded First Republic Bank’s credit rating to junk status. The debt rating was downgraded from Baa1 to B2, the first notch of non-investment grade. Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s debt earlier last week.

The downgrade reflects “the deteriorating financial profile of the bank and the significant challenges First Republic Bank faces in the medium term as it relies on short-term and more expensive wholesale funding due to deposit outflows,” Moody’s analysts said.

Moody’s believes that high borrowing costs coupled with the bank’s high proportion of fixed income assets are likely to have a large negative impact on First Republic’s core profitability in the coming quarters. In addition, the rating agency noted that while short-term news about the banking consortium’s deposits is positive, the bank’s longer-term path back to sustainable profitability remains uncertain.

Billion dollar bailout

According to reports in the New York Times, First Republic Bank is trying to raise money from other banks or private equity firms by selling more shares.

Eleven US banks helped the battered competitor First Republic with a concerted action on Thursday evening. Bank of America, Citigroup, JPMorgan Chase and Wells Fargo will each contribute $5 billion in unsecured deposits to First Republic Bank as part of a $30 billion package. Goldman Sachs and Morgan Stanley each bring $2.5 billion in unsecured deposits, and BNY Mellon, PNC Bank, State Street, Truist and US Bank each bring $1 billion.

The move reflects their confidence in First Republic and in banks of all sizes, the banks said in a joint statement.

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