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Wednesday, May 31, 2023

    First Republic shares tumble as depositors withdraw money and credit rating cut again this week

    First Republic Bank

    First Republic Bank (FRC) opened with a deep dive in its shares on Monday as its credit rating was downgraded for the second time in the same week. The cut in rating by S&P Global was due to depositors withdrawing tens of billions of dollars as they were cautious about the safety and the liquidity of their accounts.

    The First Republic saw a fall of more than 80 percent in March. On Monday, the shares were down 41 percent. Trading was halted numerous times, well into the afternoon, due to the volatility in the stock. The lows of the day reached almost 50 percent.

    First Republic bonds were also hit and bonds that mature in 2046 saw an 11 percent decline. They traded at roughly 55 cents on the dollar. Early March, these bonds were trading at over 75 cents on the dollar.

    On Sunday, S&P Global downgraded First Republic’s credit rating to B plus. This was the second cut in a week and earlier it was at BB plus. The rate cut came as depositors continued to pull out their money and the rating agency believed that the $30 billion lifeline that was given by large banks in the US would only “ease near-term liquidity.”

    S&P Global also said that the lifeline “may not solve the substantial business, liquidity, funding and profitability challenges” that they believed that the bank was “now likely facing,” according to a report in the Financial Times.

    The outlet also said that one person who was briefed on the matter said that First Republic had deposits totaling $176.4 billion in the beginning of the year but has lost roughly $70 billion as depositors pulled away their money from the bank. These figures had also been mentioned in an earlier report by the Wall Street Journal.

    However, on Friday, the Financial Time also reported that outflows from the California-based First Republic bank have slowed, after the influx of financial aid from 11 large US banks,

    The losses by SVB and Signature Bank led to a similar pattern of withdrawal in other regional banks. Depositors began withdrawing their money and putting it into the larger banks in the nation.

    Share prices in regional banks remained flat, or a little higher, on Monday but are much lower than the levels seen before problems arose in smaller banks such as SVB and Signature Bank.

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