S&P Cuts First Republic Further into Junk, Despite USD 30B in Cash

S&P Cuts First Republic Further into Junk, Despite USD 30B in Cash  

S&P Global downgraded the shares of First Republic to junk status on Sunday, after UBS acquired Credit Suisse. Close to a dozen financial institutions have added USD 30 billion in cash into First Republic Bank four days ago in an attempt to help the bank grapple with liquidity issues. However, investors are concerned that the cash infusion may not be adequate for resolving the bank's problems. The shares of First Republic tumbled more than 15% on Monday morning when Wall Street opened and plummeted further to more than 25% by 1:15 p.m. (ET).

First Republic Bank Stock Plummets More Than 25%

Shares of San Francisco-based First Republic Bank plummeted more than 25% against the US dollar on Monday, March 20, 2023. The commercial bank and wealth management services provider recently received USD 30 billion from 11 major banks, including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, BNY Mellon, PNC Bank, State Street, Truist Bank, and US Bank, on March 16.

However, the cash infusion failed to help the First Republic, as S&P Global downgraded the FRC stock to junk status, citing concerns that the recent help from 11 banks may not alleviate the bank's problems. This was the second downgrade for the FRC in less than a week. First Republic attempted to raise capital by issuing more shares and seeking investment from private equity firms and smaller banks.

The First Republic made a second attempt to raise capital on March 10, and then it received the cash deposit from the major lenders six days later. A CNN contributor, Allison Morrow, was told that First Republic is facing a similar fate to that of Silicon Valley Bank (SVB) due to being a "Bay Area-based lender with a deep-pocketed client base." Patricia McCoy, a law professor at Boston College, told Morrow that depositors are "particularly trigger-prone."

"They’re sophisticated, they know they have other options, and they have mechanisms in place to move money quickly," McCoy added.

The shares of First Republic plunged more than 25% and were trading for just above USD 17 per share on Monday, March 20, 2023. The shares fell to an all-time intraday low while other banks managed to weather the storm on Monday following the Credit Suisse buyout.

What is your take on S&P Global downgrading First Republic Bank’s stock to junk status on Sunday? Please post your comments.