NEW: First Republic Bank Downgraded to Junk by S&P

First Republic Bank was downgraded to “junk” by the S&P on Wednesday.

“We believe the risk of deposit outflows is elevated at First Republic Bank despite the actions of federal banking regulators and the bank actively increasing its borrowing availability to mitigate risk associated with the bank failures over the last week,” S&P said in a statement.

“Still, if deposit outflows continue, we expect First Republic would need to rely on its more costly wholesale borrowings. This would encumber its balance sheet and hurt its modest profitability,” said S&P, according to Market Watch.

As of December 31, First Republic Bank had $176.4 billion in deposits – 68% of which are above the $250,000 FDIC insurance limit, according to Market Watch.

Customers were lined up at a First Republic Bank in Los Angeles on Saturday to withdraw their money after Silicon Valley Bank failed.

WATCH:

I’ve never seen a bank run in Brentwood Los Angeles in over 40 years — this is at first republic bank branch. People standing in rain pic.twitter.com/k31PqqpyO3

— pjb.eth (@Dr_PhillipB) March 11, 2023

First Republic’s stock tumbled on Wednesday after a massive bank sell off this week.

Market Watch reported:

First Republic Bank absorbed debt rating downgrades from three major bond research firms Wednesday as concerns mounted it will suffer further deposit flight that will hurt already modest profitability.

S&P Global Ratings downgraded its issuer credit rating on First Republic Bank by four notches to BB-plus from A-minus on Wednesday, placing it in speculative grade, or ‘junk,’ status.

The move came just hours after S&P put the bank on review for a downgrade late Tuesday.

First Republic stock fell 18% to $32.38, placing it back near the 11-year-low of $31.21 hit during the big bank selloff on Monday.

First Republic’s deposit base is more concentrated than most large U.S. regional banks, said the agency, and that presents heightened funding risks in the current environment. As of Dec. 31, the bank had about $176.4 billion in deposits, 63% of which were commercial.

“We believe the portion above the Federal Deposit Insurance Corp. insurance limit of $250,000–about 68% of the total, or $119.5 billion–is most susceptible to withdrawal, despite the bank’s historically excellent depositor loyalty,” said the agency. “According to the bank, its number of deposit accounts is about one-fifth that of the average U.S. bank with $100 billion to $250 billion in assets, which highlights its higher-than-average account sizes.”

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