On March 16, 2023, First Republic Bank received $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. However, this cash infusion did not help the bank’s liquidity issues, and S&P Global downgraded its shares to junk status on Sunday. This was the second downgrade of FRC in less than a week.
First Republic has attempted to raise capital by issuing more shares and seeking investment from private equity firms and smaller banks. This is First Republic’s second attempt to raise capital since March 10, and then it received the deposit injection from the major lenders six days later. CNN contributor Allison Morrow was told that First Republic is facing a fate similar to that of Silicon Valley Bank (SVB) due to being a “Bay Area-based lender with a deep-pocketed client base.”
Deposit outflows are a serious concern for First Republic Bank, as its sophisticated depositors have other options and mechanisms in place to move their money quickly. Patricia McCoy, a law professor at Boston College, commented that depositors are “particularly trigger-prone.” As a result, investors are worried about First Republic Bank’s future.
At 1:15 p.m. Eastern Time on Monday, March 20, 2023, First Republic’s shares fell more than 25%, trading for just above $17 per share. The bank’s shares reached an all-time intraday low, while other banks managed to weather the storm on Monday following the Credit Suisse buyout. Despite this, investors remain concerned about the future of the bank, and how it will address its liquidity issues.
The downgrade by S&P Global to junk status is a significant blow to First Republic Bank, as it is a signal that investors should be wary of investing in the stock. The bank may face difficulty in raising further capital or attracting investment from new sources. The downgrade may also impact the bank’s borrowing costs, making it more expensive for First Republic to raise funds in the future.
Overall, the recent events surrounding First Republic Bank have caused concern among investors and industry experts. As the bank continues to grapple with liquidity issues, it remains to be seen how it will address these concerns and reassure its depositors and investors.