First Republic Bank Downgraded By S&P Further Into Junk Territory Despite $30B Deposit Infusion

S&P Global reportedly downgraded the credit ratings of First Republic Bank FRC deeper into junk status on Sunday and said the recent $30 billion deposit infusion from 11 big banks may not solve its liquidity issues.

What Happened: S&P trimmed First Republic’s credit rating three notches down to “B-plus” from “BB-plus,” and cautioned another downgrade is possible, reported Reuters. Other ratings were also downgraded, it said. The downgrade on Sunday was the second in four days for First Republic, which earlier held an “A-minus” credit rating.

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According to S&P Global, First Republic likely faced “high liquidity stress with substantial outflows” last week that indicated its need for more deposits, increased borrowings from the Federal Reserve, and the suspension of its common stock dividend, the report said.

Shares of First Republic had closed 32.8% on Friday and lost another 15.37% in extended trading. The stock is down over 81% in the last month.

Liquidity Pressures: S&P Global said while the deposit infusion should ease near-term liquidity pressures, it “may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing.”

Following the downgrade, First Republic said the new deposits and cash on hand leave it “well positioned to manage short-term deposit activity," the Reuters report said.

The remarks echoed a joint statement made on Thursday by the four largest U.S. banks — JPMorgan Chase & Co JPM, Bank of America Corp BAC, Citigroup Inc C and Wells Fargo & Co WFC — that cumulatively deposited $20 billion, the Reuters report said.

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