First Republic exploring sale: report

March 15, 2023
National
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Lender cut to junk by ratings agencies, citing “deposit outflow” risk

First Republic Bank, a major multifamily and commercial real estate lender on the West Coast, is exploring a sale as well as other options to shore up liquidity, after two ratings agencies downgraded its credit rating to junk on Wednesday.

Larger rival banks are expected to be interested in purchasing the San Francisco-based lender, Bloomberg reported, citing people familiar with the matter.

First Republic did not immediately respond to a request for comment. The California Department of Financial Protection and Innovation, which shut down Silicon Valley Bank last Friday, also did not respond to questions about whether the state regulator was investigating liquidity issues at the bank.

First Republic has had a tumultuous few days, as the collapse of both SVB and New York-based Signature Bank sparked investor fears that First Republic was also vulnerable. The bank rushed to quell anxieties, disclosing Sunday that it had secured additional funding commitments from the Federal Reserve and JPMorgan, for a total of over $70 billion in unused liquidity.

On Monday, however, the bank’s stock plunged more than 70 percent, prompting the Securities & Exchange Commission to halt trading at various points during the day. Executive Chairman Jim Herbert told CNBC Monday that the bank was not seeing a rush of customers cashing out of their deposits.

By Tuesday, First Republic’s stock price had rallied, but ratings agencies were still concerned with how many unsecured deposits sat on its balance sheet. Fitch called it a “rating weakness.” On Wednesday, both Fitch and S&P Global Ratings downgraded it to junk.

“We believe the risk of deposit outflows is elevated at First Republic – despite actions by federal regulators,” S&P wrote in its report.

First Republic held $62 billion worth of residential mortgages across San Francisco, Los Angeles and the rest of California as of the end of 2022, and about $24 billion worth of commercial real estate loans, according to its financial report.

On the East Coast, regulators on Sunday placed another major multifamily lender, Signature Bank, into receivership, after customers rushed to pull their money out. Meanwhile, in Europe, Credit Suisse’s stocks and bonds have plummeted over liquidity concerns.

Source: therealdeal.com