First Republic Bank's rating downgraded to 'B' by Fitch amid cash crunch

First Republic Bank has racked up another ratings downgrade, less than a week after a group of Wall Street banks agreed to contribute $30 billion of deposits to the beleaguered lender.
 

Fitch Ratings lowered First Republic Bank’s long-term issuer default rating to ‘B’ from ‘BB,’ citing its new more costly funding profile. Fitch had already slashed its ratings on the firm to junk ahead before the rescue package came through. Peer S&P Global Inc. has also downgraded the bank twice in recent days.

While First Republic Bank received a $30 billion infusion from a consortium of 11 of the largest US banks creating some liquidity, “the bank’s new funding profile is relatively costly and is viewed as the primary ratings constraint,” analysts led by Johann Moller wrote in a statement. 

The bank is currently operating at a loss and “that is not sustainable over the longer term absent a balance sheet restructuring,” they said. First Republic declined to comment. 

The requirement to repay the $30 billion at the end of its term will pose a challenge for the troubled lender, according to the ratings firm. Like other US banks, the fair market value of First Republic’s securities and loans has fallen below book values meaning any assets sale “would likely require a significant recapitalization.” 

The bank’s long-duration municipal securities and residential mortgage loans holdings also raise capital concerns, Fitch said. The ratings firm is keeping a watch negative on First Republic, signaling further downgrades could be in store.

The spread on its 4.375% bond due 2046 widened 18 bps to 452 bps as of 13:35 in New York.