UBS acquired Credit Suisse and 11 financial institutions injected $30 billion into First Republic Bank four days ago, but S&P Global downgraded First Republic’s shares to junk status on Sunday. Investors are concerned that the cash infusion may not address the bank’s liquidity issues, and so its shares dropped more than 15% on Monday morning when Wall Street opened and by 1:15 p.m. (ET), the stock was down more than 25%.
First Republic Bank Stock Slumps 25% Despite $30B Cash Infusion From 11 Lenders Last Week
At around 1:15 p.m. Eastern Time on Monday, March 20, 2023, shares of San Francisco-based First Republic Bank (NYSE: FRC) had plummeted more than 25% against the U.S. dollar. Last Wednesday, the commercial bank and wealth management services provider 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.
Despite the cash injection, S&P Global downgraded the bank’s stock (FRC) to junk status on Sunday. This was the second downgrade of FRC in less than a week. In an effort to increase capital, First Republic has tried to issue more shares and seek 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.” Patricia McCoy, a law professor at Boston College, told Morrow that depositors are “particularly trigger-prone.”
“They’re sophisticated, they know they have other options, and they have mechanisms in place to move money quickly,” McCoy added.
At 1:15 p.m. (ET) on March 20, 2023, First Republic’s shares had dropped more than 25% and were trading for just above $17 per share. This was in contrast to other banks, which managed to hold their ground on Monday following the Credit Suisse buyout.
What do you think about S&P Global downgrading First Republic Bank’s stock to junk status on Sunday? Share your thoughts about this subject in the comments section below.
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