Shares of First Republic Bank were down nearly 20% in pre-market trading on Monday after credit rating agency Standard & Poor’s warned that a $30 billion rescue plan inked for the troubled bank last week may not be enough.
The San Francisco-based regional bank, saw its stock price sag after Standard & Poor’s slashed its credit rating from BB+ to B+ on Sunday, saying “substantial” concerns remain about the bank’s financial health.
A BB+ credit rating is considered below investment grade, which means that the financial institution in question is particularly vulnerable to economic headwinds and thus is at higher risk of default.
Last week, the nation’s largest banks, among them JPMorgan Chase, Citigroup, and Bank of America, announced a $30 billion cash infusion to help First Republic.
JPMorgan, Bank of America, Citigroup, and Wells Fargo will each contribute around $5 billion of deposits while Morgan Stanley and Goldman Sachs will pitch in $2.5 billion each.
The credit downgrade comes as investors on Wall Street braced for more bad news on the banking front following UBS’s $2 billion acquisition of struggling Swiss lender Credit Suisse over the weekend.
BNY Mellon, PNC Bank, State Street, Truist, and US Bank will pour in $1 billion each.
“Following Thursday’s uninsured deposit of $30 billion by the 11 largest banks in the country, together with cash on hand, First Republic Bank is well positioned to manage short-term deposit activity,” the bank said in a statement.
“This support reflects confidence in First Republic and its ability to continue to provide unwavering exceptional service to its clients and communities.”
So far this month, First Republic’s stock has tanked more than 80%.
Its share price is considered a bellwether for other regional lenders who may fall victim to the same forces which felled Silicon Valley Bank and Signature Bank of New York earlier this month.
Other regional banks do not appear to be affected by First Republic’s struggles in pre-market trading on Wall Street on Monday.
Shares of Zions Bancorp were up more than 1.8% before the opening bell while PacWest Bancorp stock surged by more than 15%.
US Bancorp stock was up by nearly 3% in pre-market trading early on Monday morning.
The Swiss National Bank on Sunday announced an emergency deal whereby USB, Switzerland’s largest bank, agreed to buy rival Credit Suisse.
The Swiss central bank said the deal would “secure financial stability and protect the Swiss economy” in the wake of global concerns over the banking system triggered by the collapse of Silicon Valley Bank and Signature Bank.
In order to prevent a full blown meltdown on Monday, Swiss officials agreed to expedite the UBS takeover, offering a $100 billion liquidity line to Credit Suisse as part of the deal.
UBS and Credit Suisse are among the 30 top banks in the world and hold about $1.7 trillion in assets together, with their company headquarters both based in Zurich.
Before the acquisition, Credit Suisse had teetered on the verge of collapse this week after bank officials warned of “material weaknesses” in its financial reporting over the last two years.
Additional Reporting by Thomas Barrabi
[Written in collaboration with other media outlets with information from the following sources]
