Moody’s, a global ratings agency, has downgraded the credit of First Republic Bank due to the deterioration of its financial profile and challenges faced by the lender amid deposit outflows. The bank’s long-term issuer rating and local currency subordinate ratings were lowered to B2 from Baa1, and its long-term local currency bank deposit rating was cut to Baa3 from A1, among others.
The downgrade reflects Moody’s concerns about the bank’s asset quality, funding profile, and capitalization. The ratings agency cited the bank’s increasing reliance on funding from more expensive sources, such as certificates of deposit, to fund its loan growth, which has resulted in higher funding costs.
Moody’s also noted that the bank’s credit profile is constrained by its relatively high exposure to the California real estate market, which has been adversely affected by the COVID-19 pandemic. The ratings agency believes that the bank’s asset quality may weaken as the pandemic continues to impact the economy.
Despite the downgrade, Moody’s noted that First Republic Bank remains profitable and well-capitalized, which provides a buffer against potential loan losses. The ratings agency also stated that the bank has a track record of conservative underwriting standards and a strong franchise in the private banking and wealth management segments.
However, Moody’s believes that the bank’s credit profile could deteriorate further if its asset quality continues to weaken or if it is unable to manage its funding costs. The ratings agency also noted that the bank’s credit profile could be strengthened if it can maintain its underwriting standards and diversify its funding sources.
First Republic Bank is a California-based bank that primarily serves high net worth individuals and businesses. It offers a range of banking services, including personal and business banking, private banking, and wealth management.
In conclusion, Moody’s downgrade of First Republic Bank’s credit rating reflects concerns about the bank’s financial profile and the challenges it faces due to deposit outflows and its reliance on more expensive funding sources. While the bank remains profitable and well-capitalized, Moody’s believes that its credit profile could weaken further if it is unable to manage its funding costs or if the COVID-19 pandemic continues to impact the California real estate market.