First Republic Bank (NYSE: FRC) is under significant pressure after the company received another credit rating downgrade. As a result, the FRC stock price tumbled by over 15% in the premarket session. This drop means that the company’s stock has plunged by over 80% in the past 30 days.
First Republic Bank downgraded
In a note, Moody’s downgraded First Republic Bank, a leading American bank citing internal and external challenges. It slashed the company’s credit rating to B- from BB-, which is the junk territory. It cited the bank’s significant deposit outflows that make it a high-risk company.
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Other ratings agencies have also downgraded First Republic Bank. In a statement last week, Fitch downgraded the company from A- to BB. It also placed the bank into Rating Watch Negative. Fitch noted that:
“Fitch views FRC’s deposit base as concentrated given the strategic focus on banking wealthy and financially sophisticated customers in select urban coastal markets in the U.S. This not only drives a high proportion of uninsured deposits as a percentage of total deposits but also results in deposits that can be less sticky in times of crisis or severe stress.”
Moody’s has also downgraded the company for the same reasons. In their statement, Moody’s said that the company faced a deterioration of its financial profile and its significant stress in the medium term.
Warren Buffett to the rescue
The FRC stock price action seems to imply that investors are not convinced about the company’s recent deposits from the biggest banks in the US. These companies deposited $30 billion to offset the deposits that are leaving, as we wrote here.
At the same time, investors are not convinced about the assurances of the American government. The Fed and the FDIC have said that Americans’ deposits were safe. In fact, uninsured depositors in Silicon Valley Bank and Signature Bank have received their funds.
Therefore, there is a possibility that Warren Buffett will take the stock weakness to invest in the company. Media reports suggested that the billionaire is in discussions with American officials about the crisis. However, he has not made a decision on whether to invest in First Republic Bank or not.
Warren Buffett is known for rescuing top American banks during the last financial crisis. He also sits on a mountain of cash, with Berkshire Hathaway having over $120 billion in cash.
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