SVB Crisis: First Republic, 5 Other US Banks Put On Downgrade Watch By Moody’s Investors Service

The global credit rating agency cited concerns over the banks’ reliance on uninsured deposit funding and unrealised losses in their asset portfolios for it's rating action

Shedding light on US banking sector institutions following the collapse of Silicon Valley Bank, Moody’s Investors Service has put First Republic Bank and five other US lenders on review for downgrade reported Bloomberg. The global credit rating agency cited concerns over the banks’ reliance on uninsured deposit funding and unrealised losses in their asset portfolios for it's rating action. 

Other than First Republic Bank, Western Alliance Bancorp., Intrust Financial Corp., UMB Financial Corp., Zions Bancorp. and Comerica Inc. were the other lenders put on review by Moody’s.

On First Republic Bank, Moody’s said, “Today's rating action reflects First Republic Bank's high reliance on more confidence sensitive uninsured deposit funding, its high amount of unrealized losses in its available-for-sale (AFS) and held-to-maturity (HTM) securities portfolios, as well as a low level of capitalization relative to peers.”

“In addition, if it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS or HTM securities, which as of December 2022 represented 37.7 per cent of its common equity tier 1 capital,” it added. 

First Republic said earlier that it has enhanced and diversified its financial position through access to additional liquidity from the Federal Reserve and JPMorgan Chase & Co.

The rating move comes following the crisis in Silicon Valley Bank (SVB) which has sent financial stocks in a rout worldwide. According to a report by Reuters, the SVB collapse routed $465 billion in market value so far as investors cut exposure to lenders from New York to Japan in the wake of Silicon Valley Bank’s collapse. 

According to the Bloomberg report, on Monday San Francisco-based First Republic dropped a record 62 per cent, while Phoenix-based Western Alliance tumbled 47 per cent and Dallas-based Comerica slid 28 per cent. .

Moody’s also downgraded Signature Bank and withdrew its credit rating, following the lender’s closure over the weekend.

Moody’s said, “Signature Bank was closed by the NYDFS following a systemic risk exception jointly announced by the Federal Reserve, FDIC, and Department of Treasury on 12 March 2023. The bank's closure related to significant deposit outflows related to contagion from Silicon Valley Bank's failure and the company's cryptocurrency deposit concentration and large amount of uninsured deposits making the bank's funding profile more sensitive to rapid and large withdrawals from depositors.”