By Senad Karaahmetovic
Shares of First Republic (NYSE:FRC) are trading about 15% lower in Monday’s pre-open trading amid investor fears over liquidity.
The latest wave of selling was triggered by the rating agency S&P Global, which cut the bank’s credit rating by three notches to “B-plus” from “BB-plus.” The rating firm also warned of more cuts given a “high liquidity stress.”
On Friday, S&P peer Moody’s cut FRC to junk status.
First Republic may need to attract more inflows and borrow more from the Fed, according to the S&P. The move comes after the largest banks in the U.S. deposited $30 billion in the bank.
However, S&P warns that last week’s cash infusion “may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing.”
This is contrary to Bank of America analysts' comments on Friday that the $30B infusion is likely enough to calm depositors down.
"It could be the case that this funding (along with the other liquidity sources) is likely sufficient to stabilize the funding base," analysts wrote in a note.