Moody’s put First Republic’s bonds on downgrade watch Monday.
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Ratings agency Moody’s has put First Republic and Western Alliance under review for possible downgrade.
Shares in the regional banks cratered Monday as Silicon Valley Bank’s collapse rattled markets.
The agency warned six institutions could suffer bank runs that could stop them repaying their debts.
Moody’s Analytics has put First Republic and Western Alliance on review for a possible downgrade as the sudden collapse of SVB threatens the health of regional US banks.
The ratings agency has placed the companies’ bonds under review because of the risk of bank runs, where panicked customers pull their funds as the turmoil from SVB’s collapse spreads.
“Ratings could be downgraded if the banks’ deposit base erodes markedly, triggering asset sales, loss crystallization and a higher reliance on market funding,” Moody’s said Monday evening.
Moody’s downgrades a company’s rating when it believes it will find it more difficult to repay its debts to bondholders.
The agency’s downgrade warning came after First Republic shares plunged 75% Monday, while Western Alliance plummeted 80%. The New York Stock Exchange repeatedly halted trading of both regional banks’ shares on volatility concerns in the session, as worries around SVB’s implosion rocked markets.
Both stocks were up over 20% in Tuesday’s premarket, after both banks released 8-K forms that showed they had made moves to bolster their liquidity in an effort to weather the ongoing crisis.
First Republic said Sunday that it had tapped up an additional $70 billion in financing from the Federal Reserve and JPMorgan, while Western Alliance disclosed Monday that its cash reserves were worth over $25 billion.
Former shareholders had fled the two stocks after California-based SVB Financial suffered an 87% share price plunge in the space of two days.
That crash came after it disclosed massive losses in its bond portfolio, fueling a bank run that saw major investors like Peter Thiel’s Founders Fund pull their funds.
Small-to-midsize banks like San Francisco’s First Republic and Arizona-based Western Alliance have borne the brunt of the fallout from the SVB crisis so far.
Both First Republic and Western Alliance look vulnerable because a high number of their customers have deposited over $250,000 in their accounts, according to Moody’s – which makes them more likely to pull their funds from the banks because there’s no guarantee they’d get their money back from the Federal Deposit Insurance Corporation in case of a collapse.
Moody’s also placed its bond ratings for four other regional banks – Wichita’s INTRUST, Kansas City’s UMB, Salt Lake City’s Zions Bancorporation, and Dallas’ Comerica – under review Monday.
Institutions of that size are the most likely to suffer a collapse in the ongoing crisis, top economist Nouriel Roubini has warned.
“The run may continue,” Roubini, who’s often known as “Dr Doom” because of his bearish forecasts, told Newsweek Monday. “The crisis is not over.”
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Source:: Business Insider