First Republic Bank stock plunges 47% after S&P downgrades bank's credit rating

The bank's credit rating was downgraded deeper into junk status by S&P Global on Monday, which led to the free fall of the First Republic Bank stock on Monday.

S&P cut the bank's credit rating three notches to B from BB on Sunday and warned that another downgrade is possible.

First Republic saw its shares drop by 47% during trading on Monday, leading to losses among regional banks. The stock, which hovered around $115 per share on March 8th, was trading around $12 per share, the lowest level in a decade and down about 87% from just one month ago.

Despite a $30 billion rescue deal announced last week by some of the nation's biggest banks, the prolonged slump came due to fears that First Republic may need to raise more funds.

As part of the deal, JPMorgan Chase, Citigroup and Wells Fargo will each contribute $5 billion, Goldman Sachs and Morgan Stanley will deposit about $2.5 billion each, according to a news release from the banks. Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon will kick in about $1 billion apiece.

The action by America's largest banks shows their confidence in the First Republic and banks of all sizes, and shows their commitment to helping banks serve their customers and communities, the group said in a joint statement.

The move came after several brutal and volatile days for First Republic shares.

According to The Wall Street Journal, there are fresh efforts underway to stabilize the bank.

JPMorgan Chase CEO Jamie Dimon is talking to the top executives of other big banks about how to boost First Republic's capital. There are options for an investment in the First Republic by the banks themselves, a sale or an outside liquidity injection, according to the Journal.

Customers yanked billions of deposits out of First Republic last week, prompting the bank to shore up its finances with additional funding from the Federal Reserve and JPMorgan. The bank with $213 billion in assets has around 70 billion in unused cash infusion after that first cash infusion.

After the failure of Silicon Valley Bank, the 16th largest lender in the country, First Republic and other midsize businesses began to worry about a crunch. It was the largest bank failure in the U.S. since the 2008 financial crisis.

SVB, which mostly catered to tech companies, venture capital firms and high-net worth individuals, saw a huge boom in deposits during the epidemic, with assets ranging from $56 billion in June 2018 to $212 billion in March 2023. The bank invested a large portion of that cash into long-term U.S. Treasury bonds and other mortgage-backed securities. That strategy went awry when the Fed embarked on the most aggressive interest-rate hike campaign in the 1980s and the value of the securities fell.

The lender had to sell part of its bond holdings because of a decline in available funding for startups, which started drawing down more money to cover their expenses. When depositors realized that SVB was in a precarious financial situation, a bank run ensued.