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Research Update: First Republic Bank Issuer Credit Rating Lowered To 'CC' After Regulatory Closure; Ratings Subsequently Withdrawn

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Research Update: First Republic Bank Issuer Credit Rating Lowered To 'CC' After Regulatory Closure; Ratings Subsequently Withdrawn

Overview

  • On May 1, 2023, the California Department of Financial Protection and Innovation announced that it took possession of First Republic Bank and appointed the FDIC as receiver.
  • JPMorgan Chase & Co. subsequently purchased the deposits and substantially all the assets of First Republic from the FDIC, without assuming any of First Republic's corporate debt or preferred stock and assuming only a portion of First Republic's secured borrowings.
  • Since JPMorgan assumed the substantial majority of First Republic's assets, we view it as a virtual certainty that First Republic will default on any remaining senior financial obligations given what we assume would be an insufficient remaining asset base.
  • We lowered our issuer credit rating on First Republic Bank to 'CC' and preferred stock and subordinated debt issue-level ratings to 'D' and subsequently withdrew them.
  • At the time of the withdrawal, the issuer credit rating remained on CreditWatch with negative implications since we expect default to be a virtual certainty.

Rating Action

On May 2, 2023, S&P Global Ratings lowered its issuer credit rating on First Republic Bank to 'CC' from 'B+'. In addition, we lowered our issue credit ratings on First Republic Bank's subordinated debt to 'D' from 'B-' and outstanding issues of preferred stock to 'D' from 'C'. The issuer credit rating remains on CreditWatch with negative implications.

Subsequent to the downgrades, we withdrew the issuer credit rating on First Republic Bank and issue ratings on its subordinated debt and its outstanding preferred stock. At the same time, we withdrew legacy issue ratings on previously redeemed preferred stock.

Rationale

We lowered our issuer credit rating on First Republic Bank to 'CC' following the California Department of Financial Protection and Innovation's May 1 announcement that it took possession of the bank and appointed the Federal Deposit Insurance Corp. (FDIC) as receiver. Following the closing of the bank, the FDIC sold substantially all of First Republic's assets and deposits to JPMorgan Chase & Co. JPMorgan did not assume any of First Republic's corporate debt or preferred stock and assumed only a portion of its secured borrowings. Given that First Republic is in receivership and JPMorgan has assumed the vast majority of its assets, we think it's a virtual certainty that First Republic will default on any remaining senior financial obligations given what we assume would be an insufficient remaining asset base.

We also lowered our issue credit ratings on First Republic's subordinated debt and preferred stock to 'D'.

Environmental, Social, And Governance

ESG credit indicators: To N/A, N/A, N/A; From: E-2, S-2, G-4

Related Criteria

Related Research

Ratings List

Downgraded
To From

First Republic Bank

Subordinated D B-/Watch Neg
Preferred Stock D C/Watch Neg
Downgraded
To From

First Republic Bank

Issuer Credit Rating CC/Watch Neg/NR B+/Watch Neg/NR
Ratings Withdrawn
To From

First Republic Bank

Preferred Stock NR CCC/Watch Neg
Preferred Stock NR D
Subordinated NR D
Issuer Credit Rating NR/NR CC/Watch Neg/NR

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

Primary Credit Analyst:Nicholas J Wetzel, CFA, Englewood + 303-721-4448;
nicholas.wetzel@spglobal.com
Secondary Contact:Rian M Pressman, CFA, New York + 1 (212) 438 2574;
rian.pressman@spglobal.com

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