First Republic in Danger of FDIC Downgrade: Report

Federal regulators are reportedly considering lowering their private assessments of the struggling First Republic Bank.

That’s according to a report Wednesday (April 26) by Bloomberg News, citing sources with knowledge of the matter. The report notes that such a decision by the Federal Deposit Insurance Corp. (FDIC) could limit the bank’s ability to borrow from the Federal Reserve.

Reached by PYMNTS, the FDIC declined to comment. PYMNTS has contacted First Republic for comment but has not yet received a reply. The bank has been under threat for weeks after being downgraded by ratings agencies during last month’s banking crisis.

The California-based lender got a $30 billion lifeline from 11 of the country’s largest banks, who said the move was a demonstration of their confidence in the banking system.

Depositors didn’t feel as confident, however, pulling $100 billion from First Republic during the crisis, according to an earnings report released earlier this week. That revelation left the bank on even shakier ground, as its stock price — which was already down 96% since last year —lost half its remaining value.

The bank announced Monday (April 24) it would lay off 25% of its workforce during the second quarter as it looks to cut expenses.

“With the closure of several banks in March, we experienced unprecedented deposit outflows,” First Republic Chief Financial Officer Neal Holland said Monday.

“We moved swiftly and leveraged our high-quality loan and securities portfolios to secure additional liquidity. We are working to restructure our balance sheet and reduce our expenses and short-term borrowings.”

According to the Bloomberg report, the FDIC had hoped to give First Republic enough time to close a private deal that would put it on more solid footing. Without that deal in place, senior officials are increasingly considering a downgrade.

The report follows news from Tuesday that First Republic had been in contact with the federal government as it looks for a way out of its crisis. Among the options under consideration — per a Financial Times report — was to let the FDIC take control of the bank and guarantee its deposits.

Also under consideration: a rescue by the same banks that gave First Republic the $30 billion lifeline last month.

This week also saw reports that First Republic is looking to sell long-dated mortgages and securities amounting to $50 billion to $100 billion in a bid to boost its balance sheet and stave off being taken over by the FDIC.