The bank’s shares fell 2.5 percent Wednesday after ending Tuesday’s session nearly 30 percent higher.
No acquisition deal for First Republic has emerged so far, spurring concerns among federal officials that private financial institutions believe that the bank’s financial standing is worse than widely realized. Those fears have led to some discussion of how federal involvement might facilitate a sale, although the details remain unclear, two people familiar with the matter told The Washington Post.
Bloomberg News first reported that Wall Street leaders and U.S. officials are exploring the possibility of government backing to encourage a dealseveral possible roles for the government, including having it lift some of the assets that have eroded First Republic’s balance sheet or offer liability protection.
Moody’s, in a report Friday, raised concerns over a “deterioration in the bank’s financial profile” along with concerns about the bank’s strategy of using high-interest debt to replace its deposits. “Moody’s believes that the high cost of these borrowings, combined with the high proportion of fixed rate assets at the bank, is likely to have a large negative impact on First Republic’s core profitability in coming quarters,” Moody’s wrote in the report.In downgrading the bank’s credit, Moody’s said it now sees a greater chance of government support to cover the bank’s depositors and obligations.
“There is a high likelihood that the FDIC, the Federal Reserve, and the Department of the Treasury could invoke the systemic risk exception to the Federal Deposit Insurance Act, allowing the FDIC to protect all uninsured depositors and certain qualified financial contracts,” Moody’s said.
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