Credit Suisse, First Republic, SVB 2.0: The Next Bank to Fall?

Credit Suisse, First Republic, SVB 2.0: The Next Bank to Fall?

Hold onto your hats, folks — the market is falling fast this morning as Credit Suisse backers run for the door. (Shares of Credit Suisse are down more than -27% this morning). While Credit Suisse’s issues are unrelated to those from SVB, the timing couldn’t be worse for bank stocks. Now, one of the most popular credit rating agencies is attempting to warn investors about the “next SVB.”

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Moody’s Investors Service Warns Investors

After failing to recognize the fault in Silicon Valley Bank until it was too late, Moody’s Investors Service is making a big move. (Moody’s originally held SVB at a high-confidence A rating until the evening of the bank’s collapse. Oops!) 

Now, Moody’s is changing its tune. They’ve got a warning for six regional banks in the US that they’re about to get a credit rating downgrade. 

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What is Moody’s Investors Service?

Moody’s Investors Service is a credit rating agency that evaluates the creditworthiness of various entities, including governments, corporations, and financial institutions. They provide credit ratings, research, and analysis to help investors make informed decisions about their investments. 

Moody’s ratings are widely used by investors, issuers, and regulators around the world to assess the risk of default of a bond or other debt instrument. The ratings range from Aaa, which represents the highest credit quality, to C, which represents a poor credit quality and a high risk of default.

The Next Domino to Fall: First Republic Bank?

Who’s in Moody’s crosshairs? Six banks:

  • First Republic Bank
  • Western Alliance Bancorp
  • Intrust Financial
  • UMB Financial
  • Zions Bancorp
  • Comerica 

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According to Moody’s, these banks have too much at stake in the way of insured deposits, making them vulnerable to rapid and large withdrawals from depositors, and the dreaded bank run.

Specifically, First Republic Bank’s stock took a nasty fall on March 13 to the tune of a 60% plunge. Moody’s blamed the bank’s high reliance on confidence-sensitive uninsured deposit funding, substantial unrealized losses in their securities portfolios, and low level of capitalization compared to their peers.

First Republic Bank has assured investors that they’ve got diversified sources of financing, but Moody’s isn’t convinced. They’re worried about the bank’s funding profile being sensitive to rapid and large withdrawals from depositors. Moody’s has already been criticized for giving Silicon Valley Bank an A rating until the very evening the bank collapsed, and they aren’t taking any chances this time around.

They’re reviewing the six regional banks for downgrade and focusing on the stickiness of their deposits going forward, variations in deposit amounts since the start of the year, securities sold to address deposit outflows, management actions taken or planned to address potential securities losses, and ALM governance and risk limits.

Moody’s wants to avoid making the same mistake twice, especially when it comes to a possible liquidity crisis. They’re determined to keep investors from panicking and prevent any contagion through the financial system. So buckle up, folks, we could be in for a bumpy ride!

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