First Republic stock sinks following S&P credit rating cut

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss the decline in stock for First Republic.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: Shares of First Republic are sinking again this morning after S&P Global cut its credit rating for the second time in a week with a warning that the $30 billion rescue deal did not solve the bank's challenges. The stock is down 19 and 1/2%. And S&P is saying in this note, it may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is like-- now likely facing.

We just talked to Gerard Cassidy of RBC a few moments ago. And one of the things he said, Brad, is that there are some challenges with the business model of First Republic in this environment. It's got a bunch of jumbo mortgages on its balance sheet at a time when rates have now come up. So it's just not as profitable as it was.

That said, we still don't know what's gonna happen. He thinks they can sort of-- as long as they can kind of make it through this current period of turbulence, that they'll be OK. But we'll see if they do.

BRAD SMITH: I mean, they've had 11 banks also just give them a massive cash injection of $30 billion in order to try and make sure that First Republic can still operate. And it goes to note a few things the importance of some of the regional banks. But then also, as well, just trying to reassure confidence in the broader banking system that you have a consortium of banks that are saying, hey, we'll reach out, we'll lend a hand here, and to the point of an uninsured deposit, just to make sure that customers still recognize that the broader system is secure.

And that there are some of the federal agencies that will make sure that we can still prop up and see this business to the other side, as well, when it comes down to what that core business is. And that is really the crux of what S&P Global is saying here, too.

JULIE HYMAN: Yeah, it is interesting here that-- as we've been talking about this morning-- the other regionals are higher on the day. And so there is now this differentiation that is coming into the market. As we also mentioned, New York Community Bancorp has agreed to take over Signature Bank's deposits. It's a subsidiary Flagstar Bank. And analysts seem pretty positive on that and those shares are trading higher. So that's something to that we keep tracking.