First Republic Bank’s stock price plummeted by almost 50% on Tuesday, marking its lowest level in the bank’s 38-year history.[0] The bank, which primarily caters to wealthy clients, experienced a massive drop in deposits in the first quarter after an exodus of depositors, leaving it hobbled. The San Francisco-based bank reported a 40% drop in deposits to $104.5bn in Q1, with $100bn being withdrawn by depositors during the March bank panic. The bank’s wealthy clients withdrew their money after discovering the bank was sitting on unrealised losses twice the size of its capital cushion.[1] The bank’s shares have lost 95% of their value this year, with the bank’s market value dropping from $22bn to $1.5bn.
First Republic’s advisers are reportedly trying to persuade some of the same banks that participated in a $30bn rescue in March to buy its underwater bonds at above-market rates for a loss of a few billion dollars.[2] In addition, the bank is considering selling up to $100bn worth of loans and securities to restructure its balance sheet. First Republic also announced on Monday that it would cut its workforce by 20-25% during the second quarter as part of cost-cutting measures that also include significant reductions to executive officer compensation, condensing corporate office space and reducing non-essential activities.[3] The company has also suspended its dividends on common stock and non-cumulative preferred stock.[4]
The bank’s deposits had already declined to $104.5bn by the end of March, down 35.5% YoY and a drop of 40.8% compared to December 2022, which included the infusion of $30bn in uninsured deposits from 11 of the largest US banks that were provided to stabilise the bank amid the crisis in March. The bank has an estimated $19.8bn in uninsured deposits or 27% of total deposits, excluding the $30bn in uninsured deposits from other banks, and uninsured deposits made up about $49.8bn of the $104.5bn in total deposits, or about 48% of the deposit base, including the capital infusion from other banks.[4]
The bank’s viability is now in question, and it will need to find a way to attract new customers as it becomes more reliant on Fed loans rather than customer deposits. The bank’s CFO, Neal Holland, stated that the bank experienced unprecedented deposit outflows following Silicon Valley Bank’s collapse in March.[5] The bank’s advisers have already lined up potential buyers for new shares as part of a rescue plan to prevent its collapse.[6]
0. “First Republic’s shares plummet amid reports of talks with regulators” The Washington Post, 26 Apr. 2023, https://www.washingtonpost.com/business/2023/04/25/first-republic-fdic/
1. “Opinion | The Easy-Money Lesson of First Republic Bank” The Wall Street Journal, 25 Apr. 2023, https://www.wsj.com/articles/first-republic-bank-business-model-easy-money-federal-reserve-interest-rates-c7f7c1a3
2. “Bankers’ pitch to save First Republic: Help us now, or pay more later when it fails” CNBC, 26 Apr. 2023, https://www.cnbc.com/2023/04/26/first-republic-rescue-pitch-help-now-or-pay-more-later-when-it-fails.html
3. “First Republic Q1 Earnings: Rising Funding Costs Pose Headwind (NYSE:FRC)” Seeking Alpha, 25 Apr. 2023, https://seekingalpha.com/article/4596163-first-republic-decent-q1-earnings-rising-funding-costs-pose-headwind
4. “First Republic shares slide after 40% dip in deposits tied to banking crisis” Fox Business, 24 Apr. 2023, https://www.foxbusiness.com/markets/first-republic-shares-slide-q1-report-reveals-40-percent-dip-deposits-banking-crisis
5. “Shares in First Republic Bank plunge after lender reveals $100B depositor run on the bank” CBC News, 26 Apr. 2023, https://www.cbc.ca/news/business/first-republic-bank-1.6822720
6. “First Republic Shares Slip on Report of Buyers for New Stock” Yahoo Finance, 26 Apr. 2023, https://finance.yahoo.com/news/first-republic-shares-slip-report-122743521.html