First Republic Bank deposits tumble more than US$100 billion as it explores options
First Republic Bank is among the lenders expected to receive scrutiny in the upcoming quarterly earnings season. (Photo: AFP/Patrick T Fallon)
First Republic Bank shares sank more than 20 per cent after the closing bell on Monday (Apr 24) after the lender said deposits plunged by more than US$100 billion in the first quarter and it was exploring options such as restructuring its balance sheet.
The deposit slump overshadowed profits that beat expectations for the beleaguered lender, which was shored up through an injection of deposits by larger US banks last month after the collapse of two US regional lenders.
The bank plans to slash expenses by cutting executive compensation, paring back office space, and laying off nearly 20 per cent to 25 per cent of employees in the second quarter, it said Monday.
The company also aims to increase its insured deposits and cut borrowings from the Federal Reserve Bank.
"We're taking steps to meaningfully reduce our expenses to align with our focus on reducing the size of the balance sheet," CEO Mike Roffler said in a post-earnings call, which ran for less than 15 minutes and ended without executives taking questions from analysts.
First Republic came into intense focus after Silicon Valley Bank (SVB) and Signature Bank collapsed last month, shaking the confidence in US regional banks and prompting customers to move billions of dollars to bigger institutions.
"With the closure of several banks in March, we experienced unprecedented deposit outflows," said Neal Holland, First Republic's finance chief.
Deposits fell to US$104.47 billion in the first quarter from US$176.43 billion in the fourth quarter despite the lender getting a US$30-billion lifeline in combined deposits from US banking behemoths, including Bank of America, Citigroup, JPMorgan Chase & Co and Wells Fargo & Co.
Excluding the help from major banks, the decline in deposits was almost US$102 billion.
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TOUGH ROAD AHEAD
Still, deposits began to stabilize in the week of Mar 27 and have remained stable through Apr 21, the company said.
The lender earned US$1.23 a share in the first three months ended March, comfortably above the 85 cents per share analysts estimated for the quarter, according to Refinitiv data.
The results showed the extent of the damage on First Republic after last month's banking crisis, which fuelled concern of a panic spreading through the financial system.
It also faces a difficult path to revive its fortunes, banking analysts and industry experts say.
For years, it lured high net-worth clients with preferential rates on mortgages and loans, making it more vulnerable than regional lenders with less-affluent customers.
This will discourage potential buyers of the bank because "a large mortgage portfolio at incredibly low rates generating little revenue is not very attractive", said Robert Conzo, CEO of New York-based investment advisory firm, The Wealth Alliance.
Its loan book and investment portfolio also became less valuable as interest rates rose.
