First Republic Bank Stock Plunged 20% On Account Of Fall In Deposits

The stock price of First Republic Bank plunged more than 20 per cent after the closing bell on Monday, post the announcement of drop in deposits by more than $100 billion in the first quarter, as per a Reuters report.

The bank came into limelight after Silicon Valley Bank (SVB) and Signature Bank collapsed last month. It shook the confidence in US regional banks and prompted customers to move billions of dollars to bigger institutions.

Deposits dropped to $104.47 billion in the first quarter from $176.43 billion in the fourth quarter. The lender got a $30-billion lifeline in combined deposits from US banking behemoths, including Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co.

Excluding the help from the major banks, the decline in deposits was almost $102 billion. The deposits began to stabilize in the week of March 27 and have remained stable through April 21, the report said quoting company sources.

The news of deposits overshadowed the profits that beat expectations for the beleaguered lender. It was shored up through an injection of deposits by larger US banks last month after the collapse of two US regional lenders. Its loan book and investment portfolio also became less valuable as interest rates rose.

The bank intends to explore the option of restructuring its balance sheet. It plans to slash expenses by cutting executive compensation, paring back office space and laying off nearly 20% to 25% of employees in the second quarter. 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.

"With the closure of several banks in March, we experienced unprecedented deposit outflows," said First Republic's finance chief Neal Holland.

The lender earned $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 fueled 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.