Shares of First Republic Bank plummeted by over 50% on Friday following the bank’s report of a significant drop in deposits. The bank had disclosed earlier in the week that it had lost more than $100 billion in deposits in the first quarter, causing the stock to enter a free fall. Trading was eventually halted on Friday amidst growing speculation that the bank may face a takeover by regulators. This development comes just weeks after larger US banks injected $30 billion in deposits into First Republic amid a widening crisis.
Reasons behind the drop in deposits
First Republic Bank has been under pressure ever since the demise of Silicon Valley Bank last month, which raised concerns about the soundness of other regional banks in the US. These banks can withdraw their deposits as soon as July, which has further contributed to the drop in deposits. The bank had also borrowed $92 billion in the first quarter, mostly from the Federal Reserve and government-backed lending groups. As a result, First Republic has been paying more for funding than it earns on many of its assets, with analysts predicting at least a year of losses.
Earnings report and client withdrawals
On Monday, the bank released its earnings report, indicating just how perilous its position had become since the failure of SVB and Signature Bank. While the bank’s executives noted that it has ample cash reserves, this appears to have done little to reassure people. The earnings report indicated that clients had pulled $102 billion in deposits in the first quarter, more than half of the $176 billion it had held at the end of 2022. The bank’s stock market value had already collapsed by over 80% in March due to fears of a bank run as a large proportion of the lender’s deposits are uninsured.
Efforts to address the crisis
First Republic Bank has announced plans to cut as much as a quarter of its workforce and slash executive compensation by an unspecified sum. While a recovery is not out of the realm of possibility, things look especially bleak for the bank.