The California-based lender disclosed on Monday that customers withdrew more than $100 billion in deposits from the First Republic last month amid broader turmoil in the banking industry, sending its shares down as much as 20 percent.
Deposits held by First Republic fell by $72 billion during the first quarter, a drop of 40 percent, though that included a financial lifeline from large US lenders who put $30 billion into its accounts in an effort to boost confidence in the ailing bank.
The bank said withdrawals had plateaued this month, but deposits continued to decline slightly. The scramble on its accounts was much worse than that of rival banks, most of which reported deposits falling in single digits during the first quarter.
Shares of the First Republic fell as much as 20 percent in after-hours trading in New York before recovering slightly to trade down 18 percent. They were up 12 percent when the markets were open. The stock has lost more than 90 percent of its value this year.
After withdrawals, First Republic said, the percentage of uninsured deposits, which was much higher than that of its competitors, fell from 68 percent to 27 percent. This figure excludes the $30 billion deposited by rival banks.
On Monday, the bank said it would cut up to 25 percent of its workforce in the next two months in order to cut costs. It had approximately 7,200 employees at the end of last year. It also said its plans to cut costs by cutting back on office space and non-essential projects and activities.
Some private Wall Street executives expect the First Republic to be sold in whole or in part, and the bank said Monday it was seeking “strategic options” in order to “accelerate its progress.”
Its earnings fell by more than a third in the first quarter to $229 million, or $1.23 per share. That was a little better than analysts expected. He made slightly more loans but said lending profits had fallen by more than 20 percent.
Despite the uncertainty of the past few months. . . CEO Michael Roffler said on an earnings call, during which the bank declined to answer analyst questions.
“We are restructuring our balance sheet and reducing our expenses and short-term borrowings,” added Chief Financial Officer Neil Holland.
Last week, Moody’s downgraded First Republic’s preferred stock, which pays a special dividend, but left its overall credit rating unchanged. The ratings agency said the bank was on a list of borrowers that were under review and could still be downgraded.
Moody’s said that while the problems at the bank have stabilized, “the bank’s long-term path back to sustainable profitability remains uncertain.”
The Financial Times reported last month that turmoil at the First Republic’s top echelons last year left it without a strong leader when interest rates were rising, causing a jump in paper losses in its portfolio of securities.
Jim Herbert, 79, longtime First Republic leader went on medical leave in December 2021. A month later, Hafiz Gay Erkan, who was being groomed as his successor, left the company.
Erkan, a former Turkish banker at Goldman Sachs with a PhD in risk management, served less than six months as co-CEO and was involved in a series of interactions with other senior executives that two people told the Financial Times were “toxic”.
Comments are closed.