First Republic shares fell nearly 50% after a slump in deposits

New York (CNN) First Republic shares fell nearly 50% in late trading Tuesday, and late Monday the lender said its total deposits fell 41% in the first quarter to $104.5 billion, a new record even after the banks’ conglomerate. The regional lender came up with $30 billion to prevent it from failing. Without that cash flow, deposits would have fallen by more than 50%.

Analysts had expected deposits of about $136.7 billion.

First Republic Bank also said during its first-quarter earnings call late Monday that it expects to cut its workforce by 20-25% this quarter.

The bank said it saw a sharp drop in deposit activity after the collapse of Silicon Valley Bank and Signature Bank last month, but that activity began to stabilize in late March and has since been stable.

“We’ve experienced unprecedented deposit outflows,” CEO Michael Roffler said on the call. But the deposit activity has stabilized since the end of March, he said. “Total deposits stood at $102.7 billion as of April 21, 2023, a decline of only 1.7% from March 31, 2023,” he said. That slight drop reflects typical seasonal consumer tax payments, he said.

The call lasted about 13 minutes and Roeffler did not take any questions from investors or the media.

San Francisco-based First Republic also reported a 13.4% year-over-year revenue decline. Net interest income, the money banks earn by collecting interest on loans they make after deducting the interest they pay to depositors and other lenders, fell 19.4%.

The bank reported earnings per share of $1.23, beating analysts’ expectations of $0.85 per share, according to Refinitiv data.

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First Republic said in its earnings release Monday that it is “taking steps to strengthen its business and restructure its balance sheet.”

One of those options could be selling assets. Bloomberg reported on Tuesday The lender wants to sell $100 billion in loans and bonds in an effort to balance its books. First Republic declined to comment on CNN’s story.

When the banking crisis broke out, About two-thirds First Republic’s deposits are not insured by the Federal Deposit Insurance Corporation. That’s lower than the 94% at Silicon Valley Bank — but at the end of last year, First Republic had an exceptionally high ratio of 111% of loans and long-term investments to deposits, according to S&P Global — meaning it’s made loans and invested. More money than in deposits.

The bank sits at the center of an ongoing regional banking crisis, particularly as investors have been watching for any sign of a liquidity crunch — when banks don’t have enough money to meet withdrawals and repayment demands.

“We expect First Republic’s results to be a bell of sentiment for the sector,” analysts at VandaTrack wrote in a recent note.

Roeffler sought to reassure investors that the bank is liquid, telling investors during a Monday call that as of April 4, First Republic had twice as much liquidity as uninsured deposits (excluding the $30 billion it received from big banks).

But that doesn’t seem like enough. Shares of the stock are now down more than 90% year to date.

The bank said it would cut its workforce by up to a quarter and take further steps to reduce its costs. Executive compensation includes significant reductions, reductions in office space, and reductions in redundant programs.

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There’s a lot of money on the line: In January and February, First Republic stock trading was completely dormant. Retail investors average only $20,000 in daily net purchases. But after the fall of the SVP, The daily average trading of the company’s shares exploded VandaTrack $10.3 million as of April 10 data.

TD Ameritrade’s Investment Movement Index, which tracks retail traders, found its customers were net buyers of First Republic Bank in March, as the company’s shares tumbled more than 88% on concerns about uninsured deposits and the overall health of the banking system.

So far — and it’s early days — the optimism hasn’t paid off: First Republic has traded at $15 a share for the past six weeks, up from $115 to $145 a share in the first two months of 2023. A share ended at just $8.10.

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