Swift help: A customer uses an ATM at a Wells Fargo Bank in San Bruno, California. First Republic Bank got a US$30bil (RM133bil) lifeline in combined deposits from banking heavyweights, including Bank of America Corp and Wells Fargo & Co. — AFP
NEW YORK: First Republic Bank shares sank more than 20% after the closing bell on Monday as it says deposits plunged by more than US$100bil (RM444bil) 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 company, shored up through deposits from US banking giants last month after two regional lenders collapsed.
San Francisco-based First Republic plans to shrink its balance sheet and slash expenses by cutting executive compensation, paring back office space, and laying off nearly 20% to 25% of employees in the second quarter, it said.
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,” chief executive Mike Roffler said in a post-earnings conference call.
The briefing lasted less than 15 minutes and ended without executives taking questions from analysts.
Managers’ decision to forgo a question-and-answer session with analysts was reminiscent of calls during the 2008 financial crisis, said Timothy Coffey, an analyst at Janney Montgomery Scott LLC who had dialled in.
First Republic also said it was “pursuing strategic options” to help expedite progress on strengthening the bank, without providing details.
The lender was studying all options open to it, according to a person familiar with the matter, speaking on condition of anonymity because the discussions were private.
The source said the bank was looking for the US government to help by convening parties who could potentially play a role in buoying First Republic’s fortunes, including private equity firms and big lenders.
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$104.47bil (RM463.9bil) in the first quarter from US$176.43bil (RM783.4bil) in the fourth quarter despite the lender getting a US$30bil (RM133bil) lifeline in combined deposits from US banking heavyweights, including Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co.
Without the US$30bil of deposits provided by big banks, the decline in deposits would have been almost US$102bil (RM452.9bil).
“We had estimated net outflow of deposits to be around US$40bil (RM177.6bil),” Coffey told Reuters. “Losing that much in deposits and having to replace them with borrowings is very expensive.”
Still, deposits began to steady in the week of March 27 and have remained stable through April 21, the company said.
The lender earned US$1.23 (RM5.46) a share in the first three months ended March, comfortably above the 85 US cents (RM3.77) 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 said. For years, it lured high net-worth clients with preferential rates on mortgages and loans. — Reuters
