“First Republic Bank: The Fallout of Massive Deposit Withdrawals and Cost-Cutting Measures.”

2023-04-25 20:39:00

Free fall. This Tuesday on Wall Street, the action of the American bank First Republic tumbled by 49% following having been suspended several times due to the concern of the investors on the future of the company following the withdrawal between the end of 2022 and at the end of March of more than 100 billion dollars of deposits in the first quarter. This fall comes despite the savings measures proposed to strengthen the financial health of the bank, including the reduction of staff from 20% to 25%. The establishment had already been rolled on Wall Street in mid-March following the liquidation of the small bank Silvergate, quickly followed by the bankruptcies of Silicon Valley Bank (SVB) and Signature Bank.

Leakage of deposits: banking stocks remain under pressure

To avoid a contagion of panic, eleven major American banks had agreed to act in concert and deposited a total of 30 billion dollars in deposits in the accounts of First Republic.

Despite the measures taken by the authorities and competing institutions to reassure, many customers had chosen to put money in larger banks, deemed too big for the authorities to allow them to fail.

Deposits fell 41% in the first quarter

Including this lifeline, deposits fell by $72 billion in the first quarter, or 41%, to $104 billion at the end of March – without this contribution, the bank lost $102 billion in deposits over the period. Deposits have stabilized since the beginning of the month, falling to 102.7 billion as of April 21 mainly due to the sums paid by its customers to pay their taxes. The bank has also retained 97% of the customers it had at the beginning of January, assured during a conference call its general manager Mike Roffler. To strengthen its balance sheet, First Republic is looking to increase its deposits, reduce the loans it makes and cut expenses, he said.

In addition to layoffs, this will require a reduction in executive compensation and a consolidation of offices. The bank is also “studying strategic options to accelerate its progress,” said Mike Roffler. After a short presentation of the bank’s financial situation, the manager did not, however, wish to answer questions from analysts as is customary during the results season. The bank’s turnover fell by 13% in the first quarter, to 1.2 billion dollars, and its net profit by 33% to 269 million.