First Republic Bank lost $102 billion in customer deposits

First Republic Bank, America’s most beleaguered lender after last month’s banking crisis, on Monday revealed the gruesome details of its struggling business – and not much else.

In the bank’s long-awaited first update to investors since entering a tailspin over the past month and a half, its executives said little. In a conference call to discuss its first-quarter results with Wall Street analysts, bank executives offered just 12 minutes of prepared remarks and declined to answer questions, leaving investors and the public with few answers as to how she would escape her crater.

“When a bank feels like it has few options left, it starts playing by its own rules,” said Timothy Coffey, banking analyst at Janney Montgomery Scott. “Every day, every week from now until when – it’s going to be a fight for them.”

One thing is certain: the bank, which caters to an affluent coastal clientele, seems to be hanging by a thread. In the first quarter, it lost $102 billion in customer deposits — well over half of the $176 billion it held at the end of last year — not including a temporary lifeline of $30. billion dollars it received from the nation’s largest banks last month.

Over the same period, it borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups, essentially replacing its deposits with loans. It’s a perilous path for any bank, which typically does business by taking deposits from relatively inexpensive customers while lending money to homebuyers and businesses at much higher interest rates.

First Republic is still making money; it reported quarterly profit of $269 million, down a third from a year earlier. It made significantly fewer loans than in previous quarters, in line with a general trend in the banking sector, as industry executives worry about a recession and a slowdown in home prices and sales. .

The bank’s stock fell about 20% in extended trading, after rising more than 10% before the earnings report was released, and the price slide deepened after executives declined answer questions from analysts.

First Republic’s stock price has fallen more than 85% since mid-March.

The bank said the outflow of its deposits had largely ceased by the last week of March. From March 31 to April 21, the bank said it lost only 1.7% of its deposits and most of those withdrawals were related to tax payments from its customers.

The fall began about six weeks ago, when midsize lenders Silicon Valley Bank and Signature Bank were taken over by federal regulators after customers withdrew billions of dollars in deposits. San Francisco-based First Republic was widely seen as the lender most likely to fall next, as it had many clients in the start-up sector – similar to Silicon Valley Bank – and many of its accounts held more than $250,000, the limit for federal deposit insurance.

First Republic is in talks with financial advisers and government officials to work out a rescue plan that could include selling the bank or parts of it, or raising new capital.

There is still a lot to do. The bank said on Monday it would cut up to a quarter of its workforce and cut executive pay by an unspecified amount.

Until recently, First Republic was the darling of Wall Street. It was founded in 1985 by Jim Herbert, who is still the bank’s executive chairman at 78. The company has distinguished itself by offering wealthy customers jumbo mortgages, which cannot be sold to government-backed mortgage giants Fannie Mae and Freddie Mac. Mr. Herbert consistently touted First Republic’s business model as strong because its borrowers had good credit records.

In 2007, Merrill Lynch paid $1.8 billion to acquire the bank, but ownership only lasted three years. Mr. Herbert, with the help of other investors, bought the bank after the 2008 financial crisis and took it public.

Since then, First Republic has focused on expanding by setting up branches in the swankiest neighborhoods of New York, Boston, San Francisco, and Los Angeles and in places synonymous with wealth like Greenwich, Connecticut, and Palm Beach, Florida. . cater to customers and potential customers with personal touches, like warm cookies fresh from the oven.

Janna Koretz, a 37-year-old psychologist in Boston, started her banking business with First Republic about ten years ago when she was building a group practice. “It’s not like I had all this money,” she says, but her banker was always available. The bank sent couriers to his office to withdraw money from his office.

In mid-December, the bank held a Christmas party at a performing arts space in Manhattan for hundreds of employees and customers, according to two attendees who spoke on condition of anonymity because they wanted to preserve their relationship with the bank. A graffiti artist brandishing black spray paint and flamenco dancers entertained the crowd. The bank’s chief executive, Mike Roffler, who had only held the top job since March 2022, warned the crowd that 2023 could be a tough year for the bank.

Three months later, the bank found itself in a different kind of spotlight. In the days and weeks after Silicon Valley Bank’s demise, many major banks considered buying First Republic. But a deal was not struck, and JPMorgan Chase Chief Executive Jamie Dimon and Treasury Secretary Janet L. Yellen worked together to inject $30 billion in deposits into the bank. The big banks that have invested this money can withdraw it in just four months.

During Monday’s brief conference call, Mr. Roffler said little about what might happen next and merely reiterated the bank’s public disclosures. “I would like to take a moment to thank our colleagues for their commitment to the First Republic and their uninterrupted service to our customers and our communities throughout this difficult time,” he said. “Their dedication is inspiring.”

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