First Republic shares plunge as it reveals $100bn deposit flight

Customers pulled more than $100bn of deposits from First Republic last month amid wider turmoil in the banking industry, the California-based lender revealed on Monday, sending its shares down by as much 20 per cent.

Deposits held by First Republic fell by $72bn during the first quarter, a decline of 40 per cent, although that included a financial lifeline from large US lenders that parked $30bn in its accounts in an attempt to shore up confidence in the ailing bank.

The lender said withdrawals had stabilised this month but that deposits continued to fall slightly. The run on its accounts was significantly worse than that at rival banks, most of which reported single-digit declines in deposits during the first quarter.

Shares of First Republic fell by as much as 20 per cent in after-hours trading in New York before recovering slightly to trade 18 per cent lower. They had rallied by 12 per cent when markets were open. The stock has lost more than 90 per cent of its value this year.

First Republic said that after the withdrawals its proportion of uninsured deposits, which had been significantly higher than rivals, had dropped from 68 per cent to 27 per cent. That figure excludes the $30bn deposited by rival banks.

The bank said on Monday it would cut as much as 25 per cent of its workforce in the next two months in order to reduce costs. It had roughly 7,200 employees at the end of last year. It also said its plans to reduce costs by cutting back on office space and non-essential projects and activities.

Some Wall Street executives privately predict First Republic will be sold in full or part and on Monday the bank said it was pursuing “strategic options” in order to “expedite [its] progress”.

Its profits tumbled by more than a third in the first quarter to $229mn, or $1.23 a share. That was slightly better than analysts had expected. It made slightly more loans but said profits from lending had fallen by more than 20 per cent.

“Despite the uncertainty of the past few months . . . we have retained 90 per cent of our client relationships that we had at the start of the first quarter,” chief executive Michael Roffler said on an earnings call, during which the bank declined to take questions from analysts.

Chief financial officer Neal Holland added: “We are working to restructure our balance sheet and reduce our expenses and short-term borrowings.”

Last week, Moody’s downgraded First Republic’s preferred shares, which pay a special dividend, but left its overall credit rating unchanged. The rating agency said the bank was on a list of borrowers that were up for review and could still be downgraded.

Moody’s said while problems at the lender had stabilised, the “long run path for the bank back to sustained profitability remained uncertain”.

The Financial Times reported last month that turmoil in First Republic’s upper ranks last year left it without a strong leader when interest rates were rising, causing a jump in paper losses in its securities portfolio.

Jim Herbert, 79, First Republic’s longtime leader went on medical leave in December 2021. A month later, Hafize Gaye Erkan, who had been groomed as his successor, left the company.

Erkan, a Turkish former Goldman Sachs banker with a PhD in risk management, served less than six months as co-chief executive and was involved in a series of interactions with other senior executives that two people told the FT were “toxic”.