First Republic Bank, headquartered in San Francisco, California, caters mainly to wealthy clients with account balances above the $250,000 deposit threshold backed by the Federal Deposit Insurance Corporation. It witnessed many customers withdraw their funds as unease gripped the financial sector last month. Deposits at the company have decreased from $176 billion on December 31 to $104 billion on March 31, according to the company’s first quarter earnings report.
“With the stabilization of our deposit base and the strength of our credit quality and capital position, we continue to take steps to strengthen our business,” First Republic Bank Chairman Jim Herbert and First Republic Bank CEO Mike Roffler insisted in the report. “We remain fully committed to serving our communities, and we are grateful for the ongoing support of our clients and colleagues.”
The $104 billion in deposits on March 31 included a $30 billion loan provided by large financial institutions such as Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup at the end of last month, a deal that the federal government enabled to maintain the solvency of First Republic Bank. Deposits would have declined at least 57.8% without the agreement.
The company’s stock price, which declined 88.5% between the beginning of the year and the end of the first quarter, fell an additional 57.6% between Monday and Wednesday, marking an overall 94.4% price decrease from $121.54 to $6.79.
First Republic Bank is presently “taking actions to strengthen its business and restructure its balance sheet,” such as increasing insured deposits, decreasing borrowed funds from the Federal Reserve, and reducing loan balances to “correspond with the reduced reliance on uninsured deposits,” according to the earnings report. The firm will therefore reduce employee headcount between 20% and 25% in the second quarter, reduce executive compensation and consolidate corporate office space.
The dismal performance of First Republic Bank, one of the multiple regional banks to languish amid the sudden failure of competitors Silicon Valley Bank and Signature Bank last month, reignited fears of instability in the financial sector leading to a broader crisis. The implosion of the latter two institutions, where the vast majority of account balances likewise exceeded the $250,000 deposit insurance threshold, prompted financial regulators to secure insured and uninsured accounts to prevent additional bank runs.
Funds have been flowing toward larger banks amid uncertainty about the status of some medium-sized banks, prompting additional concerns about increased consolidation in the sector.
Treasury Secretary Janet Yellen has been accused of offering mixed signals on whether the government will continue backing both insured and uninsured deposits: she vowed in remarks to the American Bankers Association that moves similar to the one which protected Silicon Valley Bank customers “could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” but she later told the Senate Appropriations Committee that she has “not considered or discussed anything” related to “blanket insurance or guarantees of all deposits.”
Assets in the banking system are meanwhile $2 trillion lower than their book value as a result of Federal Reserve efforts to implement a rollback in monetary stimulus, which had been previously maintained to stimulate the economy during the lockdown-induced recession, according to a study from analysts at the National Bureau of Economic Research.