Shares of First Republic fell more than 50% on Friday as the bank reported a massive drop in deposits. The stock has been in free fall since the bank revealed earlier this week that it had lost more than $100 billion in deposits in the first quarter. Trading was eventually halted on Friday amid growing speculation that it will face a takeover by regulators. The development also comes mere weeks after larger US banks injected $30 billion in deposits into First Republic amid a widening crisis.
First Republic has been under pressure ever since Silicon Valley Bank’s demise last month stoked concerns about the soundness of other regional banks in the US. These banks can however withdraw their deposits as soon as July. The bank had also borrowed $92 billion in the first quarter - mostly from the Federal Reserve and government-backed lending groups. First Republic has been left paying more for funding than it earns on many of its assets, with analysts predicting at least a year of losses.
On Monday the bank released results indicating just how perilous its position had become since the failure of SVB and Signature Bank. While the bank’s executives noted that it has ample cash reserves, this appears to have done little to reassure people. The earnings report indicated that clients had pulled $102 billion in deposits in the first quarter - more than half of the $176 billion it had held at the end of 2022.
Earlier in March too, the bank's stock market value had collapsed by over 80% due to fears of a bank run as a large proportion of the lender's deposits are uninsured. First Republic saw periodic waves of intense selling in last month, as other regional banks came under scrutiny.
While shares had been stable at a depressed level over the last month, they took a fresh hit following Monday's revelations. The banks executives also failed to alleviate fears, refusing questions and delivering just 12 minutes of prepared remarks.
First Republic had also announced plans to cut as much as a quarter of its workforce and slash executive compensation by an unspecified sum.
While a recovery is not out of the realm of possibility, things look especially bleak for First Republic at present. Some of the biggest US banks - Bloomberg News reported - are reluctant to get involved after already contributing $30 billion in deposits to prop up First Republic.
According to a Reuters report, the Federal Deposit Insurance Corp, the Treasury Department and Federal Reserve are orchestrating meetings about throwing a lifeline to the beleaguered bank. The focus, CNBC indicated, had now shifted to a US takeover.
(With inputs from agencies)