First Republic Bank, the lender most at risk in the US after last month’s banking crisis, on Monday revealed the shocking details of just how disrupted its business has become — and nothing more.
In the bank’s highly anticipated first update to investors since it went into free fall over the past month and a half, its leaders said little. On a conference call to discuss first-quarter results with Wall Street analysts, the bank’s executives provided only 12 minutes of prepared remarks and refused to respond to questions, leaving investors and the public with few answers about how it got away from the crater.
“When a bank feels 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 anytime — it’s going to be a fight for them.”
One thing is certain: the bank, which caters to wealthy clients on the coasts, appears to be hanging by a thread. During the first quarter, it lost $102 billion in customer deposits — far more than half of the $176 billion it held at the end of last year — not counting the $30 billion temporary lifeline 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, and exchanged its deposits for loans. This is a risky path for any bank, which generally does business by taking relatively cheap customer deposits while lending money to home buyers and businesses at much higher interest rates.
First Republic still makes some money; It reported quarterly earnings of $269 million, down a third from the previous year. It made far fewer loans than in previous quarters, in line with the general trend in banking as industry executives fret about recession and falling home prices and sales.
The bank’s shares fell by about 20 percent in extended trading, after rising more than 10 percent before the earnings report was released, and the price decline was exacerbated after executives declined to answer analyst questions.
First Republic’s share price is down more than 85 percent since mid-March.
The bank said the outflow of deposits had largely stopped by the last week of March. From March 31 to April 21, the bank said it lost just 1.7 percent of its deposits and that most of those withdrawals related to tax payments by its customers.
The slide began about six weeks ago, when federal regulators seized midsize lenders Silicon Valley Bank and Signature Bank after customers withdrew billions of dollars in deposits. First Republic, based in San Francisco, was widely seen as the lender most likely to fall next, because it has many clients in the start-up industry — similar to Silicon Valley Bank — and many of its accounts hold more than $250,000, It is the maximum federal deposit insurance.
First Republic is in talks with financial advisors and government officials to come up with a plan to save itself that might include selling the bank or parts of it, or raising new capital.
There is still much to be done. On Monday, the bank said it would cut up to a quarter of its workforce and cut executive compensation by an unspecified amount.
Until recently, the First Republic was a Wall Street darling. It was founded in 1985 by Jim Herbert, who remains the bank’s CEO at the age of 78. The company distinguished itself by offering huge mortgage loans to wealthy clients, which could not be sold to government-backed mortgage giants Fannie Mae and Freddie Mac. Mr. Herbert has been constantly promoting the First Republic’s business model as sound because borrowers have good credit records.
In 2007, Merrill Lynch paid $1.8 billion to acquire the bank, but ownership lasted only three years. Mr. Herbert, with the help of other investors, bought the bank back after the 2008 financial crisis and took it public.
Since then, First Republic has focused on expansion by setting up branches in the poshest areas of New York, Boston, San Francisco, Los Angeles and in places synonymous with wealth like Greenwich and Conn. and Palm Beach, Florida. To customers and potential customers with personal touches, such as warm, fresh cookies.
Jana Koritz, a 37-year-old psychologist in Boston, began banking with First Republic nearly a decade ago as she was building a group practice. “It’s not like I have all that money,” she said, but her banker was constantly available. The bank will send couriers to her office to collect money from her clinic.
In mid-December, the bank hosted a holiday 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 ties to the bank. Graffiti artist using black spray paint, flamenco dancers entertaining the audience. The bank’s CEO Mike Ruffler, who has only been in the top job since March 2022, warned the public that 2023 could be a challenging year for the bank.
Three months later, Bank found itself in a spotlight of a different kind. In the days and weeks after Silicon Valley Bank’s demise, several major banks considered buying the First Republic. But no deal was reached, and JPMorgan Chase CEO Jamie Dimon and Treasury Secretary Janet L. Yellen worked together to inject $30 billion in deposits into the bank. The large banks that put this money in can withdraw it as soon as possible within four months.
In the brief phone call on Monday, Mr. Roffler said little about what might happen next and only reiterated the bank’s general disclosures. “I’d like to take a moment to thank our colleagues for their commitment to First Republic and their continued service to our customers and communities during this difficult time,” he said. “Their dedication is inspiring.”
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