First Republic Bank’s shares dropped on Wednesday after shedding half their value yesterday amid fears the regional firm could become the third bank to fail following the collapse of Silicon Valley Bank and Signature Bank.
First Republic’s stock tumbled $1.60, or almost 20%, to $6.50. The New York Stock Exchange halted trading in the stock at around 10 a.m. on Wednesday, citing volatility.
Since the year’s start, the shares have shed 95% of their value, or a loss of more than $21 billion.
Investors were spooked by the bank’s disclosure on Monday that depositors withdrew more than $100 billion during last month’s crisis, raising concerns about First Republic’s stability. The fund outflows were “unprecedented,” bank executives said on an earnings call Monday.
The troubled bank said it now plans to sell off assets and restructure its balance sheet, and lay off as much as a quarter of its workforce, which totaled about 7,200 employees at the end of 2022. The bank will also shrink its corporate office footprint, cut executives’ compensation by a “significant” amount and eliminate “nonessential” projects, executives said Monday.
“Investors got a sharp reminder on Tuesday that the U.S. banking crisis and broader credit crunch are not over,” wrote Will Denyer of Gavekal Research in a Wednesday research note. “Another regional bank, PacWest, also fell -9% Tuesday on news that it too plans to sell assets following deposit outflows.”
As with Silicon Valley Bank, an outsized share of First Republic’s customers are wealthy, with many whose accounts exceed the $250,000 deposit limit guaranteed by the Federal Deposit Insurance Corp. As of March 31, and before big banks rescued the lender in March with a $30 billion injection of capital, 27% of First Republic’s deposits were uninsured, according to a recent earnings release.
“Wealthy clientele such as the affluent individuals that banked at [First Republic] have no loyalty to any particular financial adviser,” Chris Whalen, chairman of Whalen Global Advisors, said in a note to investors. “First Republic was one of many advisers and service providers to their wealthy customers, people who find products like interest-only mortgages attractive.”
He added, “These same products helped the bank to retain assets in normal times, but when liquidity risk arose the wealthy clients ran away.”
