By Ketki Saxena
Investing.com -- First Republic Bank's shares plummeted by approximately 50 percent on Tuesday, following revelations that customers had withdrawn $100 billion in deposits during Q1. This alarming news came after a disconcerting earnings report and an unconvincing conference call, during which company executives declined to answer questions.
On Monday, after regular stock trading had closed for the day, First Republic unveiled its results which exposed just how precarious the bank's future has become since mid-March. The bank reported that clients withdrew $102 billion in deposits throughout Q1 - a staggering amount given that the bank held $176 billion at year-end in 2022.
In March, First Republic received a temporary respite in the form of a $30-billion rescue package from some of America's largest banks to help stabilize its operations and prevent contagion from spreading across the banking sector. However, these banks can recall their deposits as early as July this year. First Republic also borrowed $92 billion mainly from government-backed lending groups and Federal Reserve - essentially loans to replace its deposits.
During their conference call with analysts and investors alike, company executives did little to instill confidence – providing only 12 minutes' worth of prepared remarks. Additionally on Monday evening it was announced that up to one-quarter of staff would be let go while executive compensation would be cut by an unspecified amount.
As things stand now for First Republic Bank there are no simple solutions or obvious ways out without potential government intervention or seizure. There have been no buyers emerging who are interested in acquiring the entire bank operation due to concerns over assuming responsibility for billions-of-dollars-worth losses resulting from recent interest rate fluctuations within its loan portfolio.
Moreover, selling the bank in pieces is not feasible since its customers cross-utilize a wide range of services such as checking accounts, mortgages, and wealth management.
The Federal Reserve's hands are tied when it comes to taking on some of a bank's financial risk to facilitate a takeover as it was able to do in 2008, due to reforms implemented following that financial crisis. While the Federal Deposit Insurance Corporation (FDIC) might be able to offer assistance in some capacity, this would most likely necessitate declaring the bank insolvent.