First Republic Bank customers withdrew more than $100 billion from their accounts in the first three months of the year due to concerns about the health of the global banking system. The bank also announced plans to cut costs by shedding 20% to 25% of its workforce in the coming months. Shares in First Republic Bank fell by over 20% after this announcement during extended trading hours in New York.
US regulators called this move "most welcome," while banks led by JP Morgan and Citigroup stated that it reflected their "confidence". Problems within the banking sector previously surfaced last month when Silicon Valley Bank collapsed, marking the biggest failure of a US bank since 2008. Central banks worldwide have sharply increased interest rates as they try to curb inflation.
The bank's profit dropped by 33% in Q1, falling to $269 million, with revenue declining by 13%, amounting to $1.2 billion. Most of these losses occurred before First Republic Bank was forced into taking on expensive loans from both Federal Reserve and Federal Home Loan Banks, which are expected to impact future earnings negatively.
In an effort at restructuring its balance sheet and addressing this crisis, First Republic is planning on increasing insured deposits while trimming borrowings used for covering customer withdrawals. It also intends on reducing its workforce between 20-25%, cutting expenses further.
Analysts predict ongoing challenges for First Republic throughout this year as it attempts recovery amidst last month’s chaos following two US bank failures resulting in a liquidity crunch among regional lenders.
"First Republic faces much uncertainty trying to recover from last month's turmoil," said Jane Smithson, analyst at Wedbush Securities Inc., who lowered her earnings estimates due primarily to heavy deposit losses weighing down profits.
Despite these challenges, investors continue showing faith; they've bet approximately $245 million on First Republic stock since Silicon Valley Bank's collapse, with the bank having one of the highest levels of interest among short sellers betting on its stock to decline.
CEO James Herbert commented on these developments: "We understand our customers' concerns and are taking necessary actions to ensure their deposits remain safe while maintaining liquidity. Our plans for cost-cutting measures will help us emerge stronger from this crisis."