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First Republic Bank Lost $102 Billion in Customer Deposits

First Republic Bank, the most endangered U.S. lender after last month’s banking crisis, revealed chilling details on Monday about how troubled its business is.

Bank executives said little in the first update investors were expecting after a steep decline over the past month and a half. On a conference call with Wall Street analysts to discuss first-quarter results, bank executives offered just 12 minutes of prepared remarks and refused to answer questions, prompting investors and the public to , gave little answer on how the bank escaped the crater.

“When banks feel they have few options left, they start playing by their own rules,” said Timothy Coffey, banking analyst at Janney Montgomery Scott & Co. “Every day, every week, anytime from now on, it’s going to be a battle for them.”

One thing is certain: the bank, which caters to wealthy coastal customers, appears to be in trouble. During the first quarter, the company lost a staggering $102 billion in customer deposits. That’s well over half of the $176 billion she had at the end of last year. That doesn’t include his temporary $30 billion lifeline he received from the nation’s largest bank last month.

Over the same period, it borrowed $92 billion, primarily from the Federal Reserve and government-backed lending groups, effectively replacing deposits with loans. This is a dangerous course for any bank. Banks typically do business by accepting relatively cheap customer deposits and lending money to home buyers and businesses at much higher interest rates.

First Republic still makes some profit. Quarterly earnings of $269 million were down one-third from the year-ago quarter. In line with general trends in the banking industry, it made far fewer loans than in previous quarters as industry executives fear a recession and softer home prices and sales.

The bank’s stock fell about 20% in extended trading, exacerbated by executives refusing to answer questions from analysts.

First Republic’s stock has fallen more than 85% since mid-March.

The bank said deposit outflows had largely stopped by the last week of March. He said that between March 31 and April 21, the bank lost just 1.7% of deposits, with most of those withdrawals related to tax payments by customers.

This slide started about 6 weeks ago. That’s when midsize banks Silicon Valley Bank and Signature Bank were acquired by federal regulators after customers withdrew billions of dollars in deposits. San Francisco-based First Republic, like Silicon Valley Bank, has many customers in the startup industry, and many of its accounts were above the $250,000 cap, so it could be the next drop. It was widely viewed as the highest-paid lender. for federal deposit insurance.

First Republic is consulting with financial advisors and government officials, and is coming up with a plan to help itself, including selling the bank or parts of it or raising new capital.

We still have a lot to do. The bank said on Monday it would cut his quarter of its workforce and cut executive pay by an unknown amount.

Until recently, the First Republic was a Wall Street darling. It was founded in 1985 by Jim Herbert, now 78 and the chairman of the bank. The company distinguished itself by offering jumbo mortgages to wealthy customers that could not be sold to government-backed mortgage giants Fannie Mae and Freddie Mac. Herbert has consistently touted First Republic’s business model as sound.

In 2007, Merrill Lynch paid $1.8 billion to buy the bank, but the ownership lasted only three years. Herbert, with the help of other investors, bought back the bank and went public after the 2008 financial crisis.

Since then, First Republic has focused on expansion by establishing branches in locations synonymous with wealth such as New York, Boston, San Francisco, the most luxurious locations in Los Angeles, Greenwich, Connecticut, and Palm Beach, Florida. rice field. Loved the bank branch. Communicate yourself to your clients and prospects with a personal touch, like a warm, freshly baked cookie.

Janna Koretz, a 37-year-old psychologist living in Boston, started banking at First Republic about 10 years ago when she was building a group practice. “She didn’t have this much money,” she said, but her banker was always available: the bank sent a courier to her office and sent cash from her clinic. received.

The bank is hosting a holiday party for hundreds of employees and customers at its Manhattan performing arts space in mid-December, according to two attendees who spoke on condition of anonymity because they wanted to maintain their relationship with the bank. hosted. Graffiti with her black spray paint her artists and flamenco her dancers entertained the crowd. Bank CEO Mike Loeffler, who has held the top position since March 2022, has warned the crowd that 2023 could be a challenging year for banks.

Three months later, banks found themselves in a different kind of spotlight. In the days and weeks after Silicon Valley Bank went bankrupt, many large banks considered buying First Republic. But the deal didn’t go through, and JPMorgan Chase Chief Executive Jamie Dimon and Treasury Secretary Janet L. Yellen teamed up to inject his $30 billion deposit into the bank. The big bank that put the money in, the shortest he can withdraw in four months.

On Monday’s brief conference call, Loeffler said little about what would happen next, simply repeating the bank’s public information. I would like to thank my colleagues for their uninterrupted service,” he said. “Their dedication is inspiring.”

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