First Republic sees ‘gob-smacking’ deposit outflows, shares plummet after rescue package

Author Aaron Elstein
Aaron Elstein writes a blog called In The Markets for Crain's New York Business and covers all aspects of Wall Street. He has been covering the beat since 1996, when the Dow Jones Industrial Average was at 5600. Before coming to Crain's New York Business in 2003, he wrote "Heard on the Street" columns at the The Wall Street Journal, covered bank mergers for American Banker, and got his start reporting on downstate Illinois graft and corruption for the Illinois Times in Springfield. His articles, columns and blogs have won numerous awards over the years, including from the Society of American Business Editors and Writers, the Society of Professional Journalists, the Alliance of Area Business Publications and the Jesse H. Neal National Business Journalism Award. He lives with his wife and son in Washington Heights and spends much of his free time worrying about the Red Sox.
Mar 17, 2023
2 months ago
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First Republic Bank’s $30 billion cash infusion might not last much longer, analysts say.

“First Republic is getting run with cumulative outflows likely on par or worse than SVB’s back-breaking ~25%+ last Thursday,” Jesse Rosenthal, head of U.S. financials at debt research firm CreditSights, wrote in client note Friday morning. “There’s a scenario here where the $30 billion injection allows FRC to limp into the weekend and give regulators time to arrange a sale.”

On Thursday evening, the bank disclosed that in the past week it had borrowed between $20 billion and $109 billion daily from the Federal Reserve. First Republic said it has $64 billion in cash after its $30 billion injection from JPMorgan Chase and other big banks. The large Fed borrowings indicate “a gob-smacking amount of deposit outflows,” Rosenthal said.

Evercore ISI analyst John Pancari said the cash infusion “allows the bank to fight another day” but in a client report described the help as “likely a temporary solution.” 

First Republic had about $180 billion in deposits heading into 2023, 68% of which exceeded the FDIC insurance cap of $250,000. Since the failures of Silicon Valley Bank and Signature Bank, nervous depositors have withdrawn an estimated $90 billion from First Republic, Evercore ISI said. Rosenthal said the bank’s customer base has “shrunk dramatically.”

In Thursday night’s regulatory filing, First Republic said it is “evaluating the size and composition of its balance sheet going forward.” Daily deposit outflows have “slowed considerably.” A spokesman had no additional comment.

Wedbush Securities analyst David Chiaverini wrote there’s an 85% chance First Republic is acquired by another bank or gets seized by regulators. He anticipates “no residual value” for shareholders in either scenario. An acquirer would have to pump $13.5 billion into the bank to cover a capital shortfall, Chiaverini told clients.

First Republic’s stock fell by 23% Friday morning, to $26 a share. A week ago it traded at $110 a share. Shares in other regional banks were also down, with the KBW Bank Index falling by 5%. The index has lost 28% of its value since early last week because analysts believe the depositor-driven panic could slow the economy later this year.

“Any dollar coming into a bank via a loan payment now won’t go out as a new loan to someone else. The money is going to stay in the bank until this storm blows over,” said one New York bank investor who has bet shares in regional banks will continue to fall. “That’s how a crisis with deposits will affect the economy months from now.”

San Francisco-based First Republic is the 14th largest bank in the New York market, with $17 billion in deposits here, according to FDIC data. Its high-net worth clientele was the envy of the banking business and quite different from Silicon Valley Bank’s customer base of pre-revenue start-ups. But First Republic clients this week withdrew money at a rate Rosenthal described as “closer to an avalanche than a snowfall.”

Author Aaron Elstein
Aaron Elstein writes a blog called In The Markets for Crain's New York Business and covers all aspects of Wall Street. He has been covering the beat since 1996, when the Dow Jones Industrial Average was at 5600. Before coming to Crain's New York Business in 2003, he wrote "Heard on the Street" columns at the The Wall Street Journal, covered bank mergers for American Banker, and got his start reporting on downstate Illinois graft and corruption for the Illinois Times in Springfield. His articles, columns and blogs have won numerous awards over the years, including from the Society of American Business Editors and Writers, the Society of Professional Journalists, the Alliance of Area Business Publications and the Jesse H. Neal National Business Journalism Award. He lives with his wife and son in Washington Heights and spends much of his free time worrying about the Red Sox.