News & Analysis

First Republic Bank's customers fled with more than $100 billion in deposits in Q1 2023, prompting a hunt for strategic options as well as massive layoffs and other cost-cutting measures.

But the San Francisco-based bank said deposit outflows had "slowed considerably" at the end of March; its deposit levels declined just 1.7% in the first three weeks of April. This silver lining on an otherwise brutal earnings suggests limited risks of further banking contagion.

In mid-March, First Republic received $30 billion in deposits from a group of big banks that provided liquidity and helped to shore up depositors' confidence. The injection helped to offset the loss of more than half of the deposits it held at the start of the year.

To curb expenses, First Republic is cutting its headcount by up to 25% in Q2, slashing executive pay and sizing down its corporate office footprint. The company said it is also exploring strategic options. First Republic has reportedly considered selling itself or raising money from banks or PE firms.

As First Republic has suffered alongside regional banking peers such as Silicon Valley Bank and Signature Bank, others have prospered. Deposits at JP Morgan Chase swelled by $50 billion following the banking crisis in March.

First Republic's short-term borrowing ballooned last month as it sought to maximize liquidity. The bank is now seeking to reduce that borrowing and reformulate its balance sheet in other ways, such as by reducing loan balances and increasing insured deposits.

"With the stabilization of our deposit base and the strength of our credit quality and capital position, we continue to take steps to strengthen our business," CEO Jim Herbert said in its earnings call. The company did not take questions.

First Republic's shares fell 21% in aftermarket trading Monday. The company's stock has plummeted more than 86% this year.
 

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