First Republic Bank to slash up to a quarter of its workforce

New York CNN

First Republic Bank, the struggling lender, said on Monday that it expects to reduce its workforce by 20-25% in this quarter.

First Republic announced the layoffs as its total deposits dropped 41% to $104.5 billion in the first three months, despite a $30 billion injection from a consortium banks to keep the regional lender thriving. The deposit would have dropped by more than 50% without the cash injection.

Analysts expected deposits to be around $136.7 Billion.

The bank reported that it experienced a sharp decline in deposits after the collapse of Silicon Valley Bank last month. However, activity stabilized at the end March and since then has remained stable.

Michael Roffler, CEO of Roffler Financial Group, said that he had experienced unprecedented deposits outflows on a Monday afternoon earnings call. He added that the deposit activity had evened since March's end. He said that total deposits stood at $102.7 billion on April 21, 2023. This was down just 1.7% from the March 31st, 2023. This small drop was likely due to regular client tax payments, he said.

Roffler didn't take any questions or comments from the media or investors during this call, which lasted approximately 13 minutes.

First Republic, based in San Francisco, also reported a 13.4% drop in revenues from the previous year. Net interest income (the money that a bank earns from lending out loans minus interest it has to pay to depositors or other lenders) was down 19%.

According to Refinitiv data, the bank's earnings per share was $1.23, which is higher than analysts’ expectations of $0.85.

First Republic said that in its earnings announcement on Monday, it was taking 'actions to strengthen its business' and restructuring its balance sheet.

These actions include increasing the insured deposit amount.

About two-thirds (66%) of First Republic's deposit were not insured by the Federal Deposit Insurance Corporation when the crisis broke out. This is lower than Silicon Valley Bank's 94%, but according to S&P Global, at the end last year First Republic had a ratio of 111% between loans and long-term investment to deposits. That means it has invested and loaned more money than its deposits.

First Republic's share price has plummeted nearly 90% since the beginning of March. Investors are scrutinizing lenders that have a large number of uninsured deposits as a reaction to recent banking crises.

Investors were particularly looking for signs of a liquidity crisis -- when banks do not have enough cash to meet withdrawal requests and repayment of debt.

Analysts at VandaTrack wrote in a note that they expect First Republic's performance to be a bellwether for sentiment within the sector.

Roffler tried to assure investors of the bank's liquidity, telling investors in the Monday call that First Republic had double the amount of available liquid assets of uninsured deposit (excluding the $30 Billion received from large banks) as of April 4.

After the earnings announcement shares of First Republic fell more than 21% after hours, after having closed up by 12%.

The bank announced that it would reduce its costs by taking additional steps, in addition to cutting its staff by up to one-quarter. These include significant cuts to executive compensation and the consolidation of office space.

The stakes are high: Trading in First Republic stocks was a complete snoozefest between January and February. Retail investors made an average of $20,000 per day in net purchases. VandaTrack data shows that after SVB's collapse, the daily average trading volume of its stock increased to $10.3million.

TD Ameritrade’s Investment Movement Index tracks retail traders and found that their clients were net purchasers of First Republic Bank during March, despite the fact that the shares of the company plummeted by more than 88% due to concerns about uninsured depositors and the health of the entire banking system.

First Republic's share price has hovered at $15 for the past six weeks. This is down from $115 to $150 a share during the first two month of 2023.