First Republic Bank Shows Scale Of Losses After Banking Crisis, Plunges On Stock Market

Key takeaways

• First Republic lost $70 billion worth of deposits in Q1, down 40%
• Share prices plunged 20% but have recovered 12% in pre-market trading
• Confidence in regional banks is shaken after the earnings report, with the Fed interest rate decision just days away

First Republic Bank lost over $70 billion worth of deposits in Q1, marking a substantial 40.8% loss, its earning report has revealed. It would never be easy for the beleaguered regional bank after it was swept up in the aftermath of the Silicon Valley Bank (SVB) collapse, but investors had hoped for a miracle.

Unfortunately, it hasn’t happened. Virtually all key metrics were down and First Republic will struggle to be profitable in Q2 as well, analysts predict. It’s shaken confidence in the embattled regional banking sector and raised concerns that we haven’t seen the last of bank runs and collapses.

We’ve got the latest on just how bad First Republic’s earnings report was and Wall Street’s reaction, how the banking sector is shaping up in the aftermath of the crisis and whether more financial woes might be on the way.

All the uncertainty isn’t great for investors. Q.ai’s Foundation Kits could be the tonic you need in an economic downturn. Themed on different topics and risk levels, an AI algorithm looks at the assets set to hit it big each week and weights them accordingly.

But it doesn’t stop there. The (optional) secret weapon for all Foundation Kits is the powerhouse Portfolio Protection feature, designed to deploy sophisticated hedging strategies whenever there’s a weakness in your investment portfolio. The AI sifts through the data so you don’t have to, helping to keep your investments one step ahead.

Download Q.ai today for access to AI-powered investment strategies.

First Republic Bank’s Q1 earnings report

There’s no denying that First Republic’s first quarter was a bloodbath. The regional bank, headquartered in San Francisco, said its deposits had fallen to $104.5 billion – with that figure including the $30 billion bailout central banks had to provide.

Net income was down 33% year-on-year to $269 million; revenue slid by 13.4% to $1.2 billion, and net interest income was down 19.4% after its interest expense swelled to $974 million from $525 million. It doesn’t look good no matter how you slice and dice it.

First Republic also had to borrow a lot of money. Thanks to the crisis, its borrowings now total a huge $106.7 billion, up massively from Q4 2022’s $5.5 billion figure. To make matters worse, those loans are mostly expensive short-term ones from the Fed.

Founder Jim Herbert and CEO Mike Roffler said in a joint statement that “we continue to take steps to strengthen our business” and that they were “grateful for the ongoing support of our clients and colleagues”. That’s putting it mildly.

The troubled bank also plans to take further steps to ensure it could be profitable by the end of the year, announcing it would be slashing bonuses and pay, cutting back on office space and reducing its workforce by up to 25%. It also cut dividends for the quarter and is likely to do the same in Q2.

A recap on the banking crisis

First Republic had an unfortunate leading role in the banking crisis that happened in March. After Silicon Valley Bank’s customers caused a bank run and its dramatic collapse, other banks started to feel the heat. Soon, customers were pulling their cash too fast for First Republic to keep up with.

As a result, First Republic needed a $30 billion cash injection to stay afloat or risk deepening the crisis if a third bank was to fail. Central banks stepped up to the plate, with the likes of JPMorgan, Citigroup and Bank of America funding the injection.

Regional banks still struggling

Investors were already jumpy and looking for any cracks in the banking sector, so these latest earnings revealed the full extent of the damage. Shares in First Republic plummeted 20% on Monday, but the price has recovered 12% so far on Tuesday. Its shares are down 86% this year.

Other regional banks also took a hit. Western Alliance’s and Zions’ share prices slid 2%, while KeyCorp dropped 0.7%. Western Alliance’s earnings report was fine, but Zions and KeyCorp missed analyst expectations.

The mixed results are in stark contrast to the central banks, many of which have beaten Wall Street’s predictions. JPMorgan announced a 52% earnings increase, bolstered by higher interest rates, while Wells Fargo reported a 30% rise in its net income and a 45% rise in net interest income. Citigroup smashed forecasts to hit a $4.6 billion profit, and Bank of America enjoyed a 13% revenue increase and a 15% profit boost.

Is the banking crisis over?

After the second and third-largest bank failures in US history, there was no way everyone would see a full bounceback so quickly. Central banks, particularly the consumer-focused ones, had the room to flex. Regional banks weren’t so lucky.

There’s a chance we could be on shaky ground again. On Friday, Moody’s downgraded 11 regional banks’ ratings, blaming “a deterioration in the operating environment and funding conditions”.

We’re also just days away from hearing the Fed’s decision on interest rates. Recently most signs have been pointing to another quarter-point hike, but there’s a chance the regional banking sector’s dismal outlook could weigh in on the final say.

Either way, all of the banks are bracing for a recession by tightening lending criteria and increasing provisions for credit defaults. Investors and analysts are paying closer attention to the banks’ balance sheets and employee retention figures from now on.

The bottom line

First Republic’s earnings were never going to be good, but nobody knew how bad the situation was until yesterday. Now everything’s out in the open, a jumpy Wall Street has reacted as expected. The question is: is that the end of the banking crisis, or will a continued lack of confidence further deepen the banking industry’s woes?

All seems stable – for now. But as we saw with SVB, confidence can disappear in the blink of an eye. It’s up to the government and banking professionals to reassure investors and consumers that all’s well. That might be an uphill battle for the next quarter, but it’s necessary to ensure the industry’s health.

Has talk of bank runs and recessions got you nervous? Stick to diversifying your portfolio and stocking up on recession resistant assets with Q.ai’s Value Vault. Our AI looks for companies with low relative valuations and strong business models and weights the ones set to perform each week to help you benefit, without hours of research.

The Kit allows you to add Portfolio Protection, which helps you to keep even more of your hard-earned gains. The AI looks for any risks in your portfolio, deploying complex hedging strategies any hedge fund manager would be jealous of to help you stay ahead of the curve.

Download Q.ai today for access to AI-powered investment strategies.