On Tuesday, First Republic’s stock (FRC) plummeted 49% after the bank announced a shocking outflow of more than $100 billion in deposits in March, sparking concerns about the bank’s future. Analysts warn of the uncertainty First Republic faces as it tries to recover from last month’s turmoil, stating that its existence hangs in the balance. To increase its insured deposits, the bank outlined its survival strategy, which includes trimming the borrowings used to cover customer withdrawals, shrinking its balance sheet, and reducing its workforce by 20-25% to cut expenses. It is also considering selling or raising more capital and divesting $50 billion to $100 billion of long-dated securities and mortgages.
Reports suggest that creating a “bad bank” could be another option to deal with troubled bank assets. The bank’s future seems uncertain as it lost so much in deposits that it has to replace that funding by borrowing, which will weigh on its profitability going forward. The heavy deposit losses will also weigh on profits, prompting Wedbush to lower its earnings estimates. The fate of First Republic will be a bellwether of sentiment for the sector.
