Shares of First Republic Bank plunged 50 percent after a “disturbing” earnings call as company executives refused to answer questions.
The stock fell on Tuesday after it emerged that customers withdrew more than $100 billion during a crisis last month, with fears it could be the third bank to fail in quick succession after the collapses of Silicon Valley and Signature Bank.
First Republic held about $180 billion at the end of last year.
The bank’s stock closed down 49 percent at $8.10, a fraction of the price it was a year ago when it traded at about $170 a share.
A statement issued by First Republic, late on Monday, stated that the company was only able to stop the bleeding after a group of large banks stepped in to bail it out by depositing $30 billion in unsecured deposits it received in March.
But investors remained deeply skeptical about the path to take going forward for First Republic either as an independent company or as an acquisition target since the company had to borrow $92 billion from federally-backed lending groups in the first quarter.
Shares of First Republic Bank plunged 50 percent after a “disturbing earnings call” as analysts and company executives refused to answer questions.
It is likely that the bank will make lower profits for years, and if the bank is bought out, any purchase would result in an immediate loss for any buyer.
The bank says it plans to sell unprofitable assets, including the low-interest mortgages it has made to wealthy clients. It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees, at the end of 2022.
“With a still significant level of uncertainty in expected results and losses beyond next year, we recommend investors sell stocks as the outlook seems highly uncertain,” Citi analyst Arin Ciganovich said in a note to clients.
During a 12-minute conference call, the executives did not answer questions and only provided prepared remarks, according to the company. New York times.
Those who house their money there had many unanswered questions, including how the bank was prepared to continue service if it failed to bring in new money and how customer service would be affected by staff cuts.
The company risks being taken over by the government if no one comes forward to buy the bank – which would come with its huge portfolio of loans.
The stock fell on Tuesday after it said depositors withdrew more than $100 billion during a crisis last month, with fears it could be the third bank to collapse after the collapses of Silicon Valley Bank and Signature Bank.
There is no easy solution for First Republic, said Katherine Judge, who works as an analyst at Columbia Law School.
“If there were attractive options, they would have pursued them already,” she told the Times.
The federal government can’t take the risk of the bank since its reforms, and the FDIC could help but it could risk the bank’s outright failure, according to the Times.
The company said it was “pursuing strategic options” to reshape and stabilize itself.
First Republic has struggled since the collapse of Silicon Valley Bank and Signature Bank in early March, as investors and depositors grew concerned that the bank might not survive as an independent entity for much longer.
Prior to the failure of Silicon Valley Bank, First Republic had a banking franchise that was the envy of most of the industry. Its clients, most of whom were rich and powerful, rarely defaulted on their loans.
The bank made much of its money by offering low-cost loans to the wealthy, which reportedly included Meta Platforms CEO Mark Zuckerberg.
Michael J. Ruffler (pictured) is the CEO of First Republic Bank
But its privilege became a commitment when bank clients and analysts noticed that the vast majority of First Republic deposits, like those in Silicon Valley and Signature Bank, were uninsured — well above the $250,000 limit set by the FDIC. If First Republic fails, depositors run the risk of not getting all of their money back.
First Republic reported first-quarter results on Monday that showed it had $173.5 billion in deposits before the Silicon Valley bank failure on March 9. On April 21, it had $102.7 billion in deposits, which included $30 billion deposited by major banks. It said its deposits had been relatively stable since late March.
The bank said its profits fell 33 percent in the three-month period ended March 31 compared to a year earlier, and revenue fell 13 percent.