Sometimes slogans are written with good intentions and then they are like betrayals.
“It is a privilege to serve you”, says the motto of First Republic Bank. Shares in the bank, which is most at risk after the financial turmoil in March, plunged more than 40% on Tuesday after it became known that customers had withdrawn a surprising amount in the first quarter of 102 billion dollars in deposits. That’s more than half of the $176 billion it had on December 31.
Deposits at the end of the first quarter of 2023 include the temporary injection of 30 billion that it received from eleven large banks in the United States to prevent the collapse.
During this same period, the First Republic borrowed 92,000 million, mostly from the Federal Reserve (Fed or central bank of the United States) or groups of loans guaranteed by the Government. They have essentially replaced deposits with loans.
It’s a dangerous course for any bank, which generally works by taking relatively cheap deposits from customers while lending money to home and business buyers at much higher interest rates.
In any case, the bank still makes money. In its report it indicated that this quarter it recorded a profit of 269 million. However, if compared with the same period in 2022, this figure represents a drop of 33% with respect to earnings of 401 million.
But most of this quarter unfolded before deposit runs forced the institution to receive those expensive loans from the Fed or guaranteed by the Executive.
The fall in the value of the shares does nothing but aggravate the collapse, since its retreat reaches 90% in the value of the titles since mid-March.
“We are working on restructuring our balance sheet and reducing expenses and short-term borrowing,” First Republic Chief Financial Officer Neal Holland said Monday in a statement read at a conference call where executives rejected answer questions
As they explained, trying to show calm, the exodus of deposits stopped in the last week of March. From the last day of this month until April 21, the bank would have lost only 1.7% of its deposits and most of this withdrawal was due to the payment of tax payments from its customers. The great disaster was due to the earthquake that caused the intervention of Silicon Valley Bank by the Administration.
