First Republic Bank (NYSE: FRC) plummets over 22% in premarket trading on Tuesday after the struggling institution announced a more than $100 billion drop in deposits in the first quarter in the midst of the banking sector’s worst crisis since 2008.
Two bank collapses in the United States last month caused a liquidity crunch at a spate of smaller lenders as depositors hurried to withdraw funds, shaking investor confidence in the sector.
Wells Fargo analysts said the reported deposit outflows were far greater than Wall Street expected and at a “level that could prove very difficult to recover from.”
Deposit flight has been at the forefront of investor concerns as clients shift wealth to higher-yielding money market funds or larger ‘too-big-to-fail’ institutions.
First Republic has been wobbling in recent weeks as it tries to balance the dual challenges of convincing clients that their savings are safe and persuading investors that it has enough cash to get out of the crisis.
The KBW Regional Banking Index has fallen over 22% this year as a result of the sector-wide turmoil, while First Republic shares have fallen roughly 87%.
First Republic, located in San Francisco, announced on Monday that it intends to reduce its balance sheet and cut expenditures in the second quarter by reducing executive salary, reducing office space, and laying off 20-25% of its workforce.
Concerns over the bank’s health spurred senior decision-makers, including US Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and JPMorgan CEO Jamie Dimon, to put together an extraordinary $30 billion rescue package last month.
Citigroup Inc, Wells Fargo, Goldman Sachs, and Morgan Stanley were among the other major players.
A number of other regional institutions in the United States have also reported significant deposit withdrawals in the first quarter.
First Republic Bank lower results
Lukas Leonard