California-based lender First Republic took a 30 per cent hit to its share price on Wednesday, 26 April (Pacific Daylight Time), closing trading at US$5.69 per share (AU$8.61).
Since trading opened on Monday (24 April), the bank’s share price has lost over 64 per cent of its value.
This followed the release of the bank’s financial results over the first quarter of the 2023 calendar year, reporting a 13.4 per cent fall in revenue from US$1.4 billion (AU$2.1 billion) in the previous corresponding period to US$1.2 billion (AU$1.8 billion).
Net income slipped 33 per cent to US$269 million (AU$405.6 million), partly attributable to a 19 per cent slide in net interest income to US$923 million (AU$1.4 billion).
Notably, First Republic shed 35.5 per cent of its deposit base, from US$162 billion (AU$244.3 billion) as at 31 March 2022 to $104.4 billion (AU$157.4 billion).
The deposit run followed the collapse of three regional banking peers, including fellow California-based lender Silicon Valley Bank, which succumbed to liquidity pressures exposed by aggressive monetary policy tightening.
Investors feared First Republic would be next to fall, given its high exposure to the troubled technology sector.
According to First Republic, deposit flows stabilised as of the week beginning 27 March 2023, and remained stable through to Friday, 21 April.
As of 21 April 2023, deposits totalled US$102.7 billion (AU$154.8 billion), down 1.7 per cent from the close of the first quarter of 2023.
In an effort to restore confidence in its liquidity position, First Republic accessed additional liquidity from the Federal Reserve Bank, the Federal Home Loan Bank, and JPMorgan Chase & Co.
Total borrowings peaked at US$138.1 billion (AU$208.2 billion) as at 15 March, increasing total cash on its balance sheet to US$34 billion (AU$51.2 billion).
As at 21 April, total borrowings reduced to US$104 billion (AU$156.8 billion), with cash and cash equivalents totalling US$10 billion (AU$15 billion).
“As a result of the recent events, the bank is taking actions to strengthen its business and restructure its balance sheet,” First Republic noted in a statement to shareholders.
“These actions include efforts to increase insured deposits, reduce borrowings from the Federal Reserve Bank, and decrease loan balances to correspond with the reduced reliance on uninsured deposits.
“Through these actions, the bank intends to reduce the size of its balance sheet, reduce its reliance on short-term borrowings, and address the challenges it continues to face.”
First Republic has also moved to cut operational expenses, which includes downsizing its workforce by approximately 20–25 per cent over the second quarter of 2023.
Additionally, the bank is set to reduce executive officer compensation, condense corporate office space, and reduce non-essential projects and activities.
These measures would be supported by its pursuit of strategic options to “expedite its progress while reinforcing its capital position”.
In the meantime, First Republic has suspended its common stock dividend and its payment of the quarterly cash dividend on each series of the outstanding non-cumulative perpetual preferred stock.
The release of First Republic’s quarterly update and the subsequent plunge in its share price coincided with the release of troubled Swiss lender Credit Suisse’s financial results for the first quarter of the 2023 financial year.
Credit Suisse reported a 19 per cent decline in total assets under management (AUM), from CHF 1.5 billion (AU$2.6 billion) to CHF 1.2 billion (AU$2.1 billion).
The contraction was underpinned by a surge in outflows for the second consecutive quarter — totalling CHF 61.2 billion (AU$103 billion) in 1Q23 following a CHF 110.5 billion (AU$185.6 billion) spike in 1Q22.
According to the global investment bank, the bulk of outflows were recorded over the second half of March but have “not yet reversed”.
Adding to the bank’s woes was a spike in withdrawals of cash deposits and non-renewals of maturing time deposits.
Overall, customer deposits declined by approximately CHF 67 billion (AU$113.2 billion) in 1Q23.
The surge in outflows and deposit withdrawals contributed to a pre-tax loss of CHF 1.3 billion (AU$2.2 billion), down from a pre-tax income of CHF 300 million (AU$504 million) in the previous corresponding period (1Q22).
This result excluded the balance sheet implications of the Swiss Financial Market Supervisory Authority’s (FINMA) write-off of CHF 16 billion (AU$25.6 billion) in Additional Tier 1 (AT 1) capital notes issued to support competitor UBS’ AU$4.8 billion acquisition.
The write-off aimed to bolster the liquidity position of the combined entity, used to service costs associated with the transition.
When including funds generated by the write-off, Credit Suisse’s pre-tax income totalled approximately CHF 12.7 billion (AU$21.4 billion).
The UBS takeover came amid ongoing concerns over the strength of Credit Suisse’s balance sheet, which was undermined by “significantly higher withdrawals” of cash deposits and non-renewal of maturing time deposits over the fourth quarter of 2022.
Investor sentiment later worsened off the back of three banking collapses in the United States.
Credit Suisse moved to withdraw three key proposals to the 2023 annual general meeting of shareholders in lieu of recent developments.
The proposals, first announced on 14 March, included discharging the members of the board of directors and executive board for the 2022 financial year (Item 2).
The bank also withdrew a one-time deferred share-based transformation award (Item 8.2.2) for its executive board, which was linked to the implementation of Credit Suisse’s strategic objectives.
Moreover, as per the conditions of liquidity assistance extended to Credit Suisse by Swiss regulators, the bank was not permitted to resolve on and distribute a dividend for the 2022 financial year.
As such, Credit Suisse withheld a dividend of CHF 0.05 (AU$0.08) per share.
