First Republic Bank (NYSE:FRC) stock fell over 20% overnight after reporting it lost $100 billion in customer deposits last month.
The company earned $229 million, $1.24 per share, on revenue of $1.2 billion, beating analyst estimates on revenues and slightly missing on earnings. What shocked analysts was total deposits of under $105 billion, down from $176 billion in December, which it made up for with over $80 billion in short-term borrowings.
The deposit total included a $30 billion lifeline offered by major banks last month when the bank appeared ready to collapse. Without the cash, deposits would have been down $100 billion.
They Play By Their Own Rules
What was worse for analysts was that management spent just 12 minutes on their earnings call, refusing to answer questions. The price of the bank’s stock fell from $16/share before the call to just $11.80, below its March low of $12.18. The bank’s market capitalization was down to $2.2 billion.
One analyst said First Republic, which had opened branches in wealthy enclaves across the country, was now playing “by its own rules.” Many of its depositors held much more than the FDIC-insured limit of $250,000 in the bank, lured by an exclusive cachet, private parties, and freshly baked cookies.
Now it has all gone pear-shaped. First Republic plans to lay off 20%-25% of its workforce during the current quarter up to 1,800 people. The bank is also considering “strategic options” to reinforce its capital position, which could mean the sale of the bank.
It was a reminder of just how close the U.S. came to a financial meltdown last month, both before and after Silicon Valley Bank (SVB) collapsed. Other regional bank stocks like KeyCorp (NYSE:KEY), Zions Bankcorp (NASDAQ:ZION) and Comerica (NYSE:CMA) are also down. Regional banks are considered critical to the general economy, lending money to businesses within their territories.
FRC Stock: What Happens Next?
The FRC debacle reminds traders how dependent banks are on customer confidence, regardless of government guarantees. Expect a down day ahead of a flood of earnings reports today, April 25, which includes Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
On the date of publication, Dana Blankenhorn held long positions in MSFT and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
