(Reuters) – Shares of First Republic Bank fell 21% in premarket trading on Tuesday after the beleaguered lender reported a more than $100 billion plunge in deposits in the first quarter in the aftermath of the biggest crisis to hit the banking sector since 2008.
Two U.S. bank failures last month created a liquidity crunch at a slew of regional lenders as depositors rushed to pull capital, rocking investor confidence in the sector.
Analysts at Wells Fargo said the reported deposit outflows were much worse than Wall Street estimates and at a “level that could prove very hard to come back from.”
Deposit flight has been at the center of investor concerns as clients move capital towards money market funds that bring in higher returns or larger ‘too-big-to-fail’ institutions.
First Republic has been reeling in recent weeks as it navigates the twin challenge of assuring customers that their deposits remain safe and investors that it has liquidity to emerge out of the crisis.
The sector-wide upheaval has led to the KBW Regional Banking Index contracting nearly 22% this year, while First Republic shares dived roughly 87% in the fallout.
San Francisco-based First Republic said on Monday it plans to shrink its balance sheet and slash expenses by cutting executive compensation, paring back office space, and laying off 20-25% of employees in the second quarter.
Last month, concerns about the bank’s health had prompted top power brokers including U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and JPMorgan’s CEO Jamie Dimon to put together an unprecedented $30 billion rescue deal.
Other big names that swooped in included Citigroup Inc, Wells Fargo, Goldman Sachs and Morgan Stanley.
A clutch of other U.S. regional lenders have also reported steep deposit outflows for the first quarter.
(Reporting by Manya Saini in Bengaluru; Editing by Dhanya Ann Thoppil)
