The value of First Republic Bank shares nearly halved on Tuesday, a day after it reported an outflow of deposits in the first quarter.
Trading in First Republic shares was halted several times on the New York Stock Exchange on Tuesday. They ended the session at $8.10, down about 49%.
San Francisco-based First Republic announced on Monday that it lost nearly $72 billion in deposits from December 31 to March 31. The decline of more than 40% despite a $30 billion infusion from 11 rival lenders on March 16 as the government and private sector sought to head off a wider banking crisis.
While analysts say the exodus of deposits from regional and mid-sized banks has largely come to a halt, the latest unrest in the First Republic shows that broader industry concerns have not dissipated.
“Anecdotally, we hear that deposit volatility isn’t the same as it was” immediately after Silicon Valley Bank and Signature Bank imploded in March, said Mark Hamrick, senior economic analyst at Bankrate, a provider of consumer finance data.
But some industry experts say signs of relative stability in recent bank earnings belie other concerns, particularly for commercial lending. Moody’s last week downgraded 11 regional banks, including US Bank and Western Alliance, asking “whether any banks assume high deposit stability and their operational nature should be reassessed.”
During First Republic’s earnings call on Monday night, CEO Mike Roffler sought to reassure investors that the worst hemorrhage was over. “From the week of March 27, our deposits stabilized, and they have remained stable ever since,” he said.
The First Republic’s deposit problems remain an outlier so far, with most banks reporting only modest outflows in recent weeks. Last quarter earnings reports showed U.S. banks losing about 5% of their deposits on average this year, according to a Goldman Sachs Research note released Sunday.
“Most are now less concerned about future outflows,” Goldman said, although some banks warned their industry was not completely off the hook.
Some banks expect more deposits to come to their doors in the coming quarters, while others signal that funds may continue to flow out. KeyCorp, one of the 20 largest US banks, said it expects deposits to be flat or down by 2% during 2023.
Expectations for more Federal Reserve interest rate hikewhich is due to announce its next rate decision on May 3, continues to add to the jitters on Wall Street.
One March 23 disorganized analysts affiliated with the National Bureau of Economic Research have warned that smaller banks with uninsured deposits are more vulnerable to insolvency in a high interest rate environment.
While some depositors who withdrew money from their banks may have done so amid fears over the collapse of the SVB, some regional lenders said deposit outflows could also reflect consumers‘ shop around for higher interest rates. This trend is increasingly pushing banks to pay more to retain their customers’ deposits and attract new ones.
Meanwhile, economists are monitoring the lending environment for small and medium-sized businesses for signs of a possible credit crunch. Small regional banks are responsible for at least 70% of all commercial and industrial loans made to small businesses, said Joe Brusuelas, chief economist at consultancy RSM.
As Main Street businesses’ access to credit shrinks, he says, he fears the wave of layoffs announcement by brand companies – the cuts that so far have been aimed at the highest-paid workers in technology and finance – could spread further to other sectors, such as leisure and hospitality.
“The credit crunch tends to slow down the economy and increase unemployment,” Brusuelas said.