First Republic is in a Shaky Position and Needs a Savior Fast

Since Silicon Valley Bank and Signature Bank were both closed by regulators, it’s been a tough road for First Republic Bank. The $30 billion in added deposits from 11 big banks haven’t been enough.

In its first quarter of the year, revenues are down $1.2 billion, or 13.4%, year over year, according to the bank’s financial results. Net income, down 32.9%. Diluted earnings per share, off by 38.5% from 2022. This was a big miss from analyst expectations.

Share prices were down 29.8% on Wednesday from Tuesday, sitting at $5.69. That’s a 95.32% plunge since the opening of the year, according to data from S&P Global Market Intelligence.

“As of March 9, 2023, total deposits were $173.5 billion, down 1.7% from year-end 2022,” the bank’s financial statement said. “On March 10, 2023, following the highly public closure of a large regional bank, First Republic began experiencing unprecedented deposit outflows.” At the end of March 31, deposits had declined by $72 billion to $104.5 billion, with 48% being uninsured. By April 21, deposits were at $102.7 billion—still including the $30 billion those big banks had put in to help keep things steady.

According to Bloomberg, the bank is looking to sell between $50 billion and $100 billion in assets. That reportedly includes long-dated mortgages and securities, which will get marked down in value because of current market conditions with ongoing interest rate increases. “In addition to selling assets, the bank also plans to focus on loans that can be sold on the secondary market,” it said Monday. “That’s a sharp departure from its old strategy of providing interest-only jumbo mortgages, a service that attracted legions of rich borrowers and helped build the company into a wealth-management giant.”

“The bank is sitting on big losses and paying more to borrow money than it is making on its loans to homeowners and businesses,” wrote the New York Times.

Not of this is comforting news to the commercial real estate industry. At the end of 2022, the bank held $34.5 billion in CRE and multifamily-related loans. That was 19% of the bank’s total loan portfolio.

As of the end of the first quarter of 2023, there was $22.7 billion in multifamily loans on the balance sheet, $11.1 billion in commercial real estate, and $2.4 billion in multifamily and CRE construction loans, for a total of $36.2 billion, or 20.9% of the total loan portfolio.