Medicare Agent News: First Republic Shows Its Books

Tuesday, April 25, 2023

First Republic Shows Its Books

By Nicholas Jasinski | Monday, April 24

Quarterly Deluge. Stocks enjoyed an afternoon rally to finish the day mixed, ahead of a packed week of corporate earnings. Some 170 S&P 500 firms are scheduled to report, including many of the largest companies on the market.

The S&P 500 ticked up 0.1%, the Dow Jones Industrial Average added 0.2%, and the Nasdaq Composite slid 0.3%.

Earnings season is off to a strong start, at least relative to expectations. In aggregate, companies have beaten Wall Street consensus estimates by nearly 8%, compared with an average of 4% since 1994, according to Refinitiv.

That doesn't mean the numbers are great: So far, S&P 500 companies' earnings per share are down 4.7% from the year-ago quarter, on a 1.9% rise in revenue.

Today's most notable earnings report came after the closing bell, from First Republic Bank. The San Francisco-based lender was hit by a huge outflow of deposits in March following the collapse of Silicon Valley Bank. A consortium of bigger U.S. banks put up $30 billion in deposits to help shore up First Republic, but the stock was still down around 90% this year going into the earnings report.

Naturally, investors were focused on the bank's deposit balance, which stood at $176 billion at the end of 2022. Three months later, the total had declined to less than $105 billion, including the $30 billion lifeline.

Results for the quarter weren't great, and they're likely only a preview of what's to come. Net income was down 33% year over year on a 13% drop in revenue.

If First Republic is forced to replace those deposits with higher-cost funding sources, future profits will be crimped for quarters. Borrowing from the Federal Reserve at the overnight rate of 4.75% these days is a lot higher than the rate that First Republic and other banks have been paying in interest on checking and savings accounts.

So although the immediate liquidity crisis for First Republic seems to be over, today's results suggest that the hit to profits is only just beginning. Shares were down more than 20% in after-hours trading tonight following a 12% rise during normal trading.

Management didn't take any questions from analysts on this evening's earnings call, which lasted about 12 minutes. Read more on First Republic's results and the implications for other regional banks from Barron's Andrew Welsch here.