First Republic and CS Face 220 Trillion Won 'Bank Run' in Q1... Aftermath of SVB (Update)

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Following the collapse of Silicon Valley Bank (SVB) last month, First Republic in the United States and Credit Suisse (CS) in Europe, both at the center of the crisis, saw deposits exceeding 220 trillion won withdrawn in the first quarter of this year alone.

According to local media such as CNBC on the 24th (local time), First Republic announced that deposits in the first quarter of 2023 decreased by $72 billion (approximately 96 trillion won, 40.8%) compared to the same period last year, holding a deposit balance of $104.5 billion (approximately 140 trillion won). This falls short of experts' expectations of $145 billion (approximately 194 trillion won).

Notably, the deposit balance announced on that day included $30 billion (approximately 40 trillion won) deposited by 11 major U.S. banks at the end of March to prevent a domino effect of bank failures. Excluding this amount, more than $100 billion (approximately 134 trillion won) left First Republic in the first quarter alone, with deposits estimated to have decreased by more than 50%. This indicates that the scale of deposit outflows was much larger than initially expected.

First quarter revenue was $1.21 billion (1.62 trillion won), and earnings per share (EPS) were $1.23. Both revenue and EPS exceeded market forecasts (respectively $1.15 billion and $0.85 cents).

First Republic announced plans to reduce costs in the second quarter by cutting executive compensation, downsizing office space, and reducing staff by 20-25%.

On the same day, First Republic's stock price fell 20% in New York after-hours trading, then slightly recovered but still ended down 18%. The bank's stock price has plummeted more than 90% since the beginning of the year.

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At Credit Suisse (CS), a Swiss investment bank acquired by competitor UBS amid liquidity crisis, more than 90 trillion won was withdrawn in the first quarter alone.

According to CS's first quarter business report released that day, customers withdrew 61.2 billion Swiss francs (approximately 91.8 trillion won) from asset management, deposit departments, and other accounts during this period. Approximately 9% of customer assets were withdrawn from the core asset management division alone. The report added that due to lowered fee forecasts, significant losses are expected in the asset management sector in the second quarter.

CS, driven into a liquidity crisis by successive investment failures, was acquired by UBS last month under the guidance of Swiss authorities. Following the merger announcement, CS customers, concerned about asset safety, rushed to withdraw large-scale deposits. The report stated, "Since UBS confirmed the acquisition of CS on the 19th of last month, net asset outflows have been particularly high," adding, "Outflows stabilized this month, but there has been no reversal of the situation."

CS posted a net profit of 12.8 billion Swiss francs (approximately 19.23 trillion won) in the first quarter. However, this is a nominal figure due to the write-down of CS's high-risk bonds. Previously, following regulatory instructions, CS decided to fully write off 16 billion Swiss francs (approximately 24 trillion won) worth of Additional Tier 1 (AT1) capital securities among its bonds. Excluding the AT1 bond write-down, CS is understood to have recorded a pre-tax loss of 1.3 billion Swiss francs in the first quarter of this year.

Currently, experts point out that the unprecedented scale of losses and outflows could pose a burden on UBS's future management. UBS, which is set to acquire CS, will release its earnings on Tuesday, the 25th.

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