JPMorgan Takes Over First Republic: What’s Next for Advisors and Clients?
First Republic #FirstRepublic
First Republic advisors and their clients went to bed Sunday night as part of a failing bank hemorrhaging deposits and woke up Monday morning as part of JPMorgan Chase, the nation’s largest bank by assets. It’s a much more comfortable place to be.
First Republic’s more than 200 advisors will now join JPMorgan’s wealth unit, J.P. Morgan Advisors. JPMorgan currently has more than 5,000 advisors across its wealth management operations. JPMorgan has been seeking to grow its advisor ranks, seeing wealth management as an attractive business because of the steady returns it can generate.
“This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise,” Jamie Dimon, chairman and CEO of JPMorgan Chase, said.
For clients it should be a seamless transition as 84 former First Republic branches will now open as Chase branches.
First Republic has lost scores of financial advisors to competitors in recent weeks.
First Republic’s wealth management assets totaled $289.5 billion at the end of the first quarter, although the company may have lost some of those assets during April as advisors departed for other employers. Clients and their assets often follow their advisors to their new companies, although the process can take time. When it reported first-quarter earnings, First Republic said that wealth management assets from advisor teams that had left as of April 21 accounted for less than 20% of the wealth management assets the company had on March 31.
More wealth managers were preparing to jump to competitors as of Friday, according to recruiters and lawyers representing advisors. Departures may continue, although could slow under JPMorgan.
Beleaguered bank. San Francisco-based First Republic was known for its high-touch, white- glove service focused on wealthy clients, but it was laid low by the regional bank crisis. Customers yanked deposits, and First Republic’s stock price plummeted. In mid-March, it received a lifeline in the form of $30 billion in uninsured deposits from some of the nation’s biggest banks, including JPMorgan, Bank of America, Wells Fargo, and Citigroup.
Last Monday, First Republic revealed the extent of its deposit losses when it reported earnings. Not including the $30 billion rescue, its deposits shrank by about $102 billion. In the wake of the earnings news, the bank’s stock continued its descent and ended the week at $3.51, down 97% for the year.
The damage wasn’t limited to the consumer bank. First Republic’s vaunted wealth management unit, which catered to high-net-worth clients, ended the month with a slew of empty desks. At least 21 wealth management practices, either teams or solo advisors, have left First Republic for competitors since March 17, according to public registration records. Departing advisors oversaw more than $40 billion in assets and joined firms such as Morgan Stanley, JPMorgan, and Royal Bank of Canada.
Advisors were jumping to competitors as late as Friday, when a team that managed $3 billion decamped to Morgan Stanley.
Those losses may have represented the death blow to First Republic, which benefited for years from collaboration between its wealth management and banking units. For instance, last year, the company’s bankers referred more than $11.5 billion of assets under management to the wealth unit, which in turn referred deposit balances totaling more than $3 billion to their banker colleagues, said Bob Thornton, president of private wealth management at First Republic, during the company’s fourth-quarter earnings call in January. Deposits referred by wealth managers and sweep accounts represented more than 13% of the bank’s total deposits, Thornton said.
On average, advisors moving between firms bring approximately 75% of client assets with them, according to research firm Cerulli Associates. Recruiters say ex-First Republic advisors will likely bring more than that to their employers given the bank’s woes.
Write to Andrew Welsch at andrew.welsch@barrons.com