First Republic Advisors in the Age of Increased Surveillance at JPMC – WADU

In recent times, advisors at various large firms have been grappling with a significant rise in surveillance and compliance measures. These measures encompass the monitoring of every action taken by advisors. While firms have always kept tabs on emails, phone communications, and office activities, the current level of surveillance represents a new frontier. This transition is particularly evident for First Republic advisors who find themselves at JPMorgan Chase & CO (JPMC), where they are experiencing a marked shift from a culture of freedom to one characterized by hawkish regulation and pervasive surveillance. For entrepreneurial-minded First Republic advisors, who joined a boutique firm for the autonomy it offered and the positive impact on their business and client experience, this sudden change can be jarring and worrisome.

In addition to monitoring employee’s personal cell phones – pictures, emails, calendars, and more most big firms are reportedly doing, it has come to light that JPMC employs an extensive surveillance program called “WADU” (Workforce Activity Data Utility). WADU utilizes advanced AI and machine learning to monitor nearly every aspect of an employee’s activities, both inside and outside the office. High-definition audio-visual security cameras are scattered throughout the premises and can collect data even when employees log into JPMC systems from home. This includes monitoring facial expressions, non-verbal cues, personal belongings visible in the background during remote logins, mouse clicks, typed words, phone calls, and more. All the collected data is instantly compiled into profiles accessible to management at any time, and alerts are triggered based on pre-programmed “concerns.” Zoom call durations, badge swipes, and movements within the office are also recorded. If JPMC discovers violations either on personal cell phones or through WADU, they’re fired. 

We sought the insights of Roger Gershman, who represents many First Republic advisors, to shed light on this matter. Gershman commented, “First Republic advisors are in for a significant culture shock as they transition from a boutique firm to a large bank. Adjusting from an entrepreneurial environment to a bureaucratic one won’t be easy. Moreover, the reports we’re hearing about the inner workings of JPMC’s surveillance system might prove uncomfortably invasive for free-spirited FRB advisors to endure.”

JPMC has also stated that employees that are director level and above must be in the office five days a week no matter if performance is demonstratively better from home. The in-office mandate poses a significant challenge for FRB advisors who were previously free to determine their most effective work methods and locations. The mood inside JPMC is dire. Employees express deep concerns, often using phrases like “Big Brother” and “1984” to describe the company. One employee remarked, “It has fostered paranoia, distrust, and, to be honest, a lack of respect. Many at JPMC feel like they’re just a number. Nothing more.” The situation has deteriorated to the point where employees have resorted to creative measures to outsmart the WADU system, such as taping over audio and video outlets and keeping their mouse in constant motion. It’s astonishing what lengths humans will go to in order to resist control.

For the free-spirited and entrepreneurial FRB advisor, this transition was not a choice but an enforced reality. Accepting a work environment that resembles a government institution rather than a business is deeply concerning. If these surveillance measures apply to advisors, one cannot help but wonder about the extent of client tracking. While we are accustomed to hearing about government surveillance, the creeping intrusion into our lives is now being witnessed in quasi-government firms like JPMC, which is the most regulated and closely intertwined with the government. The acquisition of JPMC has come with strings attached to the government, which has significantly altered the landscape. To say the least, this represents a far cry from the independence that advisors enjoyed at FRB. Consequently, many advisors are contemplating their options and exploring the possibility of joining a more boutique firm or pursuing full independence in their own RIA as a potential solution.

Advisors Are Abandoning Banks

Numerous times in the past, banks such as Credit Suisse, Barclay’s, Deutsche Bank, Bear Stearns, Lehman Brothers, and now First Republic, have gotten themselves in trouble leaving advisor’s practices in a vulnerable position.The case historically has been one of a symbiotic relationship between the investment and private banking divisions which benefitted private clients, advisors, and the bank itself.

Now with First Republic, the value proposition is a shadow of itself for clients and advisors. History repeats itself, banks and brokerage houses need advisors more than advisors need them. The mass of advisors at banks and brokerage firms dislike the idea of returning to another big bank or even boutique platform and are deciding to take matters into their own hands by creating their own RIA’s.

First Republic was one of the fastest growing and most successful stories on Wall Street with an incredible culture; it is a shame it has come to this. At First Republic, the relationship between private banking and advisors was mutually beneficial as the bank gained massive deposits, offered discounted lending solutions, and in turn advisor practices fed the bank, and the bank fed leads to advisors to make the entire proposition sticky and highly valuable. No longer.

For First Republic advisors, the proposition to return to a big wire house that they potentially left in recent years isn’t desirable – to UBS, Morgan Stanley, RBC, Wells Fargo, Rockefeller, and even the risks associated with a smaller firm. Roger Gershman, who advises advisors on moves ( says, “the idea of moving to another bank is something advisors can hardly fathom, they are looking for something different.” These firms are still linked to practices that put advisors and clients at risk. If an advisor considering a move, do you want to put your business at potential risk again and are you ok with a client acting on news they hear about the firm which could cause a run or need to change again? There is a viable home run solution to this is starting an independent RIA.

The upside is that for the most part, advisor’s businesses are fairly immune to the ups and downs of banks. Banks and brokerage firms need advisors more than advisors need either of them, and the bank’s value proposition continues to erode causing advisors to flee. Custodians are a commodity whether or not it is Schwab, Fidelity, or Pershing and all the products and services, trading, and reporting are ubiquitous.

Gershman says, “there are three major 1099 large banking platforms where you can establish your own RIA – Raymond James, Ameriprise, and Wells Fargo Finet. The biggest and most dominant platform is Wells Fargo’s First Clearing custodian.” First Clearing services 50 broker dealers and hundreds of RIA’s, one of those being Wells Fargo who is hungry to help advisors establish their own independent practice, allowing them access to all platform benefits without reference to Wells Fargo the company.

Advisors, imagine that you could have all the benefits of being at a multinational big bank platform with full access to all the products and services without being an employee – instead as an independent contractor. Advisors own 100% equity of their business while accessing all the resources of bank platforms, technology, support, with net operating income averaging 70% 1099 income. Just the same as big banks, independent platforms pay a significant amount to transition. There is also significant private equity interest to sell any amount of your new RIA at LTCG.

Advisors have list access to a multinational wire house platform, investment banking and capital markets research, integrated private banking resources, custom credit, and family office and trust services. Advisors also have state of the art technology services that mirror being in house at a big firm: wealth management platform trading, client interface, advisor workstation, operations, legal and compliance, reporting technology, and financial planning software.

First Republic Advisors Leave Boutique for Big – Safety is Tantamount

First Republic advisors are seeking safety rather than an entrepreneurial platform given the firm’s fall from grace. To date, Morgan Stanley leads the big firm race for acquiring the top wealth management teams out of First Republic. CEO of Morgan Stanley, James Gorman, has proven to be a formidable acquirer of firms as he’s gobbled up E*Trade, Eaton Vance, and Solium Shareworks, might this continue to give Morgan Stanley an advantage in the race for teams? Time will tell, not to mention the offer packages.

There is no doubt that Morgan Stanley is a well-oiled machine that has stood above the riff raff, at least for now. Interestingly, the recent departure of one big team to Morgan Stanley comes on the heels of the team having left JP Morgan in the summer of 2020, now it will be right back to the big firm culture it had left, a reality many advisors and teams are facing. About $45Million in production has excited to Morgan;

*Vishal Bakshi NY Based had been managing $1.5 billion in assets and generating around $10 million in annual revenue. The three other members of his team, including David A. Greene, Cynthia Lichwick

Chirstopher W. Walters and Marc C. Koch who had been with First Republic in New York City for only four months. They had been managing $500 million in assets and generating around $4.8 million

*Natalie Schnuck joined Morgan Stanley after seven years at First Republic. She had been managing $324 million.

*Zipper-Duarte NY based team, led by Adam Zipper, Joseph Duarte, and Christopher Gates, the 13-person team produced $13 million in revenue with $1.8 billion in assets under management, and was the 36th best in New York for 2023, and 64th on Barron’s list for the top 100 private wealth management teams for 2022.

*Steven Levine took his 4-person team to Morgan Stanley in Miami, taking his $2.4 billion in client assets that generated $8 million in revenue. Levine is on Barron’s list of top 1200 financial advisors for 2023.

*Thomas Moore III, also New York based, the 53rd best in state for 2022 according to Forbes, took his $3.8 million in revenue to Morgan Stanley as well.

Wall Street firms, after having contributed to the $30 billion rescue plan for First Republic, are now direct beneficiaries of First Republic’s problems despite the bailout even if the hope isn’t to poach advisors and teams from the firm. The jockeying for first position for the most sought-after teams is on and hot, hot, hot it is!

Roger Gershman, an industry expert consultant has put together a Special First Republic Portal, says firms like Morgan Stanley seek assistance with from recruiters for FRB advisors, with settings meetings, documentation, deal packages and legal process.

Morgan Stanley has also gone on record saying that it is only fielding inbound inquiries from advisors and recruiters –surely the role of the recruiter in putting advisors at the top of the list is essential in this time of overwhelm and confusion.

First Republic Advisors Caught Flat Footed

On March 31, First Republic Bank announced that an acquisition is unlikely and that the firm will continue with restructuring and shoring up the bank. Most advisors are praying someone will come to the rescue, but few lifeboats seem to be on the horizon. Some question, even if there is a spin off or a White Knight, how they will grow a book in the future using First Republic’s tainted name?

Advisors banked their life career on First Republic, most believed it was their last move ever, and most are so very proud to be part of such a special, culturally rich firm. How can advisors even consider a move when many just went through the painful exercise to move their books escaping big firm culture and politics. Clients were sold the FRB platform, what happens to all the front-end payments, the backends, and the deferred comp for advisors? Will advisors and clients have to return to what the left with intention?

Wall Street simply doesn’t have the people power to handle this number of advisors considering moves, vetting, and eventually onboarding them. Over 300 First Republic advisors with businesses from $2 million to $75 million are getting destroyed by Wall Street with a flurry of texts and calls from managers, friends, and recruiters to consider jumping ship to the likes of Morgan Stanley, UBS, JP Morgan, the Royal Bank of Canada, Rockefeller Capital, and more. Normally the process of moving an advisor or team takes six months, not two weeks, and most certainly not with the volume of advisors and teams on the move. The energy is frantic, competitive, and utterly confusing.

Few teams are making a tactical or strategic plan. Mistakes are already being made on both sides. There already is a wide spread between what is offered one advisor versus another at the same firm, private documents are flying everywhere, advisors are fielding calls, taking meetings, and confidentiality is hardly being observed.

Roger Gershman, President of The Gershman Group, was himself was a $1B Top Advisor who has had experience when his firm was bought out and notes that “advisors need help, they are being barraged with phone calls and offers when they need to be focused on their business and taking clients through the downfall of the bank. We offer legal counsel, transition preparedness and documentation, and expertise into the best possible deals with the best cultural fit for an advisor or team’s business. With the spread on deals varying from advisor to advisor substantially up to 100 basis points or more, why would an advisor in these uncertain circumstances expect to take that much time to try and sort what the best deal is?” Consultants to advisors offer a confidential place to discuss options freely to determine the best fit in times of turbulence and rapid change.

Recruiters: Who Needs Them Anyway?

It’s chaos out there right now for advisors considering the worst case idea of a move. With First Republic alone, some 300 advisors are considering their various options – Plan A, B or C? This is on top of other advisors at all other firms like ML, MS, UBS, Wells etc. who are simultaneously active. Normally the process for a team to consider a move to another firm takes about six months, for due diligence, compare and contrast platforms, economic deal analysis- not the rush job of barely weeks FRB advisors has had.

FRB advisors are getting completely overloaded from anyone and everyone trying to get their attention from managers, recruiters, friends, colleagues with calls, setting meetings, emails, social media posts with advice upon advice to ascertain their options. How can advisors manage it all including holding hands with their clients. As just an example, one advisor says, “I cannot think anymore. I’m in analysis paralysis.”

Not only are advisors overwhelmed but so are most every bank with the current load that they are asking for recruiters support setting meetings and follow-ups, help vet the teams for the proper fit, documentation (which has been very trying to obtain at FRB), legal docs, and for assistance in handling deals from beginning to end.

Though still there are certain managers who are telling recruits not to work with recruiters. They tell recruits that their deals will be lower if they work with a recruiter, that they don’t need the support, but nothing could be further from the truth. Whose interests are they representing? The fact is that the very bank headquarters writes the checks, and it doesn’t discount a deal because of a recruiter. Everybody knows that recruiters don’t take any percentage of deals, and if they did, nobody would work with them. What can get hit is the manager’s compensation, thus the pushback from them. Remember that the manager works for the firm, not for the best interests of the advisor. Should  you trust a manager to provide the ultimate deal or an independent recruiter who have seen hundreds of deals and know just how far firms can be pushed.

Recruiters have established checklists and transition plans to assist advisors outlining key components about platforms, positives and challenges, along with a spreadsheet of comparative analysis of maximum economic packages offered including:

  • Protocol or non-protocol
  • Legal and/or monetary defense of FRB advisors (ex. deferred and other payments)
  • Front Ends – maximized payments
  • Back Ends – asset based or revenue based, hurdles – time based, clawbacks/lookbacks, and length of contract
  • Soft dollar costs (ie. staffing allowance, title, T&E, office space)
  • Transition support – on site/virtual, length of time, marketing to clients

The value of working with a recruiter given the current dynamics can’t be overstated. The spread between some deals for advisors has been 100+ basis points even at the same exact firm, same profile advisor. The documentation nightmare to position a move has been troublesome, advisors don’t know where to look for what’s needed, but recruiters do. The whole process from stem to stern takes hours and hours of work determining the right move. How does the advisor who needs to be client focused in a time of turbulence manage a good search and the client’s fears at the same time? It isn’t possible.

The fact remains that it was the clients’ perception of danger that led to the run on the bank in the first place. It should easily follow that a client might want out of any situation he or she deems too volatile. To boot, First Republic has announced that after the market close on April 24th earnings will be reported which are rumored to be $10 billion in the hole – what then for advisors if the stock craters? What if there is a run on the bank again? A well-coordinated Plan B is needed.

Recruiter Roger Gershman of The Gershman Group (, stated that “it’s important that advisors assess their options now and have both a Plan A and Plan B. Recruiters take zero away from the deal and help advisors vet the best options.” A manager from Morgan Stanley stated, “I can’t handle the load right now, it is all too much, I am looking for recruiters to help in this process given the overload. I also count on recruiters to help close the deal.” Remember that if an advisor with $3 million in revenue today has documentation in and along comes a $7 million in revenue producer who needs a rush job, without a recruiter in place managing the deal, the time and deal goes to the latter.

Captain Andy Abandons Ship – Heads to Citigroup

You can’t make this stuff up. The number of surprises over the last few weeks just keeps coming. Who could have forecasted that Andy Sieg who pronounced himself to be a messiah of sorts for Merrill Lynch with all of his cost-cutting measures, grid cuts, hiring freezes, and culture changes which literally have driven many of Merrill’s top advisors out over the last few years has now abandoned even those remaining who believed in him. It is now crystal clear Sieg’s motivations regarding his true intentions, converting one of the most successful, entrepreneurial wealth management advisory models the world has even known, Merrill Lynch’s Thundering Herd, into a cookie cutter, salary bonus, mainstream private banking model. Merrill Lynch advisors have been fighting for years for their sovereignty against the BOA private banking model that Andy has been pushing with all his Tea Leaves messages. How ironic, Andy who claims he fought hard for the legacy Merrill Lynch advisor now heads to Citigroup, a pure salary/bonus private banking modeled firm leaving tracks of devastation in his wake.

You’d think with the departure of at least a guy commanding some attention and respect, even if his ways were unsavory at best, Merrill would think to put someone noteworthy in his place. One powerful advocate who commands an audience, representing the best interests of the legacy Merrill Lunch Thundering Herd is what advisors deserve.

Not so. Merrill, or should we say BOA leadership, has announced two underwhelming co-presidents, Lindsay Hans, who was just a divisional manager for 10 years, and Eric Schimpf, who is also only a divisional manager, been on and off again at the firm and lately only been there for 10 years. Two regional managers are chosen to lead this firm who have nowhere near the breadth of experience necessary to command such a monumental sales force. And as anyone knows, there is confusion in being led by two versus one consistent voice. Do these two even get along, have the experience and are they even prepared to take on such a massive role?

We asked Roger Gershman who specializes consulting top Merrill teams says, “advisors at Merrill have spent their life career with decades of loyalty, advised their hard earned clients into Merrill’s products and services, have managed their team’s growth, have built outstanding business’s, and to not have the respect of a CEO that represents their interests? Very disappointing.” Clearly this is by design for Bank of America as another stake in the ground that it is their firm, their ways, their model and their shareholders that matter most.

We’ve covered extensively the turmoil and mass exodus of advisors out of Merrill Lynch under Andy Sieg’s management. CEO of Bank of America, Brian Moynihan, power game seems to be over with full reign on the future of Mother Merrill. Gershman adds, “advisors are smart and its obvious the direction of BOA, I think we’ll see a free fall now at Merrill with an ever-greater push of cultural shifts and comp cuts.” For legacy advisor advisors the question becomes how much more can they rely upon their parent banks (big or small) to manage their affairs with overbearing costs, compliance and regulations and not to muck up what are thriving profitable advisory businesses.

Will the mass exodus continue? We think yes. The question is with banks faltering and affecting their wealth management divisions, where to run and how quickly can advisors pivot given the dramatic changes in such a short period of time? Clearly there is a tug of war between financial advisors and big bank’s shareholder interests. Merrill advisors beware- protect your team, your business, and your career.

First Republic Announces Spin Off

Anticipate this announcement imminently as our intelligence suggests.

As we’ve watched the banking industry stumble left and right, commentary and conjecture have run rampant. First Republic Bank, however, the darling success story of Wall Street, is the “at issue” everyone is trying to figure out regarding what’s next? A powerful rumor is that given Robert Thornton’s background as an investment banker (ex-Goldman Sachs), the notable and highly profitable wealth management division will be spun off into its own RIA, First Republic Advisors (FRA), with Pershing remaining the custodian of assets. What happens to the failed banking division is unclear and will be held away separately. Advisors get free of the failed banking division.

What does this mean for First Republic advisors? There are numerous positives. First, the culture of the First Republic advisor remains consistent for both the advisor and client without change. Clients will not have to move assets to a new platform and/or custodian. Clients are safe, and there is no affiliation with a bank that created choppy waters for advisors and clients in the first place. Assuming a massive investment by a either venture capital firm or a passive investment partner, First Republic would create a separate and distinct RIA, operations would be funded but also allows a private equity opportunity carry along/drag along rights for advisors with guaranteed front and back ends, potentially a cash offer, and a lucrative option in either an IPO or sale in future years. The potential negatives to this spinoff unit have much to do with who the venture capitalist is, how strong they are, and if an IPO or sale, at what price.

The seasoned consultant for top advisor teams nationally, Roger Gershman of The Gershman Group,  commented on options for First Republic advisors, “the fact is I am routing for First Republic Advisors to spinoff and be freed of the bank to keep consistency and culture intact as much as possible, that said, I counseling countless teams with a solid Plan B even given a favored Plan A.”

The other advice consultants like Gershman have is try and empower them to choose their own destiny since the storied firm they once knew and loved is very sadly not going to be the same. They chose First Republic for good reason as the best option for their clients, they honored their contract but, under terribly unforeseen circumstances, the bank could not honor theirs.

So, if and when there will be a new parent, advisors can now choose who that new parent will be to best serve the interests of their clients whether its First Republic 2.0 or New Co.  Competitively, FRB advisory teams are some of the most seasoned, high caliber advisors in the nation and Wall Street is salivating seeing economic packages of 400% guaranteed including front and back ends since acquiring firms know that 100% of the advisors’ business will follow.”

First Republic advisor, the choice is yours. Which destiny will you chose?

Is It Time to Hit the Panic Button for Silicon Valley Bank Advisors

Silicon Valley Bank Advisors Assess Their Options

With three banks collapsing in a short period of time, maybe Silicon Valley Bank (SVB) advisors can find comfort in numbers – they aren’t alone as the similarly aligned First Republic Bank had to be bailed out as well. Though a different bailout in structure from the Feds than with First Republic (from peer banks), the considerations advisors should be assessing are quite similar between the two. With SVB Private’s $17 billion in assets including those from the 2021 acquisition of Boston Private Holdings, it is to be determined the fate of the wealth management practice and who might acquire it.

What’s to make of this? First off, we’ve seen this pattern from Wall Street many times before with boutique firms. Taking a look back historically, Hambrecht & Quist was acquired by JP Morgan, Alex Brown was acquired by Bankers Trust, Deutsche Bank was acquired by Raymond Jones, Barclays was acquired by Stifel Financial Corporation, Credit Suisse was acquired by Wells Fargo, and Merrill Lynch was acquired by Bank of America. In the past, advisors were protected with front and back-end deals honored with a kicker to include retention bonuses at 100% of trailing T-12 production.

An investment banker who chose not to be named stated, “I don’t think the advisors at SVB are going to run for the gates. People have lined up since the collapse to buy them. But it’s unsure how this shakes out with financial advisors and the details of their contracts, like any noncompetes or time off for garden leave. I believe it will sell and probably quick.” According to the Form ADV for SVB Wealth, another name for SVB Private, SVB uses Fidelity Investments and Charles Schwab & Co. as custodians, meaning it would be easy for advisors using Fidelity and Schwab to hold onto client assets. The outcome for moving assets held at the bank is less clear.

SVB advisors are somewhat safe with their profitable businesses. It is true that events like this makes one question but there’s been a long history of banks and brokerage houses consistently getting themselves in trouble which impacts the livelihood and sanity of advisors. Yes, it makes life more difficult and seemingly unsure. With acquisitions by larger firms comes more regulation, compliance, and operations playing to the lowest common denominator advisor. Ultimately this can impact advisors’ businesses by way of pay cuts and cuts in support staff. Only time will tell the full impact on advisors as a potential acquisition occurs. Nonetheless, advisors’ businesses remain protected as an acquisition looms.

We asked Roger Gershman who runs a consulting firm for advisors about what he thinks SVB advisors should be assessing, he stated, “SVB advisors serve a bespoke clientele that demands top-notch service, not question marks. If I were an advisor at SVB, I’d be thinking client first – what can best serve my clients after the collapse? With pay cuts, belt tightening on fancy events, and cuts to support staff, it is time to think about a firm that can serve the clientele as they are accustomed while also attending to compensation with hopefully not too much compliance and operations hawking.”

If any of this seems too much or unsettling for the SVB advisor, then the option to go fully independent, controlling one’s destiny, is always an option through a supporting platform.

First Republic- Should Advisors Flee?

Recent shockwaves through the banking sector have had many advisors and clients on edge for obvious reasons. For First Republic advisors, the $30 billion dollar injection of capital from peers such as JP Morgan, Citibank, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, etc, doesn’t seem to have comforted their clients who are moving assets out at record speed. It doesn’t help, the wolves of Wall Street are preying upon these clients who are also scaring them out.

Though a White Knight to save the private client franchise is highly likely. Veteran industry exec’s like former CEO of Cetera Financial Group stated, “First Republic wealth management is a great franchise, and there have been discussions about the bank being acquired by a larger institution. It would make sense on a lot of different levels for someone to take a look at them on the acquisition level.” In 2022, First Republic’s wealth management practice generated 15% of its total revenue, with $271.2 billion in total wealth management assets at the end of last year.

What’s to make of this? First off, we’ve seen this rodeo from Wall Street many times with boutique firms. Looking back historically, Hambrecht & Quist was acquired by JP Morgan, Alex Brown was acquired by Bankers Trust and then by Deutsche Bank, who was also then acquired by Raymond Jones, Barclays was acquired by Stifel Nicolas, Credit Suisse was acquired by Wells Fargo, and even big firms like Merrill Lynch was acquired by Bank of America.

Roger Gershman, a veteran consultant of The Gershman Group has good experience in these takeovers says, “ most acquisitions  of these practices are not only protected with bigger platforms but are also protected with their front and back-end deals being honored with a kicker to include retention bonuses of upwards of  100% of trailing T-12 production.

First Republic advisors’ practices are safe with their highly profitable businesses. It is true that events like this makes one question but there’s been a long history of banks and brokerage houses consistently getting themselves in trouble which impacts the livelihood and sanity of advisors. Yes, it makes life more difficult and seemingly unsure. With acquisitions by larger firms comes more regulation, compliance, and operations playing more and more to the lowest common denominator advisor. Ultimately this can impact advisors’ businesses by way of pay cuts and cuts in support staff. Only time will tell the full impact on advisors as a potential acquisition occurs. Nonetheless, advisors’ businesses remain protected.

Gershman says, “advisor practices at First Republic are some of the most sophisticated and best in our industry and I’m sure there will be some defections since some of the big bank acquirers are just those firms advisors tried to stay away from.”

If any of this seems too much or unsettling for a First Republic advisor, then the option might be to not go from the frying pan into the fire at yet another over regulated, uncultured bank. Many advisors on the street just cannot trust the banks anymore to stay out of trouble and they care to go fully independent, controlling their own destiny, not someone else’s.

First Republic’s $30B Rescue Fails to Soothe Investor Fear

Shares of First Republic have plummeted 81% this year.

First Republic Bank staved off a potential collapse after a group of bigger financial firms agreed to park a combined $30 billion in deposits with the lender. But the cash injection is only a short-term solution, and investors are unsatisfied.

The San Francisco-based company will still need to move quickly to find a way to remain independent, or strike a deal for a takeover. The deal with the 11 lenders including Bank of America Corp., JPMorgan Chase & Co. Citigroup Inc. and Wells Fargo & Co. includes deposits with an initial term of 120 days.

“The market may be interpreting that the $30 billion of new deposits that are going in may have staved off a depositor run, but it hasn’t added any new equity to the bank,” Arthur Wilmarth, professor emeritus at George Washington University’s law school, said in an interview. “The shareholders know that they are certainly at risk.”

First Republic shares closed down 33% to $23.03 after slumping as much as 35% in intraday trading Friday. They’ve plunged 81% this year.

Friday’s stock plunge underscores the tenuous situation for US policymakers. If the banks’ rescue ultimately succeeds in easing worries about the sector, Washington will have avoided fierce political blowback that certainly would have followed any government intervention. If it doesn’t calm broader concerns, officials face a series of tough choices on next steps.

Adding to the market’s worries is the fact that First Republic tapped a Federal Reserve liquidity line of as much as $109 billion in the days leading up to its rescue by the big banks, said Arnold Kakuda, a bank analyst at Bloomberg Intelligence. First Republic has been exploring strategic options, including a sale, Bloomberg News reported earlier this week.

“So maybe this $30 billion in deposits from big banks only buys time, but concerns remain,” Kakuda said.

A representative for the bank declined to comment.

Analysts have been forced to extrapolate from data First Republic provided to determine exactly how its financial position has changed in the past few days. One estimate from Jefferies Financial Group Inc. pegs potential deposit outflows at $89 billion. The bank said in a statement late Thursday that insured deposits “remained stable” between the close of business March 8 and March 15.

“Daily deposit outflows have slowed considerably,” First Republic said. According to a December filing, the bank had roughly $119 billion in uninsured deposits at the end of last year, a little more than 67% of its $176 billion in total deposits.

Meanwhile, analysts have been cutting their recommendations on the bank. Wedbush analyst David Chiaverini lowered First Republic to neutral, saying it’s difficult to “come up with a realistic scenario where there’s residual value for FRC common equity holders” in the event of a sale.

Morningstar Inc. strategist Eric Compton said while the $30 billion of deposits appear positive on the surface, it also confirms some of people’s worst fears about the financial health of the bank.

“Prior to this event, we did not know for sure if First Republic had indeed experienced a true run on the bank, or that perhaps the bank would be able to maintain its deposit base relatively intact,” Compton wrote Friday. “Disclosures made by First Republic regarding this latest liquidity injection remove all doubts that a significant runoff of deposits has occurred.”

Evercore Inc. analysts led by John Pancari said in a research note late Thursday that “the deposit infusion allows the bank to fight another day,” but that it’s “likely a temporary solution – particularly given the noted 120 day-window.”

First Republic is in discussions to raise money from banks or private equity firms by issuing new shares, the New York Times reported late Friday, citing three people with knowledge of the process. The terms are still under discussion, and a sale of the entire bank is also possible, the newspaper said. A First Republic spokesman declined to comment on the report.

First Republic specializes in private banking and has built up a wealth-management franchise with some $271 billion in assets. Those watching the company’s travails say that helps make it a potentially attractive takeover target.

“They never were a traditional bank,” said John Allison, the former head of BB&T Corp., a predecessor company to Truist Financial Corp. “They’re in a very good market, and they have a very good market share. They were after the high-income deposits. The negative to that is that they’re uninsured.”

Sources: Wealth Management