First Republic Bank Faces Recruiting Setback as Advisors Explore Options After Silicon Valley Bank Collapse

First Republic Bank’s customers and investors were sent a reassuring message by the bank’s senior executives after the recent collapse of Silicon Valley Bank (SVB). According to a post on LinkedIn, the executives highlighted the safety and stability of First Republic’s enterprise and urged clients to reach out to their banker or wealth advisor. The bank stated that it had received $70 billion in backing from the Federal Reserve and JPMorgan Chase & Co. However, by mid-afternoon on Monday, First Republic’s stock was trading down over 50% at around $38, extending a decline from around $115 last week before SVB’s collapse.

The collapse of SVB has raised doubts about the future of First Republic Bank, putting some of its more-than 200 brokers at its private wealth unit on edge. The uncertainty could also hamper the bank’s aggressive recruiting of high-end advisors from its Wall Street rivals. Headhunters and former managers have stated that many people are exploring options, with some being more panicked than others, particularly those who joined in the last six months.

First Republic has attempted to reassure advisors about the bank’s health by sending at least two internal memos over the weekend and having a call with managers. The bank reassured advisors that its customer deposits were well-diversified and that regulators had spared First Republic, even as they shut down crypto lender Signature Bank on Sunday. Advisors have been busy, along with bankers, reassuring clients, taking it “day by day.” They have taken comfort in the fact that regulators appear to have spared First Republic.

However, doubts about the bank’s future have spilt over to other banks, including Western Alliance and Charles Schwab Corp., which was down almost 10% as of mid-day but had recovered from an earlier drop of as much as 23%. Analysts have stated that First Republic was targeted because of its share of deposits from wealthy individuals and its similar profile to SVB.

First Republic’s wealth unit, which managed $271.2 billion in assets and represented 15% of its parent bank’s annual revenue for 2022, could also be vulnerable because it was known for giving brokers higher payouts than rivals on customer deposits to attract client money for its bank. However, according to one recruiter, First Republic cut those payouts earlier this month.

Rivals such as Morgan Stanley, Merrill Lynch, or JPMorgan Chase & Co. may have the most to gain from the struggles of its regional rivals, recruiters said. They can pitch brokers and their customers on the stability of a large institution. Benjamin Bines, director of business development for independent advisory firm service provider Dynasty Financial, took advantage of the situation by inviting brokers who find themselves in a difficult position to learn about the benefits of being a truly independent RIA. Robert Kronman, a headhunter in Malibu, California, has been speaking with three teams at First Republic who had been content to stay put until last week. By Friday, however, two of the teams “were pretty much staying in front of clients advocating a wait-and-see attitude.”

In conclusion, the collapse of Silicon Valley Bank has put First Republic Bank under considerable pressure, and its aggressive recruiting of high-end advisors from its Wall Street rivals could be impacted. With many people exploring options, it is uncertain what the future holds for First Republic. Rivals such as Morgan Stanley and JPMorgan Chase & Co. are likely to benefit from the situation by pitching brokers and their customers on the stability of large institutions.