First Republic lost 10% of wealth staff during banking crisis

Troubled First Republic Bank lost around 10% of its wealth management staff — who had managed under 20% of assets in the wealth business as of quarter's end — as advisors and associates jumped ship in recent weeks, the regional bank said Monday. 

The bank told analysts on an earnings call Monday that it would cut between 20% to 25% of its workforce from nonessential business areas in the second quarter, as it attempts to shore up its resources and survive the aftershocks from last month's bruising bank crisis. Deposits plunged 41% from the prior quarter as panicked savers yanked their cash. The bank said it was withdrawing its prior financial guidance.

Both profits and revenues fell over the first three months of this year. Still, the bank beat Wall Street analysts' expectations with earnings per share of $1.23, which was 45% more than the analyst consensus of $0.85 — though it was down 38.5% from the year before, according to an earnings press release Monday. 

The company's stock fell as much as 20% in after-hours trading Monday, reflecting a lack of investor confidence in the firm's path going forward. 

Herman Chan, a senior analyst covering regional banks and fintech at Bloomberg Intelligence, said in an interview Monday that while overall the bank's numbers had performed better than expected during the quarter, "the deposit number severely disappointed."

"They lost more than people thought they lost," Chan said of the bank's deposit drain. 

First Republic has also been dogged by concerns about advisor attrition as headlines the past month reported on a stream of top advisors leaving, often unsolicited, for competitors like Morgan Stanley, RBC, Rockefeller, UBS and JPMorgan Chase. 

Most recently, AdvisorHub reported the departure on Friday of a team of around 30 wealth advisors and support staff, managing around $13 billion, for Chicago-based registered investment advisor Cresset Capital. 

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"That's something the management team needs to tackle, in terms of, can they retain some of these relationships despite the advisors leaving?" Chan said. "And really, it's just more broadly shoring up the confidence within the institution."

Mike Roffler, the CEO and president of First Republic, told the earnings call that in the wake of "recent industry events, wealth management assets from teams that have departed were responsible for less than 20% of total wealth management assets as of March 31, 2023." 

That could mean a big drop in reported assets for the wealth business in the second or third quarters of the year, since many advisors who exited the firm are only beginning to transfer over client relationships — meaning the lost assets might be not visible yet in earnings. As March 31, the bank had still reported a 7% quarter-over-quarter bump in assets in its wealth business. 

The bank anticipates retaining some of those assets, Roffler said. "While average account sizes have decreased, we have retained over 97% of client relationships that banked with us at the start of the first quarter."  As of April 21, he added, First Republic had "retained nearly 90% of its wealth professionals." 

Nonetheless, the 20% of AUM is "a big number," Chan said. "That number can actually grow as there's potential advisor defections going forward." 

The bank declined to provide a question and answer session with analysts and ended the call after Roffler's comments. 

"The lack of a Q&A does suggest that they did not have really strong answers to potential analyst questions," Chan said. "Everybody's focused on the future and there continues to be a cloud of uncertainty."

To see the main wealth management takeaways from First Republic's first-quarter earnings, scroll down the slideshow.