JPMorgan's deal for First Republic fuels Dimon's wealth management ambitions

At JPMorgan Chase & Co.’s 2022 investor day, Jamie Dimon told the audience to “watch out” for its wealth-management business.

“One of our greatest opportunities” is locking in a greater share of high-net-worth clients, the bank’s chief executive officer said about a year ago.

It might not have been quite how Dimon envisioned it, but JPMorgan’s acquisition of First Republic Bank is poised to turbocharge those plans for growth in wealth management.

Before this year’s regional banking crisis, San Francisco-based First Republic was a force to be reckoned with in Wall Street’s race for ultra-wealthy clients. Its wealth-management assets ballooned to $289.5 billion as of March 31, compared with $107 billion in 2017 — though several advisor teams exited since then with the company’s fate in limbo.

JPMorgan, which boasts an asset- and wealth-management platform with more than $4.3 trillion of client assets, said Monday in a presentation to investors that the deal will increase the bank’s reach to high-net-worth clients in what it deems attractive locations. First Republic has 32 branches in San Francisco, 13 in New York and 10 in Los Angeles.

Dimon, in a call with analysts, said the biggest U.S. bank doesn’t plan to keep First Republic’s name.

“While there will definitely be some distractions throughout the integration process and it’s pretty hard to know if most clients and advisors stick around, we do think the franchise is very complementary to JPM Chase and also accelerates U.S. wealth strategy,” Evercore ISI analysts led by Glenn Schorr wrote in a note Monday.

AFFLUENT MARKETS

First Republic’s private wealth-management platform will become part of JPMorgan Advisors, which JPMorgan inherited from Bear Stearns when it bought that firm in 2008. It’s part of the bank’s larger U.S. wealth-management unit, created within its sprawling consumer arm.

“The deal accelerates U.S. wealth growth plans by adding branches in affluent markets,” Bloomberg Intelligence analysts Alison Williams and Neil Sipes wrote in a report Monday.

First Republic’s large presence in California may have been among its most appealing attributes. Big Wall Street banks in recent years have become increasingly focused on the northern part of the state, adding advisors there to court the region’s wealthy entrepreneurs and newly minted tech millionaires.

The number of millionaires in the Bay Area has surged over the past decade, with 285,000 high-net-worth individuals located in the region around San Francisco, according to investment migration firm Henley & Partners.

POTENTIAL CHALLENGES

Still, First Republic has seen an exodus of advisor teams in recent weeks as concerns about the bank mounted.

Dozens of advisors have jumped to rivals including Morgan Stanley, UBS Group AG and Royal Bank of Canada. Last week, a team of 30 from First Republic joined Cresset Capital Management, a Chicago-based investment advisory firm.

In an April 24 earnings call, First Republic CEO Michael Roffler said it had retained nearly 90% of wealth professionals as of April 21. Teams that have departed were responsible for less than 20% of total wealth management assets as of March 31, he said.

JPMorgan risks losing many First Republic advisors without offering a bonus and resolving some of advisors’ concerns with the transition, said Danny Sarch, who recruits for the wealth-management industry as president of Leitner Sarch Consultants.

“It’s a big, big challenge for JPMorgan,” Sarch said. “The First Republic advisors really had a wonderful marriage with the bank in a way that was well thought-out from the beginning and very attractive.”

Still, Wall Street analysts struck an optimistic tone about the transaction on Monday.

Wedbush analyst David Chiaverini called it “the diamond of the season of the FDIC-assisted deals over the past two months,” given First Republic’s wealthy client base.

“FRC has a high-net-worth client base, which is increasingly being sought after by other banks and wealth managers,” Chiaverini said in a note on Monday.