Family offices will miss First Republic, but they’re not worried
While the markets have been buoyed by JPMorgan’s takeover of First Republic Bank on Monday, family offices and wealth managers have so far been largely nonchalant about the deal involving a regional bank known for catering to wealthy clients.
It has been a big topic of conversation among clients, said Joseph Reilly, CEO and founder of Circulus Group, which provides investment and strategy consulting to family offices. But the collapse of the nation’s 14th-largest bank didn’t rattle their nerves because family offices don’t tend to park their deposits in one savings account.
“They always have money in motion,” Reilly said. “The idea that you’d have a lot of deposits somewhere and be worried about is not top of mind.” Family offices, he said, tend to have various accounts set aside for spending, paying bills, tax reserves, capital calls, some working capital for various businesses, a little emergency reserve and to pay for the family office itself.
“Family office or not, most people with deposits over $250K have been wary of putting all their eggs in one basket and had already opened accounts at more than one bank, but this drove home the point,” said Katherine Hill Ritchie, who has worked as an adviser to family offices through her firm, Private Capital Investments LLC.
That sentiment was echoed by Andrew Busser, president of family office at Pitcairn. “I spoke to one of our clients on Monday,” he said. “They told me they are less worried now than they were a few weeks ago because they’re under the $250K FDIC insurance limit, and the bank being taken over by JPMorgan is a source of comfort because it is large and stable.”
The takeover of First Republic did dominate the mood at the Milken Institute’s Global 2023 Conference, where wealthy investors also were preoccupied with the slowdown in the economy, the repricing of risk in the banking and real estate sectors, and the debt ceiling debate in Washington, reports Pensions & Investments, a sibling publication of Crain Currency.
Yet the closing price of the S&P 500 is the same as it was a year ago despite all the banking mayhem, said Rishi Kapoor, co-CEO of Investcorp. “The intervening 52 weeks, we’ve gone through three bank failures over here, one in Europe, meltdown in the UK budget," Kapoor said. "Who could have imagined we’re exactly where we started?”
Indeed, this time feels different from even a month and a half ago during the collapse of Silicon Valley Bank, Reilly said. “No one is worried about a major bank crisis," he said. "The anxiety is more toward recession.”
It could be a good time, however, for family offices to think more strategically. “You can put money in places that will earn real risk-free interest,” Reilly said, explaining that more tenuous options such as CDO strategies, CAT [catastrophe] bonds and the AT1 bond that was famously wiped out with Credit Suisse will go away. Additionally, many opportunities in private debt are available, as regional banks are expected to pull back on business lending, he said.
The one drawback is the loss of a bank that was prized by many wealthy investors for its culture and responsiveness to clients. That enabled them, as well as other regionals like Key Bank, to start family-wealth divisions and draw clients away from impersonal big banks.
Family offices were drawn to banks like First Republic because they had a more personal experience compared to the big banks, which never quite get how to work with family offices, Ritchie said.
For now, former First Republic customers are hoping for the best.
"Our client’s only concern was whether or not they will be able to get the same level of service and attention from JPMorgan that they are used to from First Republic," Busser said. "Time will tell."