The banking crisis that recently unfolded at First Republic Bank has had far-reaching consequences, particularly for Bank of New York Mellon’s Pershing unit. As one of the nation’s largest custodians, Pershing held assets for First Republic’s wealth management clients. However, the fallout from the crisis has led to a significant decline in Pershing’s assets.
On Tuesday, BNY Mellon (ticker: BK) revealed that Pershing experienced a staggering $34 billion in net asset outflows. This nearly offset the $37 billion in net new assets reported by the unit for the first quarter. As a result, Pershing’s total assets remained stagnant at $2.4 trillion, reflecting no growth compared to the previous quarter but showing a 9% increase from the same period last year.
When advisors switch firms, they often bring their clients and assets with them. In the case of First Republic, its wealth management unit witnessed the departure of numerous advisors during the crisis. At the beginning of the ordeal, the bank had almost 300 advisors on its roster. However, as turmoil spread, dozens opted to leave. As of May 1, JPMorgan Chase confirmed that First Republic had only 229 advisors remaining.
Many of these departing advisor teams managed substantial amounts of assets, leading to consecutive departures. For instance, on April 28, a team of 12 advisors overseeing $3 billion in assets shifted their practice to Morgan Stanley. On the same day, RBC Wealth Management welcomed two former First Republic advisors, Mark Friedman and Mitchell Peters, who brought their approximately $400 million portfolio. Additionally, RBC’s San Francisco office had recently hired another ex-First Republic advisor, Brian Addington.
The banking crisis at First Republic Bank has had a cascading effect not only on their operations but also on affiliated institutions like Bank of New York Mellon’s Pershing unit. The exodus of elite advisors, coupled with the transfer of substantial assets, has significantly impacted the wealth management landscape. As the repercussions continue to unfold, industry players must navigate these turbulent waters and adapt accordingly.
The Future of Pershing Amidst the Loss of First Republic
Pershing, a subsidiary of BNY Mellon, may face further asset loss in the near term as JPMorgan is expected to transfer the remaining assets overseen by First Republic advisors to its platform. JPMorgan recently reported that its wealth management client assets have reached an impressive $2.8 trillion, including $150 billion from First Republic. Despite our request for comment, JPMorgan’s response remains pending.
The loss of First Republic is acknowledged although not explicitly emphasized, as BNY Mellon executives mentioned it during their earnings call. CFO Dermot McDonogh highlighted that the deconversion of a regional bank client acquired in May contributed to a negative net new assets number of $34 billion for the quarter. The ongoing deconversion is expected to impact BNY Mellon’s reported net new assets for several quarters. However, once this effect is excluded, net new assets continued to grow at a mid-single-digit annualized growth rate, reaffirming confidence in Pershing’s underlying momentum and prospects. Further comments from BNY Mellon were declined.
Looking towards the long term, Pershing is positioned to benefit from the growth of registered investment advisors (RIAs). Among various segments of wealth management, RIAs demonstrate rapid expansion. Currently, Pershing acts as the custodian for approximately 900 clients, with 700 of them being RIAs.
BNY Mellon, a venerable financial institution headquartered in New York and founded by Alexander Hamilton in 1784, offers a comprehensive range of banking, investment management, wealth management, and custodial services worldwide. Their recent earnings report showcases impressive results, with a year-over-year increase of 26% in earnings ($1.30) and 23% in net income ($1 billion). Additionally, assets under custody or administration have seen a notable rise of 9%, reaching $46.9 trillion.
Despite the positive financial performance, BNY Mellon’s stock experienced a slight setback on Tuesday, closing at $45.33, representing a 13% decrease from its 52-week high of $52.26.
