“They are such a big bank. I wouldn’t be here without them,” said DiFillippo, who owns 11 Davio restaurants and has been a customer since 2006.
Other customers echoed the same sentiment, which is somewhat remarkable given that First Republic — as with Silicon Valley Bank — put itself in a precarious position because of its poor deposit management. Their failures were so scandalous that they now pose a threat to the stability of the entire banking system.
Local business leaders, institutions and the unwavering support of wealthy customers for the bank also speaks to how much they rely on the First Republic. What would happen if he suddenly left?
Boston wine merchant Urban Grape credits First Republic with helping the small business gain a national footprint by featuring the husband-and-wife team in a marketing campaign. The bank also hired Urban Grape to be one of the vendors offering wine gifts to the bank’s customers.
First Republic “has been much more than a bank to us,” Hadley Douglas wrote in an e-mail. “All this effort and support for a small business that is just one of their countless customers.”
With just five branches, First Republic is nevertheless one of the largest banks in Massachusetts, more than doubling its deposits here over the past five years, according to data from the Federal Deposit Insurance Corp.
Like SVB, First Republic underestimated how rising interest rates could hurt its bottom line as the Fed continued to pile on hikes. Both banks experienced tremendous growth following deep-pocketed customers who opened accounts with large cash deposits. While First Republic focused on wealthy homeowners who needed large mortgages, SVB catered to startups and venture capital firms. Deposits help finance the banks’ business; the more money comes in, the more loans the banks can give.
The FDIC only guarantees deposits up to $250,000, but many of SVB’s and First Republic’s customers had balances much higher than that amount, leaving them with large amounts of uninsured deposits. S&P Global Market Intelligence estimated about 94 percent of SVB’s deposits and about 68 percent of First Republic’s deposits were uninsured at the end of 2022. The industry average for U.S. banks with more than $1 billion in assets is about 46 percent. .
If many customers withdraw their money at the same time – which happened at SVB and First Republic – the bank may not have enough money to withstand the attack. In the case of SVB, the federal government stepped in to guarantee all deposits and is in the process of winding up the bank and selling its assets.
Meanwhile, The nation’s biggest banks — including Bank of America, JPMorgan Chase and State Street — moved to stabilize First Republic by depositing $30 billion to shore up its balance sheet. Despite this extraordinary measure, it faces an uncertain future. Wall Street continues to strike of the bank the stock now trades at about $12 a share, down from $121 in January.
Eric Rosengren, former president of the Federal Reserve Bank of Boston and now a visiting scholar at MIT, said that SVB and First Republic had a successful growth strategy, but “the problem was that there was not enough risk management.”
“It looks like some of these banks that are now mid-sized grew too quickly, and that’s normally a red flag,” Rosengren said. “An important issue for supervisors going forward is whether risk management grew as fast as the banks were growing and whether the board of directors and senior management appreciated the risks they were taking.”
First Republic declined to comment, but some of its best-known customers in Boston are vocal and clear about where their banking loyalties lie.
DiFillippo was introduced to First Republic after taking out a home mortgage. He now uses the bank to finance new restaurants and has multiple accounts, both for business and his personal investments. Bankers there know his name, he said, and the service is second to none.
DiFillippo said he believes his accounts are safe because he keeps each one insurance threshold of $250,000.
“I would just hope that we calm down and support them as a bank,” he said. “Don’t forget where you came from. The bank helped you, now it’s time for you to help the bank. That’s how I see it. I also bought some shares last week.”
Davis, the developer whose team built the Omni Boston Hotel in Seaport, was among several dozen signatories from the Massachusetts real estate community to a public statement of support on March 16, just as the big banks came to the rescue. the First Republic.
Davis has worked with First Republic since 2009, when it was one of the few banks that provided financing to the developer during the Great Recession. While Davis also does business with other banks, he described his company’s relationship with First Republic as “substantial.” In addition to holding checking and money market accounts, it offers property financing, such as lines of credit and investment management services.
“They developed a real expertise in serving the needs of companies like ours … entrepreneurs running tight real estate businesses,” Davis said. “We’re rooting for them and praying for them because they’ve been a great partner.”
Before First Republic came on the market, Boston Private Bank & Trust had been the premier bank for the wealthy. (It was acquired by SVB in 2021.) But over the past decade, First Republic has gained traction by offering better customer service and attractive mortgages — larger-than-normal home loans for those with stellar credit.
As one of the region’s leading agents for million dollar homes, Tracy Campion has had a front row seat to the rise of First Republic.
“Their packaging of their loans was attractive to my buyers,” Campion said. “Boston Private was the dominant force in mortgages, and then First Republic came in and they became the new dominant force.”
Founded in 1985 by Jim Herbert, First Republic would be the Four Seasons of banking. The bank thrives in markets where affluent clients are concentrated – California, New York, Massachusetts and Florida.
Herbert was no stranger to Boston. He is a Babson College graduate who served on the board of trustees. Herbert even invested in and later chaired the board of Gradifi, a Boston startup founded by Babson alum Tim DeMello. It helps employers manage their employees’ student loan debt. First Republic acquired Gradif in 2016 and sold it to E*Trade three years later.
David Chang, who was CEO of Gradifi after First Republic bought it, said the bank’s Boston office employed several hundred people at the time. Herbert would fly from San Francisco to deal with local business and attend Gradiff board meetings. He also met with Harvard Business School professor Boris Groysberg, who sits on First Republic’s board.
“On one of Jim’s many trips to Boston, I shared a car with Jim from the Back Bay to the HBS campus,” Chang recalls. “It was very clear that this region is important to him.”
The rise of First Republic coincided with a hot real estate market and a refinancing boom fueled by an era of ultra-low interest rates. The bank also went on an acquisition spree, buying private wealth management firms that helped boost deposits.
First Republic put its deposits into mortgages and other long-term fixed-rate loans. But when customers suddenly needed their money back, it became difficult for First Republic to sell these loans without losing money.
So what will happen to the First Republic?
“It’s too early to know,” said Rosengren, the former Fed president. “The First Republic must ask whether their reputation has been so badly damaged by what has happened that it affects the viability of their strategy going forward. We’ll see over time, but it’s not clear at this stage.”
Shirley Leung is a Business columnist. She can be reached at email@example.com.
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