Jamie Dimon sees wealth management opportunity in First Republic deal

The second-biggest bank failure in the history of the United States presented a rare opportunity for JPMorgan chief executive Jamie Dimon to claw back some ground in a business long ceded to rivals — wealth management.

Already a dominant player in investment, retail and private banking for rich clients, JPMorgan has lagged behind in the business catering to the more modestly wealthy, an increasingly desirable group at a time of booming riches in the US.

After acquiring most of First Republic earlier this week, JPMorgan is betting that it has not just bought tens of billions of deposits, but also customers who will let the bank manage their wealth and close that gap with the likes of Morgan Stanley and Bank of America.

“Let’s face it, who’s got money? It’s rich people who have money,” said Chris Kotowski, banking analyst at Oppenheimer.

Crucially, outside of an emergency rescue, JPMorgan is unable to buy a rival domestic bank because it already controls more than 10 per cent of US deposits.

The challenge for JPMorgan will be convincing top-performing financial advisers to stick around and keeping its newly acquired customers happy as they move into the country’s biggest bank by assets.

JPMorgan has said it is gaining 229 financial advisers from First Republic and about 80 branches that will be converted into JPMorgan offices.

Leading the integration of First Republic for Dimon will be Jennifer Piepszak and Marianne Lake, co-chief executives of JPMorgan’s consumer and community banking business.

For the two longtime JPMorgan executives it will be a chance to burnish their leadership credentials. Both have been tipped to be potential successors to Dimon, who has led the bank since 2005.

Lake, a physics graduate from the UK’s University of Reading, has been with JPMorgan for two decades and was chief financial officer for six years until 2019. Piepszak has been with JPMorgan for 29 years and succeeded Lake as chief financial officer in 2019, until 2021 when the two were elevated to their current roles.

Piepszak and Lake will have to show that they can recreate First Republic’s hallmark of quality service, which Dimon on Monday called “extraordinary”, at a big bank such as JPMorgan.

“First Republic was all about providing white-glove service . . . it’s harder to do that at scale,” said one JPMorgan executive.

JPMorgan chief financial officer Jeremy Barnum told analysts this week the bank would “fight hard to keep all the clients” it had just acquired. He added that a number of advisory teams at First Republic had been reaching out to JPMorgan about moving over in recent weeks, which he said “is encouraging from a retention perspective”.

In JPMorgan’s favour, the bank has experience in executing a complicated integration following the failure of a financial institution — Dimon led a similar government-backed acquisition in 2008 with Bear Stearns.

As with that deal 15 years ago, JPMorgan plans to phase out the First Republic brand.

And in a twist of fate, First Republic’s team of financial advisers will be folded into JPMorgan Advisors, which is the old Bear brokerage business and counts Dimon’s late father, Theodore, as one of its former employees.

“They used Bear Stearns as a building block to build out their investment bank and wealth management franchises,” said Kotowski at Oppenheimer.

Prior to the First Republic deal, the business had about 500 financial advisers and JPMorgan is aiming to grow this to 1,000.

Brokers who worked at Bear before and after the JPMorgan merger said the company had retained its distinctive culture.

“JPMorgan Advisors still has . . . that entrepreneurial spirit,” said one executive who worked at both JPMorgan and Bear Stearns.

A JPMorgan spokesperson said JPMorgan Advisors has one of the highest client satisfaction rates in the bank. Its private bank, which sits in a separate division under different leadership, caters to rich customers with more than $10mn in assets.

Including the bank’s wider wealth management business, and its Chase retail branches, JPMorgan had about 4,700 financial advisers as of 2022, up 30 per cent from five years earlier.

JPMorgan is looking to expand that to 6,000 by 2025 but it is still dwarfed by rivals Morgan Stanley, which has about 16,000 financial advisers, and Bank of America, which has more than 13,000 at its Merrill Lynch business.

“I think JPMorgan has done a great job on the ultra-high net worth segment, and they’re still gaining more scale in the mass affluent [segment],” said Jason Goldberg, banking analyst at Barclays. “First Republic modestly helps them get bigger in that space.”

Even if it does succeed in replicating bits of First Republic’s playbook, one strategy JPMorgan has made clear it will not be recreating is the use of deposits from wealthy customers to provide long-dated jumbo mortgages at low rates, a practice that ultimately doomed the bank when the US Federal Reserve lifted interest rates.

“Making very large, cheap mortgage loans will not happen going forward,” Dimon told analysts on Monday.

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