Wealth Management Sector Still Feeling the Collapse of First Republic Bank

Over a year has passed since the collapse of First Republic Bank, an event whose repercussions are still resonating within the wealth management sector.

Bank of New York Mellon's Pershing, a pivotal provider of custody and clearing services to wealth management firms, illustrates ongoing challenges as it reported net asset outflows of $2 billion in the first quarter, marking its second consecutive quarter of outflows. Notably, First Republic had been among its clients. The bank, headquartered in San Francisco, catered to affluent clients and was one of three banks to fail amid last year’s regional banking crisis. JPMorgan Chase acquired the beleaguered bank in May 2023 and has since been transferring client assets to its own custodian services.

BNY Mellon has not publicly commented on these developments. However, during their earnings call, executives acknowledged the adverse effects of the previous year's losses, projecting that the transition of business will be substantially complete by the third quarter of the current year.

Despite these challenges, Pershing's revenue for the first quarter rose by 3% year-over-year to $670 million, contributing to BNY Mellon’s overall revenue of $4.5 billion, which also saw a 3% increase. BNY Mellon shares have risen by 4% this year, slightly underperforming against the 5.89% gain of the S&P 500.

Executives remain optimistic about Pershing's prospects, highlighting ongoing investments in technology and new client acquisitions. This includes adding Ashton Thomas Securities, an independent broker-dealer and registered investment advisor, which will now utilize Pershing’s clearing and custody services along with BNY Mellon’s Precision Direct Indexing capabilities.

CFO Dermot William McDonogh expressed confidence in Pershing's trajectory during the earnings call, noting, “As we’ve said since the deconversion was announced, we’re going to earn our way out of this situation, and that’s what’s happening. We feel very positive about Pershing’s position and capabilities in a market that’s expanding by mid-single digits annually.”

Pershing ranks among the top custodians nationally for registered investment advisory firms, competing with giants like Charles Schwab and Fidelity.

CEO Robin Vince highlighted the advantages Pershing gains from the consolidation trends within the registered investment advisor sector, pointing out both the challenges and opportunities of market dynamics. “Our clients are growing with us, and we are also benefiting from industry consolidations,” Vince said. He further explained that while some consolidations may work against them, many more are favorable, helping to balance the scales and foster optimism about future asset growth.

For the first quarter, Pershing’s revenue reached $670 million, a 3% increase from the previous year, and its assets under custody and administration grew by 8% to $2.6 trillion, buoyed by rising equity markets.

JPMorgan also reported a significant increase in its wealth management client assets, which soared by 30% to a record $3.3 trillion.

BNY Mellon concluded the quarter with earnings per share of $1.25, surpassing the consensus forecast of $1.19 and marking an 11% increase from the previous year. These results underscore the resilience and strategic agility of Pershing and BNY Mellon amidst ongoing industry shifts and challenges.


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