The family of the founder of struggling First Republic Bank earned millions in fees in the years running up to the bank’s failure – with the founder, his brother-in-law and his son all making huge sums from the firm.
First Republic Bank had to be propped up by other banks on March 16, amid concerns about its stability, but the move has failed to reassure the markets.
First Republic Bank is now believed to be exploring other options, and some analysts believe it could sell itself this weekend.
On Friday it emerged that the founder, James Herbert, and his relatives have profited immensely in the past few years, with Herbert being paid significantly more than his peers.
Executive Chairman James Herbert founded the bank in 1985. In 2021, when he was CEO, he was paid almost $18 million – significantly more than his peers
First Republic Bank customers in Los Angeles spending their Saturday, March 11, lined up to withdraw money following the collapse of Silicon Valley Bank
Herbert founded the bank in 1985, and was its chief executive until last year, when he became chairman.
In 2021 he was paid $17.8 million, The Wall Street Journal reported on Friday.
The bank, catering primarily to wealthy customers in coastal states, had $212 billion in assets at the end of 2022.
By comparison, the CEO of Bank of New York Mellon, with $324 billion in assets, was paid $9.3 million in 2021 – a similar sum to the CEO of Silicon Valley Bank, with $209 billion in assets.
Herbert’s pay was closer to the CEOs of many larger banks including U.S. Bancorp, whose CEO made $19.1 million in 2021, and Citigroup, whose CEO made $20.5 million, the Journal reported.
The paper also noted that Herbert’s brother-in-law James Healy was paid handsomely for work done by his consultancy firm.
Healy’s company, Capra Ibex, was launched in 2010, with First Republic its original client.
Healy’s firm was paid $2.3 million in 2021 for advisory work related to its ‘investment portfolio, risk management, interest rate and economic outlook and other financial matters’ according to financial statements obtained by the paper.
James Healy, Herbert’s brother-in-law, whose firm was paid $2.3 million in 2021 for advisory work
A branch of First Republic is seen in midtown Manhattan on March 13
Herbert’s son, who was not named in the filings, was also on the payroll, and received $3.5 million in 2021 to oversee a lending unit at the bank.
A First Republic spokesman said the bank has a policy for transactions with family members ‘and fully discloses such transactions each year.’
The spokesman added that executive compensation in 2021 reflects that the company ‘outperformed industry peers and the S&P 500 from 2016 to 2021, and delivered strong shareholder returns.’
As the bank teeters, it announced on Wednesday that Herbert and some other senior executives would not be paid a bonus this year. Herbert also agreed to receive no salary, and would forgo some prior stock awards.
Yet the bank’s top figures have already profited enormously.
At the time of the March 16 cash injection from other banks, designed to calm systemic fears, it emerged that Herbert had sold $4.5 million worth of shares since the start of the year.
Four of the struggling bank’s top executives have sold $11.8 million worth of stock so far this year, at prices averaging just below $130 a share.
Some of these sales came just days before the bank started facing liquidity troubles, as panicked investors sought to get their money back following the fall of Silicon Valley Bank and Signature Bank.
It remains unclear whether the executives engaged in any insider trading.
Robert Thornton, left, the bank’s president of private wealth management sold 73 percent of his outstanding shares for $3.5 million in his first trade since 2021, while Chief Credit Officer David Lichtman, right, sold $2.5 million worth of shares over the course of three sales
CEO Michael Roffler sold nearly $1 million in January after previously offloading $1.3 million worth of shares in November
The Journal found that Herbert made two sales in January and February, worth 7 percent and 5 percent of his holdings in the company, respectively.
At the same time, Robert Thornton, the bank’s president of private wealth management sold 73 percent of his outstanding shares for $3.5 million in his first trade since 2021, and CEO Michael Roffler sold nearly $1 million in January after previously offloading $1.3 million worth of shares in November.
Chief Credit Officer David Lichtman also sold $2.5 million worth of shares over the course of three sales since 2023 began.
The last of those sales came on March 6, just two days before Silicon Valley Bank disclosed it had lost $1.8 billion, triggering a massive bank run that forced SVB to close.
Lichtman and his spouse had already sold another $2.5 million in November and December, the Journal reports, making the most sales over just a five-month period than they ever had previously.
None of the filings for the executives’ sales indicate they were executed under 10b5-1 plans, which are prescheduled sales designed to protect business executives from accusations of insider trading, the Journal notes.
But the trades went largely unnoticed as First Republic is not required to report insider sales to the Securities and Exchange Commission, thanks to a provision of the Securities Act of 1933.
Instead, the executives’ trades were reported to the Federal Deposit Insurance Corporation, which posts them on its website.