When San Francisco-based First Republic Bank imploded last spring and its financial assets were sold to JPMorgan Chase & Co., Citizens Financial Group Inc. swooped in to grab another key resource for First Republic: its employees.
With crisis comes opportunity. The First Republic implosion in March tore open market share for financial institutions to exploit, including so-called “private banking,” boutique financial services to the ultra-rich.
When Citizens failed in its bid to acquire First Republic, it didn’t go away empty-handed, hiring more than 100 former First Republic staffers to jump-start a new Citizens private bank that aims to provide a white glove “concierge” experience to elite clients, each of whom will be provided with a single, empowered point-of-contact available around the clock.
Brendan Coughlin, Citizens vice chairman and head of consumer banking, says the move is part of the “natural progression” of the bank’s trajectory. Since its acquisition of Clarfeld Financial Advisors in 2019, Citizens has been serving high net worth clients with all types of financial services.
Coughlin says Citizens plans to also target what are known in the industry as “HENRYs,” or “high earners, not rich yet.”
Citizens also acquired Paladin Advisors in 2022; and Investors Bancorp Inc. and JMP Securities in 2021. It has downsized brick-and-mortar branches across the country and recently announced its exit from both the mortgage auto lending and wholesale mortgage lending businesses.
Citizens invested $35 million to start its private bank and plans to open six offices within the first year in New York City; Boston; Palm Beach, Fla.; and the San Fransisco Bay area. In July, the bank announced the appointment of former First Republic executive Susan deTray to head the enterprise. For First Republic, deTray had served as senior vice president, deputy chief credit officer and head of credit administration.
The use of private banks by the wealthy is growing.
The market size of the niche subsector has grown 9.6% per year on average over the past five years and 13% in 2022 alone, according to IBISWorld. Although there is no structured minimum, the typical private bank client will have a net worth of at least $5 million, Coughlin says.
“Customers typically move into our private banking offering if they have complex personal or business lending needs, or they have a large wealth management relationship,” he said. “Our relationship managers are just one call, text or email away during the moments that matter.”
Michael Ice, associate teaching professor at the University of Rhode Island’s College of Business, said much of the hype around private banks being different from traditional wealth management operations is “semantics.”
“Either way, it’s wealthy individuals’ money,” he said.
Ice believes Citizens wants to diversify from traditional – and at times volatile – commercial lending, which has been hammered over the last two years.
In a private bank, the market risk falls mostly on the client, though poor performance could cause them to withdraw. They bring stable income because of large deposits and generous fee structures, Ice says. “As long as those assets stay there, you get paid your fee,” he said. “Banks tend to like that. And they have enough of a name and critical mass in size that they can do it. Quite honestly, I’m a little surprised [Citizens] didn’t have one already.”
And the hiring of 150 former First Republic employees will bring more than experience. Many established clients will follow their advisers to Citizens, what Ice called “buying the book.”
“These are opportunistic acquisitions. Usually, private banking money is sticky,” Ice said. “[Wealthy clients] are more than likely more loyal to [advisers] than they were to [First Republic].”
Citizen’s expansion into private banking might also create an opportunity for local financial institutions. Steven Parente, executive vice president of retail banking at Bank Rhode Island, says his bank is focusing on expanding regionally, including new branches in Newport and Cranston.
“When you have any level of consolidation of services, it may prompt customers to look elsewhere. And we can all benefit from that,” he said. “It opens the door for more people to think about their banking relationships.”
Parente is confident traditional services such as mortgage lending will rebound. And banking is still about customer service.
“In these economic times, every company must sit back and assess what is right for them at the time,” he said. “We see ourselves as a private bank without having a private bank. Most of our business customers and a high number of consumers have a personal banker.”
But Parente understands why Citizens is establishing a private bank.
“The label allows them to do more things with a certain subset of customers,” he said. “Where we like to think all of our customers have the same access and ability to be treated well.”
Coughlin says the Rhode Island-based institution isn’t focusing purely on high-wealth individuals. He points to its Citizens Private Client service, available to customers with more than $200,000 in deposits or investments with the bank.
The private bank will ensure long-term stability, he says. Citizens is reducing the risks that were inherent to First Republic by maintaining a balance sheet with 70% of deposits insured.
“We are recreating the exceptional service standard that many private banking clients enjoyed but with the business model changes necessary to ensure durability,” he said.
Correction: An earlier version of this story had an incorrect title for Susan deTray when she was employed at First Republic Bank. She had served as senior vice president, deputy chief credit officer and head of credit administration for First Republic.
