The family of the founder of the struggling First Republic Bank made millions in commissions in the years before the bank failed, and the founder, his brother-in-law and his son made huge sums of money from the company.
First Republic Bank had to be supported by other banks on March 16 amid concerns about its stability, but the move has failed to reassure markets.
First Republic Bank is now believed to be exploring other options, with some analysts believing it could be sold this weekend.
It emerged on Friday that founder James Herbert and his relatives have benefited greatly in recent years, with Herbert being paid significantly more than his peers.
Chief Executive James Herbert founded the bank in 1985. In 2021, when he was CEO, he was paid nearly $18 million, far more than his peers.
Customers of First Republic Bank in Los Angeles spent Saturday, March 11, lining up to withdraw money after the collapse of Silicon Valley Bank.
Herbert founded the bank in 1985 and was its chief executive until last year, when he became president.
In 2021 they paid him 17.8 million dollars, The Wall Street Journal reported on Friday.
The bank, which mainly serves wealthy clients 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, received $9.3 million in 2021, a similar sum to that of the CEO of Silicon Valley Bank, with $209 billion in assets.
Herbert’s pay was closer to that of CEOs at many larger banks, including US Bancorp, whose CEO earned $19.1 million in 2021, and Citigroup, whose CEO earned $20.5 million, the report reported. Journal.
The newspaper also noted that Herbert’s brother-in-law, James Healy, was paid generously for work done by his consulting firm.
Healy’s company, Capra Ibex, was launched in 2010, with First Republic being his 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 newspaper.
James Healy, Herbert’s brother-in-law, whose firm received $2.3 million in 2021 for consulting work.
A First Republic branch is seen in midtown Manhattan on March 13.
Herbert’s son, who was not named in the documents, 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 spokesperson 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 reels, it announced Wednesday that Herbert and some other top executives would not receive a bonus this year. Herbert also agreed to take no salary and would forfeit some previous stock awards.
However, the bank’s top figures have already benefited greatly.
At the time of the March 16 cash injection from other banks, designed to assuage systemic fears, it emerged that Herbert had sold $4.5 million worth of shares since the beginning of the year.
Four of the struggling bank’s top executives have sold $11.8 million worth of shares so far this year, at average prices just below $130 a share.
Some of these sales came just days before the bank began to run into liquidity problems, as panicked investors sought to recoup their money after the fall of Silicon Valley Bank and Signature Bank.
It is unclear whether the executives engaged in insider trading.
Robert Thornton, left, the bank’s president of private wealth management sold 73% of its outstanding shares for $3.5 million in his first deal since 2021, while chief credit officer David Lichtman, right, sold $2.5 million worth of stock over the course of three sales.
CEO Michael Roffler sold nearly $1 million in January after selling $1.3 million worth of shares in November.
The Journal found that Herbert made two sales in January and February, worth 7 and 5 percent of his stakes in the company, respectively.
At the same time, Robert Thornton, the bank’s president of private wealth management, sold 73 percent of its outstanding shares for $3.5 million in his first deal since 2021, and CEO Michael Roffler sold nearly $1 million in January. after having sold shares worth $1.3 million. in November.
Credit officer David Lichtman also sold $2.5 million worth of shares over the course of three sales since the start of 2023.
The last of those sales came on March 6, just two days before Silicon Valley Bank revealed it had lost $1.8 billion, triggering a massive run that forced SVB out of business.
Lichtman and his spouse had already sold another $2.5 million in November and December, the Journal reports, achieving the most sales in just a five-month period than ever before.
None of the executives’ sales filings indicate they were executed under 10b5-1 plans, which are pre-scheduled sales designed to protect business executives from insider trading allegations, 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’ transactions were reported to the Federal Deposit Insurance Corporation, which posts them on its website.