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First Republic Fallout Hits BNY Mellon’s Pershing

That’s because Pershing, one the nation’s largest custodians, held assets for First Republic’s wealth management clients. On Tuesday, BNY Mellon (ticker: BK) reported that Pershing experienced $34 billion in net asset outflows, nearly canceling out the $37 billion in net new assets the unit reported for the first quarter.

Pershing’s total assets, at $2.4 trillion, were flat compared with the first quarter and up 9% from the same period last year.

When advisors switch firms, they typically take clients and assets with them. 

First Republic’s wealth management unit had nearly 300 advisors at the outset of the crisis, but dozens left as turmoil hit the bank. First Republic had 229 advisors as of May 1, according to

JPMorgan Chase

which bought the San Francisco bank in May.

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Some of the advisor teams that left First Republic oversaw large amounts of assets, and the departures sometimes came back to back. For instance, on April 28, a 12-person team that oversaw $3 billion ported its hefty practice to

Morgan Stanley

That same day, RBC Wealth Management picked up two ex-First Republic advisors, Mark Friedman and Mitchell Peters, who oversaw approximately $400 million. They joined RBC’s San Francisco office, which had hired another former First Republic advisor, Brian Addington, just days earlier.

In the near term, Pershing may lose more assets because JPMorgan likely will move the remaining assets overseen by First Republic advisors to its platform. Last week, JPMorgan said its wealth management client assets rose to $2.8 trillion, which included $150 billion in assets from First Republic. A JPMorgan spokeswoman did not respond to a request for comment.

BNY Mellon executives obliquely referred to the loss of First Republic as a client during their earnings call Tuesday morning.

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“The net new assets number was a negative $34 billion in the quarter, reflecting the deconversion of a regional bank client that was acquired in May,” CFO Dermot McDonogh said. “Excluding the impact of this ongoing deconversion, which we expect to weigh on our reported net new assets for several quarters, net new assets grew at a mid single-digit annualized growth rate. We remain confident in Pershing’s underlying momentum and prospects.”

A BNY Mellon spokesperson declined further comment.

In the long term, Pershing likely will benefit from growth among registered investment advisors. RIAs are among the fastest-growing segments of wealth management. Pershing serves as custodian for approximately 900 clients, of which 700 are RIAs. 

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New York-based BNY Mellon was founded in 1784 by Alexander Hamilton. The company provides banking, investment management, wealth management, and custodial services globally. On Tuesday, BNY Mellon reported earnings of $1.30, up 26% year over year, and net income of $1 billion, up 23%. Assets under custody or administration rose 9% to $46.9 trillion.

BNY Mellon’s stock gained 4.1% Tuesday to close at $45.33, down 13% from their 52-week high of $52.26.

Write to Andrew Welsch at andrew.welsch@barrons.com

Read More:First Republic Fallout Hits BNY Mellon’s Pershing