A couple of months ago, any list of America’s most famous bankers would have included Jim Herbert. A shrewd and motivated businessman, Herbert had grown First Republic, the California-based lender, from just nine employees to the 14th largest American bank by offering cheap mortgages and personal service to affluent urban professionals.
Now, almost everything Herbert, 78, has done has been reduced to dust. Early Monday morning, before US markets opened, regulators closed the bank and sold all of its $93.5 billion in deposits and most of its assets to JPMorgan.
The collapse of the Silicon Valley bank on March 10 triggered a $100 billion deposit in the First Republic where he was CEO. He also drew attention to the extreme vulnerability of the business model to rising interest rates. Shares were down 95 percent, class-action lawyers were circling, and commentators were speculating openly about whether the Federal Deposit Insurance Corporation would take over the bank.
In First Republic’s online “Heritage Book,” Herbert warns employees to “stay ahead and stay sober,” but that appears to be what the bank and its leadership fail to do. “The problem is, this business model is designed for a low interest rate world,” said Barry Norris, the short seller who made several million dollars against the First Republic. “If you want to be a successful banker, you have to do more.”
Investors, friends and other beneficiaries of Herbert’s enthusiasm are now asking themselves how a company run by a man of common sense and commitment could have gone off track. Linda Shelton, executive director of the Joyce Theater in New York, said Herbert has gone the extra mile for herself and others in the world of dance. “He was a very inspiring person… You always get interested in supporting artists before anyone knows who they are,” she said. “It’s very hard to see.”
Born in Ohio to a community banker and housewife, Herbert only left the Midwest a few times before attending college in Boston. As an intern at Chase Manhattan Bank, he received a wake-up call that remained an inspiration. Giving a heavily edited report, his boss, James, said, “If you can’t do better than that, work elsewhere.”
“My standards went up, and I never looked back,” Herbert recalled, speaking of the bank’s historian.
He met and married Cecilia Healy, one of the first women to earn an MBA at Harvard University. A spin in the soft drink bottling business led him to San Francisco where he eventually founded First Republic in 1985. From the start, he focused on struggling entrepreneurs, starting with very large mortgages before growing into a full-service private bank. The First Republic expanded to eight states, and the Herberts began a bicoastal life, supporting civic and charitable causes in both. “His interest and curiosity about the arts was unusual for a businessman,” said Helgi Tomasson, retired artistic director of the San Francisco Ballet, where Herbert served as president.
Herbert also proved that he could play deal-maker with the best player on Wall Street. In 2007, he sold First Republic to Merrill Lynch for a 40 percent premium. But Merrill got caught up in Bank of America in the 2008 financial crisis, so Herbert bought his baby back with the help of private equity group General Atlantic. Within months, they relisted it on the stock exchange for 70 percent more than they paid. “Jim is one of the best and most entrepreneurial bankers of his generation,” General Atlantic CEO Bill Ford said after the deal.
For the next decade or so, Herbert seemed to do no wrong. First Republic bet heavily on wealth management with a high-profile acquisition, and crossed $50 billion in assets. When American Banker magazine named him its Banker of the Year in 2014, it cited the bank’s rapid growth and pristine credit quality to say that “At 70, Herbert is at the top of his game.”
At the time, he lobbied Ian Bremer, president of the Eurasia Group, to do a public affairs show for the New York public television station, and First Republic became its founding sponsor. “He’s been very supportive of making sure we don’t just have institutional votes. He doesn’t care who you vote for. He cares that you’re talking to all sides,” Bremer said.
But Herbert’s efforts to reduce his involvement with the First Republic proved problematic. During the pandemic, he moved to Wyoming to be near his grandchildren, and began selling his stake from about 1 million shares at the end of 2019, to about 700,000 in March. His remaining shares were worth $85 million at the start of March and were worth just over $4 million last Friday before the bank takeover.
His chosen successor, Hafid Gay Ercan, lasted just six months as co-CEO and her sudden departure in early 2022 coincided with a serious heart condition that forced Herbert away from active leadership. By the time he returned, the Fed had begun rapidly raising interest rates, a process that destabilized the SVB and sowed the seeds for the collapse of the First Republic.
After years of fake analyst and press coverage, Herbert seemed shocked by the sudden scathing assessments of the First Republic’s prospects. He was conspicuously absent from last week’s disastrous earnings call that sent shares into a new low.
“Jim in his prime was able to turn this around,” said a senior executive who knew Herbert well, banking at the First Republic. He was an innovative banker and a likable person. This is a tragedy.”
brooke.masters@ft.com
This article has been updated since it was first published following the takeover of First Republic by regulators on Monday
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