Controversy erupted as the First Republic Bank of the United States (FRB) was embroiled in rumors of a bankruptcy crisis, raising investors’ concerns, and the owner’s family was confirmed to have taken a large salary and sat on the money.
The Wall Street Journal (WSJ) reported on the 24th (local time) that the FRB has been paying millions of dollars to the family of its founder, James Herbert, in the name of interest rate and risk-related consulting services over the past few years. According to FRB disclosure data, the bank paid Herbert $17.8 million in compensation in 2021 when he was CEO just before he took the helm.
The Fed is a small and medium-sized bank with assets of $212 billion. It paid twice as much as $9.3 million for CEO Melon Bank of New York and $9.9 million for CEO Silicon Valley during the same period.
The WSJ pointed out that Herbert’s salary was rather similar to that of CEOs of large banks with 2021 profits of around $20 million, such as US Bankcorp and Citigroup. Capra Ivex, a consulting firm owned by his brother-in-law James Healy, took $2.3 million from the First Republic Bank in 2021 alone as an advisory task on investment portfolios, risk management, interest rates and economic prospects. Herbert’s son also received 3.5 million dollars while supervising the loan department at the FRB. Compared to the fact that the salary of family employees of CEOs employed by other large and medium-sized banks is usually less than $250,000, it is about 14 times higher.
Regarding the large amount of remuneration paid to the owner’s family, the FRB explained, “Our bank has internal guidelines related to family member transactions, and we disclose all of the details every year.” Regarding the CEO’s salary received by Herbert in 2021, he also explained, “It reflects the fact that FRB outperformed its peers in the Standard & Poor’s (S&P) 500 Index between 2016 and 2021 and that strong shareholder returns were returned.”
It wasn’t until the 22nd, long after rumors of a crisis spread, that management decided not to receive bonuses this year, and Herbert in particular decided not to receive compensation related to equity as well as salary.
