Eight months into an
Peapack Private, a division of the 103-year-old Peapack-Gladstone Bank in Bedminster, has hired more than a dozen bankers from the fallen Signature and First Republic banks, while plans call for opening a 6,000 square-foot branch at 300 Park Avenue in Manhattan, probably in the fourth quarter, John Babcock, Peapack Private's president, said in an interview.
It's the kind of methodical, piece-by-piece approach that's required today as buying whole wealth firms has become pricier and more competitive, according to experts.
"Even if we pick up 1% market share, that's going to be a home run for us," Babcock said, alluding to the scale of New York's wealth market, still the nation's largest.
Signature and First Republic, which both failed during the industrywide upheaval in the spring of 2023, served a sizable clientele whose wealth — though substantial — isn't large enough to open doors at private-banking inner sanctums at larger institutions, according to Babcock, who has led the $6.5 billion-asset Peapack-Gladstone's wealth division since 2014.
"We felt with the demise of Signature and First Republic and maybe to a lesser degree Silicon Valley [Bank], certainly in New York, that there was a spot for a boutique private bank," Babcock said. "I think we are better positioned to serve those high net worth clients who are not getting the same level of attention at some of the larger institutions, where you're in a model portfolio and you have an 800 number."
'Sky-high' seller expectations
Wealth is a big part of the story for Peapack-Gladstone, which reported $10.9 billion of assets under management at Dec. 31, up from $9.9 billion a year earlier. The business generated $56 million of revenue in 2023, about a quarter of the bank's total.
Peapack-Gladstone's 2023 results don't reflect the full impact of the New York operation, which is still ramping up, according to Babcock. "We've booked a fair amount of business, brought over a lot of clients, [but] we've only been at it for seven or eight months," Babcock said. "It probably takes you 18-plus months to get to break even."
In the meantime, Peapack-Gladstone is eager to continue growing in its core New Jersey markets, in New York and in Florida, where an increasing number of clients are relocating. "Hopefully we can recruit some other people, more on the wealth management, investment management side, and that could include, you know, a [registered investment advisor]," Babcock said. "We continue to look for ways to grow both by hiring teams and potentially acquiring."
Indeed, Peapack-Gladstone would welcome an opportunity to grow by acquisition, but deals have grown scarce in recent years.
While Peapack-Gladstone acquired six wealth management firms between 2014, the year Babcock joined the company, and 2021, it's been nearly three years since
"Seller expectations are sky-high, so that just makes it tough to do transactions," Piper Sandler Analyst Mark Fitzgibbon said.
"There's a lot of private equity backed with dry powder, and they're buying them fast and furiously," Babcock said. "It just was hard for us to make economic sense of that if we were to try to compete at those valuation levels. …The pricing and deal structure and the valuations just got to a point where we couldn't achieve the return on equity and return on investment that we need."
According to ECHELON Partners, a Manhattan Beach, California-based investment bank that publishes an influential annual report on wealth management deal activity, private equity investors were involved in 62% of the 321 wealth management deals reported in 2023. Private equity investors were involved in 70% of the record 340 deals reported in 2022. Banks were buyers in just nine of the deals that year.
Attorney David Sewell, a partner at Freshfields Bruckhaus Deringer in New York, described the growth of private equity as "phenomenal, astounding, really. … There's just a lot more market power in the private equity space than there was a decade ago. … Competing with organizations that seem to have unlimited resources is difficult, and of course there's price inflation that results from that."
At the same time, banks are facing capital and regulatory constraints that nonbank wealth management competitors — flush with private equity backing — don't. "Banks are, I think it's fair to say, operating at a disadvantage in various ways in this context," Sewell said.
High prices aren't banks' only wealth management M&A stumbling block, said Rick Kuci, chief operating officer at the small-business funding platform Fundkite, formerly chairman and CEO of the $1.1 billion-asset Grove Bank & Trust in Miami from 2013 to 2021.
According to Kuci, the principals at the smaller registered investment advisory firms banks typically target are often advanced in age. In addition to a healthy multiple, these sellers are also seeking a relatively quick exit path to retirement. "Banks on the other hand tend to be more long-term players wanting to build a larger book of assets under management," Kuci said.
Kuci urged banks to adopt a more aggressive posture in approaching wealth-related M&A, not only in terms of pricing and earn-out terms "but also in their strategic approach toward acquisitions."
"As RIAs seek viable exit strategies, banks must recognize the importance of seizing the moment, leveraging their strengths and making bold moves to secure their position in this highly competitive landscape," Kuci said.
Eyes on Florida, too
As for Peapack-Gladstone, it remains fixed in growth mode despite its deal drought. "We continue to look for ways to grow both by hiring teams and potentially acquiring," Babcock said.
The bank is especially interested in extending its reach to Florida.
"Probably 10% of our assets under management are for clients [living in] Florida," Babcock said. "People are rushing to get out of Illinois and New York and New Jersey and Connecticut, all the high-tax states. While the pricing is very steep around the country, even more so in markets like Florida and Texas, where a lot of the wealth is moving. We do still have an interest in Florida. We just have to find the right entry point."
Banks and other firms active in wealth management are well positioned to benefit from multiple trends that could all push revenues higher, according to Fitzgibbon, who covers Peapack-Gladstone for Piper Sandler. "Starting at a high level, there are some massive changes going on in the wealth space," Fitzgibbon said. "You have this huge population of baby boomers approaching retirement age. They need assistance in the transition of their assets."
Market volatility and financial products' increasing complexity are also prompting more high net worth individuals to seek advice. "It creates this perfect storm of activity in the wealth management space"' Fitzgibbon said. Community banks typically don't appeal to the ultrawealthy, but their models are tailor-made for high net worth individuals, according to Fitzgibbon.
"If you're a high net worth person, [money center banks] will happily take your account, but probably, they're not really interested in you unless you're $10 million in assets or $15 million in assets or above," Fitzgibbon said. "That's where their sweet spot is. … Community banks can do a nice job with the products they have in the $2 million to $5 million investable range. They can provide a high level of touch and make it viable."
