First Republic Bank began as an independent bank in 1985 and on Thursday it became independent once again.
The San Francisco private bank announced that it completed the deal, led by private investors as well as First Republic’s management team, to purchase the bank back from Bank of America. Now the bank’s management team is just looking for the right moment to take the company public once again.
The bank has an interesting history. It started as an independent bank 25 years ago before being bought in 2007 by Merrill Lynch for $1.7 billion. It was a public company for 21 years of its 22 years of independence.
At the time it was bought Merrill Lynch agreed the company would operate as a stand-alone brand and would retain its name, its management, its headquarters and its client and community focus. But the Merrill-First Republic marriage didn’t last long. When Bank of America bought Merrill, First Republic was part of the package deal. Then as speculation mounted about how BofA would raise much-needed capital to pay the government back for its bailout funds, the banking company announced in October it would sell First Republic to Colony Capital and General Atlantic, two private-equity firms, which own just under 50% of the bank, and a group of other investors, including the bank’s chairman, James H. Herbert, and chief operating officer, Katherine August-deWilde.
The terms of the deal were not disclosed though a variety of reports has pegged the transaction’s value at $1 billion. More importantly, the deal allows First Republic to be independent once again. The purchase from BofA was completed with $1.86 billion in new equity capital from Colony Capital and General Atlantic. The bank’s board of directors consists of nine members – the bank’s two senior executives; one each from Colony Capital and General Atlantic; and five independent directors who have been affiliated with the bank consistently from six to 25 years. Herbert and August-deWilde have signed contracts to remain in their current positions and will continue to lead the bank.
“First Republic Bank is well positioned as an independent entity to continue providing our superior, client-focused banking and wealth management services,” Herbert said in a press release. “We are delighted with our re-established independence and our new investors. First Republic’s capital strength, credit discipline and distinctive brand will enable the company to continue to grow.”
In an interview on Thursday, August-deWilde said that the management team is waiting for “the markets to be right” to take the bank public again.
First Republic’s transition back to independence seems like it will be fairly smooth. That is because First Republic was in a unique situation when it was acquired, being that Merrill Lynch didn’t have a working retail business, said Jaime Peters, lead banking analyst at Morningstar, in a recent interview. “Most of the time when an independent bank is purchased by a bigger bank they try to integrate it into their own retail operations and the identity of the independent bank, their system and culture, gets lost in the bigger bank,” Peters said. Since First Republic was passed along to Bank of America intact, Peters explained, it has a lot more flexibility now that it has become independent once again.
Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I., said the challenges for a smaller bank returning to independence are many: Is the bank able to offer the same ability for their clients to borrow as they were before? In the post-banking crisis world, where there are new metrics for deciding what is adequate capital and there are more thorough regulations on lending practices, will it be harder to survive as a smaller, independent bank?
But August-deWilde said that there is no need for concern. “We emerged as an independent bank with two times the assets and three times the capital as we had when we agreed to be purchased by Merrill Lynch. We have 30% more offices, 25% more employees and one of the cleanest balance sheets in banking with less than 20 basis points in nonperforming assets. 2009 was a year of record earnings,” she said. “We are independent with the same management team, a much larger client base and all the products and services we need.”
First Republic Bank has 62 offices and total banking assets of approximately $20 billion, $18 billion of deposits, $15 billion of wealth management assets and $4 billion of loans serviced for third parties, the company reported.
On Thursday the company announced that Moody’s, Fitch and Standard & Poor’s issued investment grade ratings for the bank and all of its obligations.
“As an independent company, First Republic is in an excellent position to grow safely and steadily because of its strong balance sheet, liquidity and market momentum,” said Tom Barrack, the chairman and CEO of Colony Capital, and a returning director of the Bank.
August de-Wilde said there were no changes to the bank under Merrill or BofA and there aren’t going to be changes going forward. “We see this as a good opportunity to hire some of the best portfolio and relationship managers in the business because we are so clean and well capitalized.”
First Republic focuses exclusively in private banking, private business banking and private wealth management and has offices in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, Greenwich and New York City.