First Republic Regains Its Status as an Independent Bank

Register now

First Republic Bank began as an independent bank in 1985, and last week, 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 itself from Bank of America. Now the bank's management team is just looking for the right moment to take the company public.

First Republic 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 of its first 22 years.

When it bought First Republic, Merrill Lynch agreed that 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 B of A bought Merrill, First Republic was part of the package. Then, as speculation mounted about how B of A would raise much-needed capital to pay the government back for its bailout funds, B of A announced in October of last year 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 its chief operating officer, Katherine August-deWilde.

The terms of the deal were not disclosed, though reports have pegged the transaction's value at $1 billion. The purchase from B of A was completed with $1.86 billion in new equity capital from Colony Capital and General Atlantic.

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, reflecting the bank's status under Merrill Lynch, which, though it did not have a working retail business, left the bank intact, Jaime Peters, lead banking analyst at Morningstar, said 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 B of A intact, Peters said, 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 before? In the post-banking crisis world, where there are new metrics for deciding what is adequate capital and more thorough regulations on lending practices, will it be harder to survive as a smaller, stand-alone bank?

But August-deWilde said concern would be misplaced. "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.

August-deWilde said there were no changes to the bank under Merrill or B of A, and there are not 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."

For reprint and licensing requests for this article, click here.
Wealth management