Republic Seeks a Bigger Bite of Big Apple

NEW YORK -- Republic New York Corp. is looking to carve out a big slice of New York's retail banking market.

It's all ready to do a deal: The company plans to make a bid for Crossland Savings Bank, a troubled Big Apple thrift with $10 billion in assets. And Republic New York is ready to gobble up other retail plums.

"Savings deposits are not likely to grow in the U.S. over the next few years, especially in New York," explained Jeffrey C. Keil, president of Republic's lead bank. "The only way to grow is by acquisitions or by taking business away from someone else."

Republic has the wherewithal to pull off its ambitious expansion plans.

Glowing Good Health

With $30.9 billion in assets, the company is widely regarded as one of the nation's healthiest banking outfits. And its management is considered second to none.

"They're opportunistic and they're smart," said Richard Goleniewksi, an analyst with Goldman, Sachs & Co.

Acquiring Crossland would typify the savvy that has become the hallmark of Republic and its major shareholder, international financier Edmond Safra.

Analysts say Republic could buy the thrift, which was put on the auction block in July, for a paltry premium of less than 1% of deposits.

What's more, the deal would likely be government-assisted, giving Republic control of Crossland's branches and deposits without having to take on the thrift's troubled assets.

Upward Bound in Rankings

If the deal goes through, Republic's share of the 13.6 million retail deposit accounts in the New York metropolitan area would increase to 4.95% from 1.43%, excluding Manhattan Savings Bank, according to data compiled by Payments Systems Inc., a Tampa-based research firm.

That would put the bank roughly on a par with Chase Manhattan Corp., which holds a 5.08% share.

Citicorp, the biggest retail bank in the New York region, holds a 12.82% share, while Chemical Banking Corp. - which is set to merge with Manufacturers Hanover Corp. - holds a 7.44% share. Hanover ranks fourth, with 3.82%.

Mr. Keil said Republic could achieve significant cost savings by merging Crossland's branches into its own branch network or its Manhattan Savings Bank unit.

"We've looked very closely at the economies of scale," Mr. Keil said. He declined to discuss what Republic is prepared to offer for Crossland and said he has no idea who else might be in the running.

Consumer Thrust

Increased market share is not the only reason Republic wants to acquire Crossland. Private banking deposits, which include Republic's 48.9% share in the Luxembourg-based Safra Republic Bank, are growing at 20% a year, a far faster pace than its consumer deposits.

This has upset guidelines set by Mr. Safra for keeping Republic's private, institutional, and consumer deposits each to no more than a third of the bank's liabilities.

"You have to be diversified in order to stay safe," Mr. Keil said.

Playing It Safe

Playing it safe is the name of the game at Republic.

Unlike most other commercial banks, Republic avoided getting caught up in the 1980s frenzy to make loans to fund highly leveraged buyouts or ambitious real estate projects.

Even its home loans were conservative: The company would give mortgages for a maximum of 75% of the purchase price of the house, well below the 90% other banks were prepared to grant.

Instead, Republic stashed its deposits in lower-yielding but less risky instruments such as government securities. It also kept overhead low as its competitors aggressively expanded.

Indeed, Republic has grown even more cautious since it was forced in the mid-1980s to write off hundreds of millions of dollars in loans to developing countries.

The conservatism has paid off. While many banks are saddled with a bursting kit of bad loans and forced to dismiss thousands of workers, Republic is riding out the banking crisis virtually unscathed.

Nonperforming assets account for only 0.6% of total assets, well below levels at most major banks. Risk-adjusted capital stands at a sky-high 24%, well above the 10% to 12% of even the most strongly capitalized banks.

"Republic is largely insulated from the asset-quality and pricing issues currently depressing the results of many institutions," said Thomas Hanley, an analyst at Salomon Brothers Inc. wrote in a recent report.

Room to Grow on Profit Side

But Republic's profits are less than stellar. The company last year earned $201.2 million, representing an anemic 0.58% return on its assets. In the first nine months of this year, it earned $169.1 million, or 0.66% return on assets.

"Return of assets is clearly more important to them than return on assets," said Christoph Kotowski, an analyst at Oppenheimer and Co.

Wall Street apparently likes Republic's ploddingly consistent earnings. Prior to a 3 for 2 stock split on Oct. 16, the company's stock was up 106% for the year - nearly double the 52.7% increase in the American Banker index of 225 U.S. banks.

Republic was trading at noon Friday at $43 a share, unchanged from Thursday's close. The market price is 151% of Republic's third-quarter book value of $28.53 a share.

Automation Downscaled

Simple, standardized services and integrated back office and management give Republic units lower operating costs than most other banks.

The bank invests little in automation, provides only limited retail services, and keeps staffing at an absolute minimum.

According to Salomon Brothers, average total assets per employee at the end of last year topped $7 million at Republic.

That compared with a regional bank average of $2.9 million and a money-center average of slightly under $2 million.

Republic was established in 1966 by Edmond Safra, an elusive, Lebanese-born banker. In addition to the 29% he holds in Republic New York, Mr. Safra controls about 34% of Safra Republic Holding SA, a $8.82 billion-asset bank company based in Luxembourg that focuses on European private banking.

Mr. Safra also separately owns SafraBank (California), a small retail bank with $96.1 million in assets and three branches in Encino, California; and SafraBank (Florida), a $300 million-asset bank in Miami.

Republic has grown steadily since 1974, when it embarked on the first of several acquisitions by taking over Kings Lafayette Bank, a Brooklyn institution with 18 branches and $193 million in deposits.

It subsequently acquired 12 branches with $138 million in deposits from Bankers Trust New York Corp. in 1980; Williamsburgh Savings Bank, a $2.25 million deposit Brooklyn-based bank in 1987; and Manhattan Savings Bank, a $2.79 million deposit institution, last year.

In keeping with his strategy of staying close to local markets, Mr. Safra merged Republic's European branch network three years ago into Safra Republic, leaving the New York banking company free to concentrate on building up business in its home market.

Day-to-Day Autonomy

Mr. Safra keeps close tabs on Republic, but leaves day-to-day management to Mr. Keil and a small group of handpicked executives.

Mr. Keil, 48, joined Republic 19 years ago after after a brief stint on Wall Street at the predecessor of Shearson Lehman Hutton. A native of West Orange, N.J., the soft-spoken Mr. Keil places a high premium on loyalty to Mr. Safra.

Insiders describe him as a low-key, practical executive who encourages staff to correct small problems before they become big ones.

"He realizes screaming and yelling is not necessarily the best way to get things done," said one Republic executive.

Mr. Keil has steadily taken over at the helm of Republic since Mr. Safra began concentrating on building up his European operations.

Nonetheless, Mr. Safra made it his business to fly in from Europe to discuss the company's proposed bid for Crossland. After a few brief questions, sources say, he gave a green light to the transaction. [Graph Omitted]

PHOTO : PRIMED FOR ACQUISITIONS: Jeffrey C. Keil is on the prowl for bank and thrift bargains to expand Republic New York Corp.

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