Merrill Lynch & Co. Inc., which has ramped up its retail banking offerings in recent years, has not been shy about its interest in a possible retail banking acquisition.

Its selection of First Republic Bank of San Francisco, which targets ultra-high-net-worth customers, made it fairly clear that the New York firm's ambitions do not include going head to head with the Main Street operations of traditional banking companies.

"This is the business model that we think is the most attractive and makes the most sense for us in the banking space," said Robert McCann, the president of Merrill's Global Private Client business. "This is the way we want to express our point of view in banking, and it's going to be the high-net-worth, private banking space."

Merrill said it would pay $1.8 billion in cash and stock for First Republic, a high-end mortgage lender and private banking company. The average First Republic client is worth $20 million and may have a $1 million mortgage for a single-family luxury home, Mr. McCann said.

First Republic has 43 offices across the United States, including in Newport Beach and Silicon Valley, Calif., Boston, New York, and Greenwich, Conn.

The company, which reports earnings today, had assets of $10.7 billion on Sept. 30, and assets under management of $16.4 billion. Total loans were $7.6 billion and deposits were $7.9 billion at the end of September.

Merrill has offered banking services for many years, starting with the launch of its cash management account in 1977. Two years later it began offering mortgages, and in 1984 it began offering loans to small businesses. It also offers commercial banking services.

In January 2003, Merrill kicked off an effort designed to boost its retail banking business by targeting assets its clients had on deposit elsewhere. The move was also aimed at diversifying revenue at a time when a bear market for stocks caused customers to cash out of equities and move their funds elsewhere. Since then its deposits have grown about 30%, from $65 billion to $84.1 billion at the end of 2006.

Mr. McCann said Merrill is buying First Republic because it wants to offer better service to Merrill's wealthier investors, not because it wants a more bank-like balance sheet. Merrill's private banking business targets investors with assets of $10 million and up.

"We can take care of their needs on both the asset side of the balance sheet — their investments, and also the liability side — their lending and their deposits," Mr. McCann said. "This is something we have been thinking about and analyzing and having discussions about over a two-year period."

Asked whether Merrill would ever consider acquiring a more traditional retail banking franchise, Mr. McCann said, "Never say never, but I don't think we'd be doing that, no."

He said Merrill expects to be able to cross-sell its products to First Republic clients and refer Merrill's brokerage clients to First Republic for mortgages. He also said it may look at opening three more branches in the cities it believes has strong demographics: Dallas, Chicago, and Atlanta. First Republic has no operations in those cities.

First Republic shareholders would receive $55 a share, 44% higher than the company's closing price on Jan. 26. The stock rose 40%, to $53.63, while Merrill's dropped 2.3%, to $92.39. Merrill said it expects the deal to be accretive to profit by the end of 2008.

One analyst, Richard Bove of Punk, Ziegel & Co., said Merrill could be overpaying. "I don't see the rationale, because it's not where the growth is," he said.

"It's pretty evident that the international markets and the capital markets sector are growing faster than the traditional banking sector," Mr. Bove said. "When Merrill Lynch makes acquisitions in India, Japan, and the capital markets, it's in sync with what's going on. When Merrill Lynch buys a bank in the U.S. that's involved to some degree in traditional banking, it's going in the wrong direction."

Others were guardedly optimistic, saying the deal raised concerns about Merrill's developing private banking strategy.

"The question to Merrill is, Are you going to be pushing more aggressively into the private banking side? " said Brad Hintz, an analyst with Sanford C. Bernstein. "I want to hear what the private banking strategy is on this thing."

First Republic would be a unit of Merrill Lynch Bank and Trust Co. FSB, and its branches would operate under that name. First Republic's chief executive, Jim Herbert, and its president and chief operating officer, Katherine August-deWilde, are to keep their jobs.

The deal is expected to close at the end of the third quarter.

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Corrected January 31, 2007 at 7:17PM: In the Jan. 30 paper, a story on page 1, "With a Buy, Merrill's Bank Ambitions Come into Focus," overstated the assets required to be a Merrill Lynch private banking customer. Merrill targets investors with at least $10 million.