First Republic splits from BofA and seeks IPO

NEW YORK (Reuters) - First Republic Bank, a lender to wealthy families prized by Merrill Lynch but deemed expendable by Bank of America, celebrated its 25th birthday Thursday by completing a management buyout that restored its independence.

Now First Republic says it is geared up to make some acquisitions of its own, expand its branch network and recruit bankers and money managers. The bank, which went public in 1986, will again pursue an initial public offering to fuel its growth, First Republic co-founder and Chief Executive Jim Herbert told Reuters.

"We went public to give ourselves access to capital markets, to help us grow. We expect that would be a possibility again in the future," Herbert said. "We will watch the market very carefully for opportunities."

Surprisingly ownership by two financial giants did not destroy the San Francisco bank and wealth manager. Instead, First Republic fared well after being acquired by Merrill in September 2007 for $1.8 billion and then swallowed up with the brokerage 15 months later by Bank of America early last year.

In three years, First Republic doubled in size to $20 billion in assets, expanded its branch network by nearly a third to 62 offices and boosted client assets about 7 percent to roughly $15.5 billion during turbulent markets.

First Republic also grew by 300 employees to 1,400 after the Merrill purchase.

"The bank coming out of all this is extremely clean and well-capitalized, with its entire customer base intact," he said.

First Republic's bank business grew almost entirely without acquisitions. The company made a few investment management purchases, he said, and now will look at pursuing more deals and recruits to bolster its wealth management business.

The buyout was completed with $1.86 billion of new equity from Colony and General Atlantic and with no additional debt. First Republic, a California-chartered bank, also assumed some subordinated debt, two REIT units and preferred stock.

A portion of the new equity went to meeting regulatory capital requirements. Terms of the buyout were not disclosed.

Herbert said the two lead investors, by law, each own less than 25 percent, with other investors and management owning the remainder.

BofA (BAC.N), which bought Merrill in the depths of the financial crisis, purchased private bank U.S. Trust in 2007. Last October, BofA agreed to sell the unit to a group of investors led by buyout firms General Atlantic LLC and Colony Capital LLC as well as Herbert.

"This is further evidence this company is streamlining," said analyst Jefferson Harralson of Keefe, Bruyette & Woods Inc. The sale will likely have no impact on BofA, which had $2.34 trillion of assets at the end of March.

First Republic is the latest in a series of asset sales by the bank over the past year to bolster capital and reassure U.S. government regulators that it can withstand another market downturn.

Merrill never integrated First Republic, making it easier to carve it away.

Colony Financial Inc (CLNY.N), a real estate finance and investment company managed and advised by a unit of Colony Capital LLC, said it invested $24 million in the transaction.

General Atlantic was an early investor in First Republic Bank and sat on its board from 1987 to 1990.

(Reporting by Joseph A. Giannone; Additional reporting by Joe Rauch in Charlotte, N.C.; Editing by Lisa Von Ahn and Steve Orlofsky)