First Republic flies again

December 9, 2010, 10:11 PM UTC

Breaking up the big banks works. Take a gander at First Republic Bank.

First Republic (FRC), a San Francisco-based wealth manager, raised $95 million Thursday in an initial public offering. Its shares soared 7% to $27 and change in their first day of trading, which comes less than six months after the bank completed a leveraged management-led buyout from former parent Bank of America (BAC).

First Republic freed

Most of the shares in Thursday’s offering are being sold by the bank’s private equity backers, led by Colony Financial and General Atlantic, both of which will cut their stake in First Republic to 20% from 22% in the deal. Selling shareholders raised $175 million or so in the deal on top of the funds raised by the bank.

Thursday’s trading puts a market value of $3.5 billion on First Republic – nearly double the price it sold for in 2007, when it was acquired by Merrill Lynch about 30 seconds before the subprime bubble collapsed.

First Republic represented part of then CEO Stan O’Neal’s effort to expand Merrill’s offerings to rich customers. But it was overshadowed by another 2007 deal, the disastrous purchase of the notorious subprime mill First Franklin.

First Franklin’s $1.3 billion acquisition didn’t exactly bring down Merrill, which was purchased by BofA at the height of the financial panic in 2008 after a yearlong plummet fueled by its mismanagement of its risky subprime-related bond positions. But it certainly made for some interesting moments for John Thain, who took over for O’Neal and spent a year fruitlessly trying to restore Merrill to good health.


As Gary Weiss wrote in Portfolio two years ago, depicting an early Thain appearance before the Merrill staff:

One man, smiling sardonically, asks if Thain plans to revisit the acquisitions undertaken by O’Neal. Thain begins his response in conventional C.E.O.-speak, praising the year-old purchase of a private bank called First Republic. But nobody cares about that, and he knows it. What’s on everyone’s mind is the subprime monstrosity First Franklin, which Merrill bought at an inflated price in the waning days of O’Neal’s reign.

“If you have a buyer for First Franklin at the price we paid for it,” Thain says, as the audience begins to break into laughter, “please come see me afterward.”

No takers there, it seems. Merrill ended up shutting down First Franklin in early 2008. But First Republic is doing just fine, thanks.