Colony, General Atlantic finalise $1.9bn First Republic deal

The two investment firms backed a management buyout of First Republic Bank from Bank of America, injecting $1.86bn of fresh equity into the deal. Colony’s stake is believed to be under 24.9%.

Colony Capital has finalised a $1.9 billion deal to buy a stake in the US bank, First Republic, after its management launched a buy-out from Bank of America.

San Francisco-based First Republic said in a statement the all-cash deal was completed with $1.86 billion of new equity being injected by a consortium of investors led by Colony and General Atlantic. Colony and General Atlantic are believed to have acquired just under 50 percent of First Republic. Non-banking institutions cannot buy more than a 24.9 percent stake in a US bank under regulatory rules.

The all-cash deal was completed with $1.86 billion of new equity being injected by a consortium of investors led by Colony and General Atlantic.

The deal was originally announced last October when Bank of America revealed it was looking to offload the $20 billion, 62-branch bank, which was purchased by Merrill Lynch in 2007 for $1.7 billion.

Both Colony and General Atlantic have a history with First Republic. Colony founder Thomas Barrack sat on the bank’s board of directors between 2001 until June 2008, while General Atlantic is reported to have invested about $5 million in the institution in 1987.

First Republic will continue to be led by chief executive officer Jim Herbert and chief operating office Katherine August-deWilde, who are both also believed to be investors with Colony and General Atlantic.

Colony declined to comment further on the deal, but Barrack, who will return to First Republic’s board of  directors, said in a statement the bank was expected to grow “safely and steadily” as an independent entity.

Colony has been targeting the banking sector as it eyes potential real estate deals, in January buying a portfolio of 1,200 loans from the FDIC. The loans, with a face value of $1.02 billion, were acquired with an equity investment of $90.5 million and government financing of $233 million in corporate guaranteed notes. The deal, which saw Colony take a 40 percent stake in the venture alongside the FDIC’s 60 percent interest, was split across three Colony vehicles, including the $900 million Colony Distressed Credit Fund I, the $4 billion Colony Investors VIII and the firm's mortgage REIT, Colony Financial.

First Republic added in its statement that it had banking assets of approximately $20 billion, $18 billion of deposits, $15 billion of wealth management assets and $4 billion of loans serviced for third parties. It also said its tangible common equity, the amount of ownership equity common stock holders would receive in the event of liquidation, was more than 8 percent of total assets.

Under the terms of the deal, First Republic has assumed its 7.75 percent subordinated notes due in 2012 as well as two REIT subsidiaries and outstanding preferred stock. First Republic’s other subsidiaries, First Republic Investment Management, First Republic Securities, First Republic Wealth Advisors, and First Republic Trust Company, remain part of the institution.