Wealth management shops can expect more competition from First Republic Bank following its imminent initial public offering. The firm, known primarily for its high-end lending business, plans to expand its wealth management division, it said in its offering circular, released Monday.
First Republic already has $17 billion in wealth management assets and 1,400 employees. After the IPO, First Republic plans to hire additional professionals and offer referrals from the banking side of the business to boost wealth management, it said in the circular. “Our brand name, superior client service and service culture will enable us to expand this business and diversify our income stream,” First Republic wrote. The firm, which is in the quiet period before the IPO, did not offer additional details, and declined an interview request.
Industry analysts and executives were quick to praise First Republic’s lending capabilities and reputation for high-touch service to wealthy clients, but said the bank’s commitment to wealth management has historically taken a back seat to banking. And yet, $17 billion is nothing to sniff at. As Chip Roame, managing principal of Tiburon Strategic Advisors, put it: ‘Their wealth management business is certainly more formidable than at most private banks.”
Alan Zafran, a Silicon Valley-based partner and co-founder of Luminous Capital, said First Republic “is highly regarded in the high net worth community” and known for “a tremendous service model and a strong brand name, particularly in the Bay Area.”
“What they’re doing on the banking side is very sought after in the industry,” said Alois Pirker, research director and senior analyst for Boston-based Aite Group. “Lending is clearly the biggest part of their business and their high net worth clients are perfect candidates for wealth management. Whether they begin to really build up wealth management now remains to be seen.”
One Bay Area fixture, Tim Kochis, chairman and director of new business lines for San Francisco-based Aspiriant, said he doesn’t see the firm as a threat. “I’d be really surprised if First Republic doesn’t stick with what they know how to do really well,” Kochis said. Many of his clients, especially those in high-end real estate, also work with First Republic as their banker.
IPO Viewed Positively
First Republic announced Monday that it plans to raise $285.1 million by offering 11 million shares of common stock at an estimated price range of $24 to $27 per share.
“It reassures clients and gives them more confidence,” said Pirker. “Being a public company makes them more visible, more transparent and shows they have nothing to hide.” In addition to providing access to the capital markets, the public offering demonstrates to clients the bank is “more durable” than if it had remained private, Kochis said.
The public offering is a pay-out to the private equity firms that backed management with a $1.86 billion capital infusion when it purchased First Republic from Bank of America in July. Founded in 1985 by Roger Walther, now chairman emeritus, and Jim Herbert, chairman and chief executive, First Republic was acquired by Merrill Lynch in 2007. Bank of America took control of the firm when it acquired Merrill two years later.
Led by Herbert and Katherine August-deWilde, president and chief operating officer, First Republic had $22 billion in assets and $19 billion in deposits as of September 30. The bank has over 60 offices around the country, half of which are in the San Francisco Bay Area. First Republic currently has 124 million shares of common stock outstanding and is offering 4 million for sale, while institutional and individual holders are selling 7 million shares.
Four shareholders each own 21.8 percent of the bank’s stock, and will each sell a two percent stake. Those shareholders are private equity firms General Atlantic and Colony Capital, and directors Thomas Barrack and William Ford.
The IPO is expected to be priced early next week. LPL Investment Holdings, the country’s largest independent broker/dealer, raised $470 million when it went public earlier this month.