Merrill Lynch said yesterday it will purchase upscale mortgage lender First Republic Bank in a transaction valued at $1.8 billion, a move that gives the financial services giant a presence in both the luxury and subprime sectors of the mortgage banking market. In December, Merrill Lynch purchased subprime specialist First Franklin Corp. from National City Corp. for $1.3 billion. Wall Street is likely to embrace the pending acquisition by Merrill Lynch, with Fitch Ratings saying yesterday the agency had placed First Republic on Rating Watch Positive following the announcement. First Republic is a private banking and wealth management firm focused on high net worth individuals and their businesses, and Merrill Lynch said the company will operate as a stand-alone brand and will retain its name, its current management structure, its San Francisco headquarters and its client and community focus. â€œWe are very pleased that First Republic will join Merrill Lynch as a separately run business that will enable us to enhance the growth of our private client organization by leveraging First Republic’s very successful business model and strategy,â€? said Robert J. McCann, President of Merrill Lynch’s Global Private Client business. â€œFirst Republic will enable Merrill Lynch to accelerate its strategic objective of growing its high net worth business. Our goal is to provide First Republic with the resources and support to replicate the firm’s success in key markets across the country and to benefit from its deep banking expertise. We look forward to supporting First Republic’s further expansion with additional capital and a greater range of investment products, advice and services.
“While First Republic will operate as a separate division with its own brand identity and strategic goals, we expect our entire private client organization to benefit from its outstanding history, excellent credit and lending capabilities, and its experienced management team. First Republic’s strong culture of client focus and service sets the standard for excellence in the private banking industry and is consistent with Merrill Lynch’s mission and principles.â€? First Republic has particular expertise in luxury home lending, and its offices are situated in markets with large concentrations of high net worth individuals, including San Francisco, Silicon Valley, Los Angeles, Santa Barbara, Newport Beach, San Diego, Las Vegas, Portland, Seattle, Boston, Greenwich and New York City. On loans originated over the past 10 years, First Republic has incurred less than one and a half basis points of cumulative net loan losses. First Republic’s organic asset, deposit and net revenue growth rates have compounded at 18 percent, 20 percent and 22 percent, respectively, over the past 10 years. These growth rates testify to the success of its extraordinary client service culture. As of September 30, 2006, First Republic had assets of $10.7 billion, loans of $7.6 billion, deposits of $7.9 billion, and assets under management or administration of $16.4 billion. Net income available to common shareholders was $46.3 million for the nine months. Bank assets, assets under management and loans serviced totaled $31.8 billion at September 30, 2006.