1.0
Independent Again
Image Credit – David Shankbone
8.1
“One of the Most Dramatic Days in Wall Street’s History”
The systemic troubles afflicting the financial industry continued to
build over the summer of 2008. JPMorgan Chase’s acquisition of Bear Stearns following Bear Stearns’ fatal
exposure to subprime mortgages turned out not to be an anomaly, but rather just one of the first dominoes to
fall. As Jim Herbert and the team recognized Merrill Lynch’s precarious position due to the same exposure,
they worked around the clock to find an alternative arrangement for First Republic Bank. While contemplating
strategies in late August and early September, no one anticipated the events soon to come.
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8.2
Bank of America Purchases Merrill Lynch
Bank of America Chief Executive Officer Ken Lewis agreed to acquire
Merrill Lynch for roughly $50 billion, or about $29 a share. The Board of Directors of each company approved
the sale, which would close the first week of January 2009.
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Image Credit – justasc / Shutterstock.com
8.4
Shelter from the Storm
While the disruption due to the Bank of America-Merrill Lynch merger was
significant, it paled in comparison to the turbulence resulting from the United States’ deteriorating economic
condition. Scott Dufresne did not initially understand why, in the early stage of the economic crisis, so many
of his peers at other financial institutions were calling to ask, “Are you okay?” From his point of view, it
was business as usual. “Then, all of a sudden, the light went on and I realized that as much as it was
business as usual for us, it was not for many other banks.”
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8.5
“Can We Put a Horse in the Race?”
Once First Republic Bank was officially part of Bank of America in early
January 2009, Herbert and his team redoubled their efforts to buy back the Bank. Through a mutual friend on
the Stanford University Parents’ Advisory Board, which Herbert and his wife, Cecilia, had chaired, Herbert
reached out to Greg Curl, Vice Chairman of Corporate Development and the senior Mergers and Acquisitions
executive at Bank of America. Curl had worked with Bank of America’s Lewis on many transactions over the
previous decade. Herbert finally got Curl on the phone, and he made his presentation about wanting to buy back
the Bank. The conversation, albeit polite, lasted all of three minutes.
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8.6
Selling a Good, Clean Bank
Over the next several weeks, in both New York and San Francisco,
Herbert, August- deWilde and Mollie Richardson, who had spearheaded the integration process with Merrill
Lynch, initially met with innumerable representatives of many private equity firms and a few strategic buyers
interested in bidding for the Bank. The firms engaged in due diligence, spending days poring over the Bank’s
financial statements and listening to presentations from various First Republic departments.
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8.7
The Backup Plan
After initially losing the bid for First Republic, Herbert reached out,
nonetheless, in early summer of 2009 to Tom Barrack, Founder, Chairman and Chief Executive Officer of Colony
Capital. Barrack, whom Herbert had known since 1986, had previously been a Director of First Republic but had
chosen not to stay on the Advisory Board after the purchase by Merrill Lynch. If the opportunity should happen
to arise, Herbert wanted Barrack and Colony Capital to be prepared to possibly join in a renewed bid for First
Republic Bank. “I was determined to stay near the hoop,” said Herbert.
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Image Credit – Sahajesh Patel
8.8
“You’ve Got Two Weeks”
Though First Republic thought it might not change hands for the moment,
its future was still very uncertain. The First Republic Bank management team tried to ascertain Bank of
America’s intentions. In early September, out of frustration, Herbert flew to New York with no agenda except
to try to engage the decision-makers at Bank of America.
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8.11
Independent Future
At the close of business on June 30th, 2010, it was time to celebrate.
The deal closed and First Republic Bank was a stand-alone entity once again. Parties were held across First
Republic’s footprint, as employees toasted the achievement of regained independence.
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