Barrack Seeks $1.3 Billion Profit From First Republic Bank Public Offering

Colony Capital LLC and General Atlantic LLC, the private-equity firms that led the buyout of First Republic Bank five months ago, may post a paper gain of 70 percent when the bank completes a planned initial public offering.

First Republic’s equity would be valued at $3.27 billion if the San Francisco-based bank sells shares at $25.50 each, the midpoint of the proposed range, according to calculations based on government filings. Excluding the value of new shares to be issued, that’s $1.3 billion more than Los Angeles-based Colony, General Atlantic LLC and co-investors paid for the bank in July, when they spent $15 a share on average.

By targeting a profitable bank, First Republic’s owners may reap returns sooner than competitors who focused on struggling lenders. Colony Capital head Thomas Barrack, a First Republic client and former board member, last year recruited co-investors including General Atlantic and billionaire Eli Broad to complete the buyout from Bank of America Corp. after private-equity firms Carlyle Group and TPG Capital failed to make a deal.

“They bought a bank with a great track record at an attractive price and reconstituted a successful franchise,” said Chip McDonald, a partner with Jones Day in Atlanta. “That’s unlike many other private-equity deals, which focused on turnaround situations that may not have panned out yet.”

Bank of America, which received $45 billion in U.S. rescue funds, inherited First Republic when it took over Merrill Lynch in 2008. It opted to sell the bank after determining it wasn’t a core business, given its existing U.S. Trust wealth management arm, the bank said at the time. The timing of the sale, announced in October 2009, caused Bank of America to miss out on gains as markets recovered.

Paper Profit

Any profit for Colony, General Atlantic and the other First Republic owners will be mostly on paper for now. The firms are selling only a small portion of their stakes in the IPO, which is scheduled to price next week, according to data compiled by Bloomberg.

First Republic is testing a public market that’s had mixed reactions to private-equity backed companies. While companies including Booz Allen Hamilton Holding Corp. and LPL Investment Holdings Inc. have gained after their IPOs, Caesars Entertainment Inc. pulled its IPO, citing market demand.

Colony and General Atlantic plan to each sell about 1.67 million shares in the IPO, according to the filing. That will leave each firm with 25.4 million shares, or 19.8 percent of the shares outstanding each.

BankUnited

“We are global growth investors with a long-term horizon,” General Atlantic spokeswoman Patricia Hedley said. Colony spokesman Owen Blicksilver declined to comment, as did Bank of America spokesman Robert Stickler.

First Republic differs from other bank deals in that it was a relatively healthy bank bought without financial help from the Federal Deposit Insurance Corp. or any other federal agency. The bank has been profitable for 25 years, according to its filings.

Other private-equity buyouts of struggling banks have yet to show definitive results. Flagstar Bancorp Inc., which was rescued in 2009 by MatlinPatterson Global Advisors, on Nov. 2 said it had completed share sales totaling $400 million. That’s at least the second time it’s sought additional capital since the takeover.

BankUnited Inc., bought with FDIC assistance by investors including Blackstone Group LP and Carlyle in 2009, filed for its own IPO last month. The underwriters haven’t set a price range for the offering, which may raise as much as $300 million, according to government filings.

IndyMac, renamed OneWest Bank FSB, after it was seized by the FDIC in 2008 and sold to investors including J. Christopher Flowers, has since been used by regulators to absorb other California lenders.

-- Editors: Christian Baumgaertel, Larry Edelman.

To contact the reporters on this story: Jason Kelly in New York at Jkelly14@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net.

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; David Scheer at dscheer@bloomberg.net

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