Private equity firms lining up to acquire First Republic Bank

Private equity firms Carlyle, Blackstone and TGP Capital Partners are among those reported to be in talks to acquire Bank of America's San Francisco-based First Republic Bank, a wealth management firm that services rich individuals.

Bank of America (BofA), which inherited First Republic Bank through the acquisition of Merrill Lynch last September, (See: Bank of America buys Merrill Lynch) is seeking to raise capital after US regulators conducted the bank 'stress test' last month and found that the Charlotte, North Carolina-based Bank of America needed to raise $34 billion in capital (See: Stress test shows BankAm may need $34 billion to stabilise operations).

The stress test results showed that BofA's non-performing assets skyrocketed 41 per cent in the last quarter to $25.74 billion, which forced the bank sell about 5.8 per cent of its stake in China Construction Bank Corp for about $7.3 billion last month, (See: BankAm sells China Construction Bank stake to raise $34 billion) but the capital now needed by BofA could exceed what the bank can raise by selling assets or more shares to the public. 

According to analysts, due to the tight credit market, Bank of America may be able to get about $700 million although Merrill Lynch had acquired First Republic Bank in 2007 for $1.8 billion.

According to media reports, the private equity firms may join hands with chairman of First Republic, James Hebert in acquiring the bank.

After banks around the globe lost nearly $1.5 billion in loans and security losses in the past two years and will need to write down about $2.6 trillion more in the coming months, (See: Bank write-downs to touch $4.1 trillion, says IMF) private equity and buyout firms have moved in for the kill and invested more than $1 billion in US banks, whose value has eroded in the aftermath of the global financial turmoil.

Private equity firms have already acquired IndyMac of California, Coral Gables, Florida-based BankUnited Financial and San Francisco-based Barclays Global Investors.

US-based private equity group BlackRock acquired Barclays Global Investors this week for $13.5 billion while Blackstone and Carlyle acquired the FDIC seized BankUnited Financial for $900 million last month.