Republic New York Corporation

views updated

Republic New York Corporation

452 Fifth Avenue
New York, New York 10018
U.S.A.
(212) 525-6100
Fax: (212) 525-5569

Public Company
Incorporated: 1973
Employees: 4,900
Total Assets: $39.49 billion
Stock Exchanges: New York
SIC(s) : 6712 Bank Holding Companies; 6021 National
Commercial Banks; 6036 Savings Institutions Except
Federal

Republic New York Corporation is a bank holding company for nationally chartered commercial banks and state-chartered savings banks, focusing its services in the areas of international private banking, retail banking, institutional banking, and domestic private banking. The corporation’s principal subsidiary, Republic National Bank of New York, is one of the 15 largest banks in the United States, as ranked by shareholder equity, and has consistently been ranked by financial publications and analysts as one of the safest and most creditworthy banks in the world. Through Republic National Bank of New York and Republic New York’s other major domestic banking subsidiary, Republic Bank of Savings, the corporation has more than 65 domestic bank branches and one of the largest retailing banking operations in the New York City area. Republic New York also has dozens of foreign offices and affiliates in North America, South America, Europe, the Middle East, and Asia and, as a licensed depository for four currency exchanges, operates one of the world’s largest gold trading houses.

Republic New York Corporation traces its heritage to the 1966 formation of the Republic National Bank of New York, founded by Edmond Safra. Safra’s family had a century-long tradition of leading conservative, international banking operations, having begun their banking operations during the Ottoman empire in the ancient town of Aleppo, Syria, where they traded precious metals and helped finance Middle East caravans. After the collapse of the empire following World War I, Safra’s father moved his family to Beirut, Lebanon, where Edmond Safra was born. Following the establishment of Israel during the late 1940s, anti-Semitic riots swept through Beirut, and Edmond Safra—who never attended college—established a banking business in Italy, before moving his base to Sao Paulo, Brazil, a major refuge port for Aleppo Jews in flight from Syria. At the age of 24, in 1956, Safra established what would become known as the Geneva-based Trade Development Bank (TDB), which began providing private banking services to the wealthy fleeing the Middle East and soon flourished. In 1962, Safra sold his Brazilian bank to his brothers, and, two years later, he began organizing the Republic National Bank of New York, using the assets of his Geneva bank for financing.

On January 24, 1966, Senator Robert F. Kennedy officially opened the Republic National Bank during a ribbon-cutting ceremony at the bank’s 18-story headquarters in the Knox Building on Manhattan’s Fifth Avenue. The bank opened with what was the highest initial capitalization of any bank in the United States to date—$11 million—and 560 private shareholders from more than 30 states and a dozen countries. Safra was the bank’s principal shareholder and was named its honorary chairperson. Peter White, a seasoned banker from Manufacturers Hanover Trust Company, became president, and well-known labor mediator Theodore W. Kneel was named chairperson. Like TDB (which initially acquired a 36 percent stake in the New York bank), Republic National Bank began operations with an emphasis on international banking and a targeted customer base that included foreign companies and domestic firms engaged in international trade. During its first month of operations, Republic National set a record for a New York City commercial bank, opening 20,000 accounts.

While maintaining the Safra family tradition of conservative risk-adverse banking, which thrives on a loyal customer base, during the late 1960s and early 1970s, Republic National launched innovative programs designed to boost the domestic side of its operations and attract new depositors. To compete for consumer savings account business, the bank began giving away television sets to its customers who brought in another person to open interest-bearing time savings accounts of $10,000 or more (laws prohibited the bank from giving such gifts in direct exchange to an individual opening an account). The television campaign was an immediate success, bringing in scores of new customers. Moreover, for a time, Republic National was the nation’s leading color television set distributor and became known in New York as the “TV bank.” Encouraged by the success of its television promotions, in 1970 Republic National began offering such gifts as motor bikes, refrigerators, dishwashers, and home entertainment centers as part of a program to attract new customers by way of a product called a Bonus Bond—a four-year certificate of deposit (CD). Rather than collecting interest at the CD’s maturity, depositors received a merchandise gift, which they chose and which varied in value depending on the amount of the initial deposit.

Republic National’s international business also grew during the bank’s first five years, prompting the 1971 opening of its first foreign branch in London, where operations were initially focused on money market accounts, syndicated loans, and time deposits. In 1972, Republic National launched a five-year capital-building program and made an initial public offering of $15 million in convertible capital debentures. In September 1973, Republic New York Corporation (Republic) was established as a one-bank holding company for Republic National, which, in 1974, was merged with the Brooklyn-based Kings Lafayette Bank to create a subsidiary that included 18 former Kings Lafayette branches and expanded Republic National from a Manhattan bank to a city-wide bank with offices in Suffolk County, Queens, and Brooklyn. Kings Lafayette (founded in 1889) also provided Republic National with an established base of depositors and launched Republic National’s commercial services by adding installment loan, mortgage, and trust departments to the expanded bank’s activities.

Like previous Safra-family banks, Republic National was also involved in precious metals trading. It was the first American bank to be granted a license to sell gold for industrial purposes, becoming the largest seller of gold bullion to industry after the U.S. government stopped the practice of selling gold in 1968. In 1974, after the U.S. Treasury lifted the 41-year-old ban on private ownership of gold, Republic soon became the nation’s leading importer of gold coins and profited from gold trading by capitalizing on the spread between bidding and asking prices for the gold it imported, housed, and sold to such customers as Wall Street commodities traders and Manhattan jewelers.

By the close of 1974, Republic National was the 100th largest bank in the United States and had assets of $1.1 billion and annual earnings of $13.5 million. In March 1975, Republic acquired American Swiss Credit Company, Ltd.—a former Franklin National Bank unit and a prominent international finance firm specializing in international loans—from the Federal Deposit Insurance Corporation (FDIC), the liquidator of the collapsed Franklin National. The acquisition of American Swiss represented a major step in Republic’s history: it raised Republic National’s annual revenues to more than $100 million, increasing shareholder equity to a level that allowed the bank to begin selling large denomination negotiable CDs on a regular basis.

In 1975, Kneel resigned as chair and was succeeded by White, who also continued serving as president until his retirement four years later. During the mid-1970s, Republic’s assets, capital, and number of bank branches continued to grow, and the company rose quickly on the list of the nation’s 100 largest banks. By the end of 1975, Republic was the 75th largest bank in the country.

In 1977, Republic—in the company’s first issue of nonconver-tible public debt—sold $50 million worth of preferred stock to an even mix of retail and institutional buyers, representing one of the first times institutional customers purchased preferred stock on such a large scale. The sale of preferred stock, coupled with a sale that year of $35 million in long-term debentures, helped the company complete its five-year plan to bring Republic National’s capital to over $250 million.

Between 1977 and 1978, Republic expanded its client base by opening an office in Tokyo and creating the Miami-based subsidiary, Republic International Bank of New York, targeting a Latin American customer base. In 1977, Republic also broadened the scope of its business client services with the establishment of the subsidiary Republic Factors Corporation, created to offer corporate customers financing, collection and bookkeeping, data processing, and counseling services. Republic Factors helped Republic New York Corporation break into the middle market of retail banking and broaden the company’s asset base while also serving as a source of referrals for banking operations. Beginning with a two-employee operation headed by Louis Moskowitz, whose book Modern Factoring and Commercial Finance was published by Dun & Bradstreet the year the subsidiary was created, Republic Factors, without the use of acquisitions, grew in less than two decades into the fifth largest concern of its kind in the United States.

Between 1979 and 1981, John A. Waage served as Republic chairperson before retiring and being replaced by Moskowitz. In 1980, Walter H. Weiner, Safra’s attorney, was named president of the corporation, and, by 1981, he had also assumed the duties of Republic National Bank president. During this time, in 1980, Republic New York was listed on the New York Stock Exchange and made three public offerings—increasing its equity capital by selling $26 million worth of common stock, $25 million in preferred stock, and $75 million in sinking fund debentures—in order to support future expansion of the corporation. Also that year, the company expanded its branch network to 32 with the opening of a new branch in Manhattan’s World Trade Center and the acquisition of a dozen Bankers Trust Company branches—ten in Manhattan, one in the Bronx, and one in Brooklyn—with the Bankers Trust branches holding a total of $130 million in deposits. In 1980, the company also expanded its banking opportunities on the West Coast and in the Far East with the establishment of a California subsidiary, Republic International Bank of New York.

Despite general economic instability, Republic’s earnings, assets, and capital continued to grow during the early 1980s—largely because of a growth in interest income, an expanding spread in the volume of interest-earning assets, and a sizable increase in income generated from precious metals trading. By 1982, Republic National was the 25th largest bank in the country, and the following year the bank’s assets topped $10 billion.

During the early 1980s, following the lifting of interest rate ceilings and the easing of banking regulations in the United States, Republic found itself in a more competitive financial market and responded with a family of money market products designed to compete with the services of both regulated and nonregulated financial businesses and institutions. One of the more successful of these products was Republic’s Money Market 100 Account, requiring an initial $100,000 deposit while offering daily interest at money market rates and allowing depositors to borrow money from their own funds.

In 1983, investment banker Jeffrey C. Keil was named president of Republic New York. That year Safra—in what the Lebanese banker later told Business Week was his biggest mistake ever—sold his Trade Development Bank to the international banking unit of American Express, which was looking to capitalize on Safra’s name and contacts and become a major player in private banking. Selling TDB for $520 million in cash and stock, Safra became the largest stockholder of American Express in a deal in which he also agreed to a five-year non-competition clause with that company. Known as a private man, Safra’s style did not fit well with the bureaucracy of American Express, and the banker also became frustrated that that company’s money-losing insurance company, Fireman’s Fund, was quickly depreciating the value of his stock. In late 1984, Safra severed his short partnership with American Express and the following year sold his stock, which had plummeted $135 million in value since 1983. As part of a departure agreement, Safra bought back TDB’s French operations and London-based banknote business, which were soon integrated into the Republic domain.

Building on those London and French operations and Safra’s desire to become reinvolved in overseas international private banking, Republic began significantly expanding its London branch and private banking operations in other European locations. In 1984, the London branch assumed the former TDB banknote business and added private banking, bond trading, securities trading, options trading, and foreign exchange and currency swaps to its line of services and also began trading in precious metals. By 1986, Republic had also established foreign subsidiaries in France, Luxembourg, Gibraltar, and Guernsey, focusing on international banking products and funds placement and personal account services.

During the early 1980s, Republic became one of the first banking companies to take a conservative stance toward ongoing credit loans (initially made to Latin American countries during the early 1970s), as a debt crisis began to spread through that region in the 1980s. After Republic National began reducing its exposure to loan losses in Latin America by refusing to renew loans or broaden credit lines to the small group of banks, governments, and government agencies to which it had extended loans, Republic began placing Latin American loans on non-accrual status (logging interest only after cash payments were received), signalling its more cautious attitude about loan repayment. The company also began setting aside larger loan-loss reserves and in 1986—in moves to reduce its exposure to Latin American losses—began selling portions of its portfolio of Latin American loans.

In 1986, Republic created a management team that would lead it into the following decade: Weiner was named chairperson of the corporation, succeeding Moskowitz, and Israeli-born Dov C. Schlein was named president of Republic Bank of New York, while Keil remained corporation president. In 1987, Republic acquired The Williamsburg Savings Bank with 13 branches, expanding the company’s domestic operations to a 43-branch network and broadening its geographic coverage of the greater New York City area. After acquiring Williamsburg Savings, which brought $1.4 billion in mortgages and $2.2 billion in deposits to the company, Republic added new financial products targeting business and professional clients to Williamsburg Savings operations and infused $200 million in capital to the acquired bank, prompting Standard & Poor’s to give Williamsburgh Savings the highest rating of any savings bank in the country.

Operating nine banking subsidiaries outside the United States in 1987, Republic registered to open a Swiss banking subsidiary the following year when Safra’s non-competition clause with American Express expired. During this time, Safra was gearing up to start Republic National Bank of New York (Suisse) S.A., and 20 TDB executives left American Express to rejoin the Safra fold. Believing Safra might have broken his non-competition agreement, American Express personnel—in what evolved into a smear campaign—began collecting information on Safra, trying to determine if the agreement had been broken and, if so, to what extent. American Express, in a futile attempt, also protested the formation of the new Safra Swiss subsidiary, which began operations in 1988.

In a larger restructuring of its European operations and expansion of its international private banking business, in 1988 Republic and Safra began preparing for the 1992 lifting of European Economic Community trade restrictions and organized a new Geneva-based holding company, Safra Holdings S.A. Ed-mond Safra became the chairperson and largest stockholder of the new corporation, while Republic, in exchange for its subsidiaries in Switzerland, Luxembourg, France, Guernsey and Gibraltar, received a 48.8 percent interest in Safra Holdings. Through an international offering of $500 million in shares—the largest in Republic’s history and ironically led by Shearson-Lehman Hutton Inc., an investment bank 60 percent owned by American Express—the offering created a broad international shareholder base, raised public awareness of Republic’s worldwide operations, and gave Republic the size and geographic diversity to compete for growing European business without forfeiting capital or diluting Republic’s public stock.

By 1989, international newspapers had picked up on rumors spread by American Express personnel about Safra, including attempts to link the Lebanese banker to money laundering, drug smuggling, and illicit arms trading. Safra responded by hiring Stanley S. Arkin to investigate the origin of the smear campaign, and, by March 1989, Safra was convinced that the snowballing rumors had begun at American Express. Safra complained to American Express chairperson James D. Robinson III, who later apologized for a “shameful” and “baseless” campaign to discredit Safra’s name (though not noting specifically where the rumors originated from) and agreed to donate $8 million to four of Safra’s favorite charities in attempts to make amends.

In 1990, Republic acquired the 140-year-old Manhattan Savings Bank with 17 branches in New York City and Westchester County, New York, and $2.8 billion in deposits and $3.1 billion in assets. Manhattan Savings and Williamsburgh Savings were then merged into a single Republic subsidiary operating under the Manhattan Savings name (renamed Republic Bank for Savings in 1993), creating New York’s fifth largest savings bank with assets of about $6 million from two formerly troubled financial institutions. In 1992, Republic expanded its retail banking operations with the acquisition of $678 million worth of FDIC-insured deposits in seven American Savings Bank branches (with those operations consolidated into four Republic branches) and also acquired Manhattan Savings Bank through a merger with the ten-branch SafraBank, N.A. Miami, which expanded Republic’s operations into Florida and added $250 million in deposits to Manhattan Savings assets.

In the early 1990s, after increasing its retail deposit business with acquisitions, Republic began developing a line of fee-based investment products for retail customers and wealthy individuals in order to: fend off competitors targeting its customers, compensate for low interest rates squeezing the spread between what Republic paid customers and what it earned on investments, and attract “new” money customers as well as heirs to old world money seeking higher returns on their deposits. In late 1991, Republic, preparing to start a securities business, tapped former Shearson Lehman Brothers executive Louis Lloyd (who had left during a management shakeup at its parent American Express) to write a business plan for and serve as president and chief executive of Republic New York Securities Corporation. In 1992, Republic hired the former Shearson Lehman president Peter A. Cohen (who, like Lloyd, was ousted in an American Express management reorganization) to serve as chairperson of the new subsidiary Republic Securities, which began operations in November of that year. Republic Securities offered full-service brokerage, securities lending, and prime brokerage services for hedge funds (unregulated, private partnerships for the very wealthy and a fast growing Wall Street business) and securities credit products for wealthy individuals and institutional clients.

Cohen was also put in charge of another sister startup, Republic Asset Management Corporation, which began offering asset management services for wealthy private banking customers, retail depositors, and corporations in 1993. Early that year, Republic hired an experienced group of swaps and derivative products professionals so the company could begin dealing in those fee-based areas and foreign exchange trading; by mid-1993, an equity research group and retail sales unit for fee-based services was created. In November 1993, Republic Securities hired Lee Hennessee, a former Smith Barney Shearson consultant known for her expertise in hedge fund management, to run the new Republic Hedge Fund Select Group targeting wealthy individuals and institutions seeking help selecting hedge fund managers. In a unique brokerage service, Hennessee began creating investment manager portfolios for wealthy clients and matching hedge funds with potential clients with at least $10 million to invest.

In 1993, Republic acquired a $259 million-deposit branch from the Greater New York Savings Bank. That year, the corporation acquired SafraCorp California and its subsidiary (renamed Republic Bank California N.A.), a private banking services operation in Southern California. During late 1993, Republic hired Leslie E. Bains as executive vice-president in charge of a new division focusing on banking, trust custody, and investments for wealthy individuals. The corporation took a major step into the domestic private banking and global trust arenas, with domestic banking operations already in place to build on in three of the four principal markets for such services: Los Angeles, Miami, and New York.

Internationally, Republic made two key moves in 1993 to benefit from the North American Free Trade Agreement: it applied to establish a bank subsidiary in Mexico and acquired the financially troubled Bank Leumi of Canada, giving the company an entrance into the Toronto market and additional customers in Montreal. Later that year, Republic also acquired Citibank’s World Banknote Services operations involved in the shipment of American dollars to and from banks worldwide, and Mase Westpac Limited (renamed Republic Mase Bank Limited), an authorized gold bullion bank and a member of the London Gold Fixing, which twice daily established benchmark prices for gold. The acquisition of Mase Bank, with offices around the world, expanded Republic’s role as a world leader in precious metals, giving Republic’s clients the ability to trade gold 24 hours a day and thereby substantially boosting Republic’s gold dealing business for hedge funds and commodity traders.

Republic New York entered 1994 as the 13th largest bank in the United States. Early that year, Republic Securities received clearance from the Federal Reserve System to begin dealing in all forms of debt and equity securities. By April 1994, Republic Securities was profitable, having become prime broker for 15 hedge-fund managers running nearly 50 hedge funds while the subsidiary’s balance sheet had in one year increased from an initial capitalization of $100 million to $1.9 billion. However, in a retrenchment move designed to reduce hedge fund financing, Republic Securities also began scaling back its activities and shutting down higher-risk products to focus on the company’s bank client base, resulting in a demotion of Lloyd, who lost his Republic Securities chief executive title, and coinciding with the resignation of Cohen, who left Republic to start his own securities firm.

Republic moved into the mid-1990s expecting domestic private banking to pick up the slack left by reduced securities operations, which was redirected to become an arm of domestic banking operations. Targeting entrepreneurs who had accumulated large financial resources—those with at least $2 to $5 million in assets—Republic was counting on domestic private banking growth from four main products: lending, custody, trust and estates, and investment management services (including advisor or intermediary fee services to investors in search of hedge funds).

Republic expected domestic private banking to eventually provide the company with about one-fourth of its business. In the evolving financial marketplace, Republic’s mission would be expanded from not only protecting depositors’ funds, but to also include protecting their clients’ capital and broadening their capital-earning potential through fee-based services. By moving from strictly banking to more fee-based operations providing higher returns than traditional banking services, Republic expected to earn dividends from such things as brokerage services for all of its client bases, foreign exchange funds for institutional and international private banking clients, and CDs for retail clients. Moreover, despite its expanded line of financial products and services, Republic still believed its customer-oriented philosophy would help distinguish it from other competitors, which had grown to include both financial institutions as well as brokerage firms and money managers. That philosophy, nurtured by Safra, had resulted in some powerful assets as well as significant dividends for the company’s founder, who had become a billionaire. As noted in a March 1994 Business Week article, “no other major U.S. bank [had] so overpowering a capital position or so razor-thin a cost structure. And few approach [ed] its stellar share-price performance over the long term…. [And] no other major banker since the era of the Morgans and Rockefellers has been so successful as an entrepreneur—perhaps because none has quite so direct a stake in his bank.”

Principal Subsidiaries

Republic National Bank of New York; Republic Bank for Savings; Republic Bank California N.A.; Republic Asset Management Corporation; Republic Factors Corp.; Republic Information and Communications Services, Inc.; Republic New York Mortgage Corporation; Republic New York Securities Corporation; Republic New York Trust Company of Florida, National Association; Republic National Bank of New York International Limited (Gibraltar); Republic National Bank of New York (Cayman) Limited; Republic National Bank of New York (Canada); Republic National Bank of New York (Singapore) Ltd.; Republic New York (U.K.) Limited; Republic National Bank of New York (Uruguay) S.A.; Republic International Bank of New York; Republic Mase Bank Limited; Republic New York Investment Corporation; Republic Overseas Banks Holding Corporation; Safra Republic Holdings S.A. (48.8%).