James Herbert, II is not well known outside of banking circles, but he is the sixth best paid banker in America and one of the richest. He is certainly among the shrewdest. According to SNL, Herbert made $15.2 million last year, mostly through stock awards. But that is just walking around money for the chief executive of San Francisco-based
The former CEO of San Francisco Bancorp, Herbert founded First Republic in 1985 and grew it steadily for years. Then in 2007 the hard-charging and reckless Stanley O’Neal, chief of Merrill Lynch, who was looking to expand Merrill’s wealth management business, came knocking with an offer to buy publicly-traded First Republic for $1.8 billion, a pricey 44% premium. Herbert took the deal, personally making some nice money, and keeping his job leading First Republic both at Merrill and later Bank of America, which purchased a failing Merrill Lynch in the financial crisis with a push from the government.
Herbert continued to stay on and grow First Republic substantially. First Republic’s banking assets increased to $20 billion, nearly double what they were when Herbert sold First Republic to Merrill Lynch—everything from deposits to wealth-management assets, and employees to regional offices, skyrocketed. In addition, the jumbo mortgage business was starting to sizzle and First Republic was in a perfect position to capitalize. At the same time, Bank of America, of course, had its own huge problems, getting $45 billion in government bailout funds and looking to raise more money any way it could to satisfy regulators and pay back the government.
By 2010 Herbert had cooked up a deal to take First Republic off of a desperate Bank of America’s hands with a $1.86 billion investment, just about the same amount Merrill Lynch had purchased it for. Some of the money invested stayed to help further capitalize First Republic; most of it went to Bank of America. Herbert was backed by billionaire Thomas Barrack’s private equity firm, Colony Capital, and another buyout shop, General Atlantic. Before 2010 was out—a little more than five months after Herbert had led the purchase of First Republic from Bank of America—Herbert took First Republic public again in an IPO that priced at $25.5 a share, valuing the bank at $3.27 billion. The private equity shareholders made nearly a 70% return in some five months and rewarded Herbert with a boatload of stock options carrying an exercise price of $15 a share.
The First Republic deal has been a bonanza for all involved, including Herbert, who has continued to be rewarded with rich stock grants from thankful owners like his private equity firm backers. Shares of First Republic have returned 37.6% since the December 2010 IPO and have held their own this year, up 13% in 2013. Herbert’s stake in the bank is now worth $140 million. The bank is valued at $5 billion. That’s pretty small by Bank of America’s standards, but Herbert now belongs in the same group as the CEOs of the biggest banks in the nation.