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HSBC (Hong Kong and Shanghai Banking Corporation) is to buy Republic New York Corporation and its sister company Safra Republic Holdings for $10.3 billion (£6.3 billion) - its biggest-ever foreign take-over of an American bank.
The deal adds $71 billion to HSBC's $483 billion assets, making it the third largest bank in the world, behind Citigroup and Bank America.
However, Republic is also precisely the type of midsized American bank that analysts expect to be the focus of the next wave of mergers and acquisitions.
Both Republic New York Corporation and Safra Republic Holdings are part of the banking empire of reclusive Edmond Safra, who stands to make about $2.9 billion from the sale. He set up Republic New York Corporation in 1966 as a community bank with 55 employees.
HSBC said late last night that it would issue 88 million new shares at £21 to raise $3 billion towards the cost of the acquisition.
Republic New York Corporation's main business is the Republic National Bank of New York, which has 2 million customers and 83 branches - the third largest network in the city after Citibank and Chase Manhattan. It also has private banking operations in New York, Miami, Los Angeles and Asia. As a result of $191M suffered in Russia, and elsewhere, Republic Bank shares fell to a low of $36 last January, but the price has since doubled. HSBC gained 83 new branches and 2 million customers, giving it 30,000 wealthy international clients world-wide and $56.5 billion under management.
In 1992 HSBC purchased Midland Bank at £3.9 billion. Mr Safra praised HSBC's chairman, Mr Bond, as "One of the very few great global bankers," adding that "I am pleased to entrust to him the banks I dedicated my life to building."
Edmond Safra receives $2.9 billion from the deal which he plans to invest in a charitable foundation.
Edmond Safra, 67 is one of eight children of a Syrian Jewish banker whose ancestors were gold traders in the Ottoman empire. He grew up in Brazil before moving to Geneva, where he launched the private Trade Development Bank.
HISTORICAL NOTE
The Safra banking empire started life as Safra Freres, well over a century ago in the Ottoman empire. The family financed trade between Aleppo, Constantinople (now Istanbul) and Alexandria. When the Ottoman empire came apart, Jacob Safra, a former partner in Safra Freres, set up a separate banking business under his own name in Beirut. With its base in the Lebanon, the Jacob Safra bank became the bank of choice for many of Syria's and Lebanon's rich Sephardic Jewish families, who trusted the Safras to manage their business and personal financial interests with care and discretion.
After the birth of the State of Israel in 1948 the Sephardic Jewish community, originally from Spain and Portugal, but now based in Arab lands, found itself under siege.
Although Beirut remained the centre of banking and commercial activity in the region, the Safra family migrated to Brazil, where Jacob and his son Edmond established a new bank, the Safra SA in Sao Paulo, which eventually changed its name to Banco Safra de Investimento. This bank is run and controlled by Edmond Safra's younger brothers Joseph and Moise, but has no shareholding connection with Republic and its subsidiaries.
In 1972 he used the $40M of capital that he accumulated from dealings in Italy to buy into a small Geneva finance house and, propped up by the assets of his wife, the former Brazilian heiress Lily Monteverdi. The business was eventually to expand and grow into the Trade Development Bank, a large private and trade finance bank, which pulled together the old Middle Eastern clientele of the original Safra family business in the Ottoman empire and Beirut.
As the Trade Development Bank built up its asset management business, becoming one of the most successful private banks of its time, with interests in Geneva, London and New York, it began to attract the attention of bigger players in the financial market, who wanted both the wealthy and exclusive client base and Edmond Safra's skills as a private banker. Sensitive dealings between Mr Safra and his client base among Sephardic merchant and banking families were and are still to this day conducted in a rare Judaeo Arabic script, used only by the Sephardic Middle Eastern communities.
After a bad deal with American Express, Mr Safra set about to recreate his empire under the rubric of Republic National Bank of New York.
Edmond Safra's skill has been to harness the savings of an affluent, scattered and little understood ethnic group. Much has been written of the post-Holocaust era and the dispersion of the Eastern European Jews to Western Europe, the US and Israel. But the rise of Israel as a modern Middle Eastern power led to a second Diaspora among the descendants of those who initially fled the Spanish inquisition in the 15th century - the Sephardic Jews.
Mr Safra, as part of that group, has been able to win their loyalty, gathering 30,000 wealthy investors from the Sephardi Diaspora from not just Syria and Lebanon, where they began, but Iraq and Iran, and the Jewish communities of Latin America. In this very tribal group, which has at times felt politically isolated from more westernised Jews, investing with the Safra bank is a link to both the past and a secure future.
Edmond, an investor alongside the Reichmann family in Canary Wharf, has wanted out for personal reasons. He is believed to be unwell and less able to serve the needs of the community with which his family has dealt for generations.
The risk for his successors, HSBC, is that the high-rolling secretive asset management business it is buying with Republic will be less trusting of an Anglo-Scottish management culture and that clients will gradually repatriate their funds to managers, including other members of the Safra family, whom they have trusted for generations. That would make the price paid by HSBC ($350,000 per client) look extremely steep.
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