City National Corp. (CYN), banker to Frank Sinatra and Arnold Schwarzenegger, will open its first street-level branches in New York to gain visibility in the city where many of its Hollywood clients work and live.
The first of two branches will open in June, including one in the city’s Midtown theater district, Chief Executive Officer Russell Goldsmith said in an interview in Bloomberg’s Los Angeles office.
The expansion is part of a long-term strategy by the bank to follow its customers, especially wealthy individuals and business clients in entertainment. City National opened branches in Atlanta and Nashville in the past two years to target music producers, talent agencies and law firms. In the past four years, the industry has been its fastest-growing source of deposits, climbing 36 percent, the bank said.
“This isn’t an army that has to march across the ground,” Goldsmith said. “We can cherrypick places based on where our clients are.”
Net income at City National rose 21 percent to $208 million last year, the 20th straight year of profitability. Assets have grown 73 percent to $28.6 billion from $16.5 billion in 2008, making it the 23rd largest publicly traded U.S. commercial bank, according to SNL Financial.
Loans at Los Angeles’ largest bank climbed 15 percent to $15.8 billion in the fourth quarter from a year earlier, according to company filings. That compares with 6.8 percent at smaller U.S. banks, which boosted loans to $2.38 trillion, according to the Federal Reserve.
“City National continues to experience meaningful loan growth,” Paul Miller, an FBR Capital Markets Corp. analyst, wrote in a Feb. 5 report. The bank’s “organic growth prospects remain encouraging.”
City National, founded in 1954, has long focused on a show- business clientele. It provided a $100,000 loan to Sinatra when he needed to pay a ransom after his son was kidnapped in 1963. The bank also lent $4.5 million to Schwarzenegger to fund his first gubernatorial campaign in 2003. Goldsmith, 63, followed in his father’s steps at the bank after running Republic Pictures Corp. from 1986 to 1994.
The company first made inroads into New York a decade ago with five people in an upstairs Midtown office, Goldsmith said. The bank set its sites on Broadway, and while it doesn’t finance productions, it provides payroll and cash-management services for shows such as “Book of Mormon” and the recent revival of “Cat on a Hot Tin Roof.” It’s now the largest banker to the theater industry, with about a 50 percent market share, Goldsmith said.
About one-fifth of City National’s business loans are entertainment-related, according to Cary Walker, a spokesman. Mostly they fund professional corporations in the business. While the bank provides film financing, it does so only with backing such as guarantees from foreign distributors or production tax credits.
“We don’t put up money dependent on box office performance,” said Goldsmith. “When you do that, you’re not a bank, you’re a production company.”
City National’s fourth-quarter earnings of 87 cents a share missed the $1 average estimated by 15 analysts, the result of lower interest income, according to Miller. Goldsmith said he’s reluctant to lower his standards to win loans.
“Banks are awash in deposits,” Goldsmith said. “Interest rates are low, margins are under pressure. When you get that situation there’s always someone willing to push a little harder on pricing and terms.”
City National rose 0.2 percent to $57.44 yesterday in New York. The stock has gained 16 percent this year, compared with a 10 percent gain for the S&P Midcap Financials Index.
Goldsmith has been lobbying against a potential change in tax laws that would hurt his wealthy, bi-coastal customers: the elimination of deductions for local levies, which would fall most heavily on high tax states like New York and California.
“I think that would be incredibly unfair and damaging to the U.S. economy,” Goldsmith said. “Politically it’s very attractive for Republicans because the states it would impact would be blue states, states that almost without exception are represented by Democratic senators.”