City National bank chief thrives with niches

Sixteen years ago, Russell Goldsmith was named chief executive of City National Corp., the parent company of a small-business bank with a coveted roster of wealthy clients and a niche market serving a Hollywood clientele.

At age 44, Goldsmith was following in his father's footsteps.

Since then, the bank has grown rapidly. City National Bank has made 19 acquisitions, including three in Las Vegas, since 1995, when Russell Goldsmith took over from his father, Bram.

The bank's assets also have risen from about $3 billion to $23.1 billion at the end of the third quarter. He's also quick to point out that City National has "never lost money in a single quarter for over 18 years."

Today, City National is the largest independent bank headquartered in Los Angeles, where it has been doing business for more than half a century.

That's no small feat in an industry in which banks have been gobbled up by larger competitors or shuttered by the Federal Deposit Insurance Corp. because of losses associated with failed real estate loans.

"People think rightfully, because my dad was CEO of the bank for 20 years, that I grew up in it," he said. "But I didn't. When I was a kid, my dad was in the real estate business."

It was only after he graduated from Harvard Law School in 1975 that his father went from being a director of the bank to being its chief executive. He joined the company's board of directors in 1978.

Goldsmith, who is president and CEO of City National Corp. and CEO and president of its subsidiary City National Bank, recently sat down with the Las Vegas Review-Journal to discuss his career, company projects and new banking regulations implemented after the recession.

At 60, he still sits firmly in the chairman's seat of a publicly traded company that his family holds a minority stake in and that generated $41.4 million, or 77 cents a share, in net income in the third quarter.

That was a 20 percent jump from net income of $34.4 million, or 65 cents per share, in the third quarter of 2010.

"I really don't think of a time horizon," Goldsmith said when asked if he was thinking about retirement. "I'm sure that if you asked me 16 years ago if I would still be doing this 16 years later, I would have said, 'Who the heck knows?' "

City National has managed to thrive by concentrating on niche industries, notably entertainment and real estate. In recent years, the bank has developed expertise in other businesses, and now supplies financial services to apparel manufacturers, law firms and medical practices, among others.

The total loan portfolio -- which includes commercial loans, real estate loans and residential first mortgages, and real estate construction and installment loans -- now stands at $12.2 billion.

City National has aggressively targeted small and midsized business in Nevada and the other states in which it operates. Goldsmith described those companies as businesses with $2 million to $200 million in annual revenue.

"Entertainment has been our focus," he said. "Twenty percent of the bank revolves around the entertainment business. That's a whole division that works to provide both private and commercial banking services to one industry."

Goldsmith said the bank understands how to finance a movie or finance a music publishing catalog. He said the company has staff in offices in Las Vegas; New York; Beverly Hills, Calif.; and Burbank, Calif.; that specialize in entertainment financing.

City National is even looking to strike up a tune with the Nashville, Tenn., music scene.

"We just opened in Nashville," he said. "That's because of the music business. The two places our clients were saying you need to be was in Nashville and Atlanta."

The bank's Atlanta office was expected to open by year's end, he said.

Perhaps more important, throughout Goldsmith's tenure, City National has been savvy enough to find the right acquisition at the right time.

The company expanded to Nevada in 2007 with its purchase of Business Bank Corp.

"People don't realize that City National had been doing business in Nevada for a number of years before our acquisition of Business Bank," Goldsmith said. "We didn't have an office, but we had clients here who were doing business with us on projects in Southern Nevada."

In retrospect, Goldsmith said nobody thought Nevada's economy would be as hard-hit as it was. But with adversity came opportunity for City National to expand its brand in the Silver State.

"We felt (the economy) was frothy in 2008, but very few people thought it would crumble as severely as it did," he said. "So the opportunity that came out of this terrible recession was failed banks taken over by the FDIC."

Since May 2010, City National has acquired Sun West Bank and Nevada Commerce Bank through deals with the FDIC.

"Because City National is well capitalized ... we could take over those banks and absorb them into the infrastructure of City National Bank of Nevada," he said.

Since 2008, Goldsmith said, the bank has been fortunate to increase both its client and loan numbers in Nevada.

Through these acquisitions and its own efforts, he said, the third quarter was the biggest quarter for net new loans in the bank's history. The bank generated $500 million.

Following two quarters with no provision, the company set aside $7.5 million for loan and lease loss provisions in the third quarter. As of Sept. 30, City National's allowance for loan and lease losses totaled $263.3 million.

"Obviously, we've had problem loans," he said. "Anybody in real estate in Southern Nevada would have had issues as you would expect. But through our acquisitions and our own efforts, we are actively out there looking for loan opportunities."

As for new acquisitions, Goldsmith said he believed the company was the right size. But like most banking executives, he wouldn't turn down a deal if it would add to the company's bottom line.

"We always have our eyes open for acquisitions that might fit our standards," he said. "We talk about it. But, a potential acquisition has to meet three criteria. They are fit, focus and price."

City National Bank now operates 78 branches with 3,300 employees in four states.

Quietly, City National has entered the gaming business. The bank's latest investment was as a partner in the purchase of Aliante Station in North Las Vegas.

City National and Bank of America Corp., along with seven other banks and three private equity firms, bought the troubled property in a bankruptcy proceeding from Station Casinos LLC. Station manages the property, according to a deal approved by state gaming regulators.

He declined to discuss other investments in gaming companies.

"We've participated in some other deals, but the past few years have been particularly challenging," Goldsmith said. "We believe in the gaming industry. We have some loans in the industry and we are looking to grow those."

It's no secret that Goldsmith is on the board of directors of Wynn Resorts Ltd.

"Before I first started dating my wife (Karen), her father, Jerry (Jerome) Mack, along with Perry Thomas, were two of the people closest to Steve in Las Vegas," he said. "That was in the late 1970s. I remember meeting Steve even before I was married. We've been friends for all that time."

Goldsmith said Wynn first approached him a few years ago after one of his directors resigned.

"I was flattered he thought I could add something to his successful company," he said.

Goldsmith said his tenure on the Wynn board has involved more than just gaming.

"In the time I've been on the board, they've opened Encore. So it was fascinating to walk through a construction site with Steve and learn how he makes decisions," he said. "I've also been to Macau a couple of times to get an understanding of the property."

Splitting his time between City National and his other commitments is nothing new.

Besides being on the board of Wynn Resorts, Goldsmith is chairman of the Los Angeles Coalition for the Economy and Jobs, is a trustee of the Harvard-Westlake School in Los Angeles and is a member of the Council on Foreign Relations.

He's also finishing his fourth year on the Federal Reserve Board's 12-member Federal Advisory Council, representing the 12th District of the Federal Reserve. The 12th District, which is based in San Francisco, includes Nevada.

"I'm the vice president of the council," he said. "This is my last year. I'm termed out after four years. The normal term is three years, but I got an extension, which I'm grateful for."

Michael Shepherd, chairman and chief executive officer of Bank of the West and BancWest Corp., has been appointed to replace Goldsmith on the council in January.

Goldsmith said most people don't know about the Fed's advisory council.

"Each district on the council is usually represented by a bank CEO," he said. "So every quarter for almost four years, I've gone to D.C. with 11 other people to meet with the board of governors of the Federal Reserve."

He said it's an opportunity to discuss issues ranging from the economy to regulations.

"Over the years there has been a tradition of off-the-record meetings with key figures in the government," he said. "I think it's a terrific way for policymakers ... to get some real-world input."

Goldsmith, who has also served as a board member of the Los Angeles branch of the Federal Reserve, said a new rule designed to rein in risky trading by firms whose customers are federally insured wasn't expected to affect City National.

"We are not operating a trading desk," he said. "There is a lot of confusion between what an investment bank does and a megabank does. In other words, the biggest three or four banks ran trading desks where a lot of their income was derived from trading revenue which injects a level of volatility and risk."

He said that volatility and risk is what the Volcker rule is trying to reduce. The proposed rule, which is named for former Federal Reserve Chairman Paul Volcker and is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, limits banks from engaging in proprietary trading that isn't in a client's best interests, or from owning or investing in a hedge fund or private equity fund.

While the final rule hasn't been implemented, Goldsmith said he was concerned that a cap on how much banks can invest in private equity funds would affect the profitability of City National and its clients.

"We invest through some of our clients who are private equity firms who are in turn investing in portfolio companies," he said. "Typically, these are young or emerging companies that are investing to grow their business and create jobs."

He worries about the banking industry struggling to implement the final rules.

"I worry about overregulation," he said. "Not every bank CEO would agree with me, but I think we do need some additional regulation. But I worry about the pendulum swinging too far in the wrong direction."

When asked about the Occupy Wall Street protests that have grown from a few citizens to rallies worldwide, Goldsmith said he could understand their frustration.

"People are not happy that there are high levels of unemployment and that the economy is not doing very well," he said. "I understand it. Believe me, when you run a bank, you get it."

But at this point, Goldsmith argued, it's not about blaming anybody.

"We should be honest with ourselves. As a country, we were on credit steroids," he said. "It was a bubble. Its collapse is not the fault of any one person or any one (industry) segment."

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.