BEVERLY HILLS - Russell Goldsmith is not shy about setting lofty goals.
The self-assured chairman and chief executive officer at City National Corp., Mr. Goldsmith has made it clear that he wants City National to be nothing less than the "premier private and business bank in California."
To that end, the $8.8 billion-asset company has been actively courting fast-growing technology businesses and the millionaires who run them. Last month it opened its first branch in Silicon Valley, and since spring it has been beefing up its private banking operations by adding three new offices.
"We're not really aiming to be a mammoth retail bank - we're not in supermarkets, we don't have thousands of branches, and we're not equipped to be the primary bank for Fortune 500 companies," Mr. Goldsmith said in an interview here. "Instead, we're focused on entrepreneurial companies. We want to establish a relationship with both the company and the individuals who run the company."
Where better to do that than Silicon Valley?
Though $5.2 billion-asset Silicon Valley Bank of Santa Clara, Calif. and $7 billion-asset Imperial Bank of Inglewood, Calif. are well-established in the nation's technology epicenter, Mr. Goldsmith said there's enough business to go around for City National to snag a "reasonable" share. He also expects City National will set itself apart by offering private banking services to executives in the high-tech industry. "We believe we can distinguish ourselves by offering our clients a broader range of services, such as cash management, trust management, and investment services."
In business since 1954, City National is well known in the Los Angeles area for catering to high-net-worth individuals, as well as bankrolling many film and television projects. Over the last several years it has expanded out of Los Angeles County into other parts of Southern California, and in March it broke into the San Francisco market by purchasing $728 million-asset Pacific Bank.
Its strategy is paying off. City National had record third-quarter net income of $34.2 million, or 70 cents a share, up 22%. It was the 25th straight quarter of double-digit income growth for City National.
Despite its earnings success, the company's stock has fluctuated wildly; it went from a high of $41.44 in November to a low of $25.50 March 7. It closed at $32.5625 midday Thursday.
Some analysts consider the stock overpriced.
Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods Inc. in New York, rates it "market perform," synonymous with "hold."
"They have an enviable franchise in the Los Angeles market and now a secondary market in San Francisco, and we like their growth prospects," Mr. Theurkauf said. "It's just more of a valuation call - it remains a bit more expensive than the average bank we cover." But others say that City National's stock is worth the price and are recommending it to investors.
"We think the 'buy' rating for City National is well deserved, because of their earnings and growth," said Anthony Polini, an analyst with Advest Inc. in New York. "They also have a strong management team, which is probably still the ace at City National."
Mr. Polini stops short of classifying City National as "strong buy," however; no bank deserves that rating in the current climate, he says. After the economic cycle peaks - and he believes it has peaked - credit quality issues tend to magnify and revenue growth slows for the industry as a whole, he said.
"At this point in the cycle," Mr. Polini said, "it's not the best of times fundamentally for banks. You have to be an exceptional bank to have a 'buy' rating, when we have only a 'so-so' rating for the industry."
City National is counting on its expansion of private banking services to keep the momentum going.
California has the sixth-largest economy in the world - Southern California alone has the 11th-largest - and a constantly growing millionaire population, Mr. Goldsmith contends.
Accordingly, City National has added three private banking offices to its offices in Los Angeles, San Diego, Riverside, and Orange counties. In March it hired away four veteran private bankers from Union Bank of California to start a private banking group in San Francisco. In September it opened a center in Long Beach, with a satellite office near the Los Angeles International Airport and another in Palo Alto, recruiting a former Comerica Bank executive to be as senior vice president and manager.
City National has also rolled out additional online services.
In May it unveiled a private Web site, inside@cnb, that provides updates to select high-net-worth customers, along with news and commentary tailored to individual customers' business interests. And in June it created City National Securities, a discount brokerage subsidiary with online services. Mr. Goldsmith said the parent company's online cash management services should be operational.
