City National to Post Loss, Omit Dividend in 3d Quarter
LOS ANGELES -- City National Corp. of Beverly Hills, one of the most consistently profitable banks in the country, said Thursday that it would omit its dividend and report its first quarterly loss ever.
The announcement was evidence of further erosion in California's shaky real estate markets.
City National's stock was pounded on the news, falling $2.375 a share, to $12.125, in late afternoon trading.
The company, which had $4.715 billion in assets as of June 30, will set aside $34.5 million in the third quarter for possible loan losses, almost three times more than in the second quarter.
The provision will result in a loss for the third quarter and first nine months of the year, the announcement said.
Earnings Off 62%
In the first six months of 1991, City National earned $10.7 million, which was off 62% from year-earlier net income of $27.9 million. It took a $29-million loan-loss provision in the first six months.
The company's quarterly provision has historically been about $4.5 million.
Chairman and chief executive officer Bram Goldsmith declined to make an earnings prediction for the year but indicated it would be close to break-even. Problem assets should peak in the third or fourth quarter, Mr. Goldsmith said in an interview.
"We are being very prudent with this provision and dividend action," he added. "We are concerned about the economy. We are not seeing daylight yet."
City National's announcement said its board decided to omit the 16-cent dividend in the third quarter because it has had a longstanding policy of paying 35% of its earnings in dividends.
"These are very savvy, smart executives," said Kathleen Smythe, bank analyst at Montgomery Securities, San Francisco. "They are trying to be aggressive and get these problems behind them."
City National traditionally has been very profitable, averaging a 1.14% return on assets over the past 10 years.
Mr. Goldsmith said most of City National's problems center in its real estate portfolio which totals about $1.2 billion, or 40%, of its $2.97 billion in loans. He cautioned that most of the loans are secured and that City National's recovery rates are very high.
At the end of the second quarter, City National's nonperforming assets, including foreclosed property, were $162 million, or 5.61% of total loans. That's about in line with California's four largest banks, which averaged 5.18% at the end of the second quarter.
City National said in the announcement that it would still be strongly capitalized. Its Tier 1 capital was 9.3% of assets, compared with a 4% requirement at the end of 1992.
"This is not a management given to self-delusion," said Montgomery's Ms. Smythe.
PHOTO : Bram Goldsmith Chairman and CEO