Los Angeles Losing Ground in Bid To Be California's Financial Hub
Los Angeles, long the economic epicenter of California, is fast losing ground to San Francisco as the state's financial hub.
By next year, the City of Angels may no longer be home base to any world-class banking companies. Security Pacific Corp., its biggest, will be gobbled up by San Francisco's BankAmerica Corp. And Wells Fargo & Co., also based in San Francisco, has designs on First Interstate Bancorp, the second-largest banking company in Los Angeles.
If such a deal is pulled off, the largest commercial banking company in Los Angeles would be City National Corp., whose $4.7 billion in assets makes it the same size as the biggest bank in Boise, Idaho.
By other yardsticks, San Francisco is also on top. It boasts a Federal Reserve District Bank, while Los Angeles rates only a district office.
Capitalizing on Securities
On the securities front, San Francisco has already cemented its dominant role in California.
Montgomery Securities, housed in the city's historic financial district, is the premier investment house in the state. Charles Schwab & Co., the nation's biggest discount brokerage firm, is also based in the City by the Bay.
"We hate to gloat but, of course, we are going to capitalize" on our bolstered status, said James Ho, who runs the Office of Economic Development in San Francisco.
Although San Francisco traditionally was viewed as the undisputed financial center of the West Coast, its status came into question during the 1980s. Powerhouse BankAmerica was on the ropes and First Interstate was trying to take it over. Michael R. Milken, Drexel Burnham Lambert Inc.'s convicted junk-bond king, changed the country's financial landscape from his office in Beverly Hills. Jefferies Group Inc., a Los Angeles securities firm specializing in off-market trading, also was an influential Wall Street force.
Los Angeles, of course, remains an economic powerhouse.
Twelve of the state's 20 largest nonbanking public companies are based in Southern California, compared with eight in the Bay Area. About 6.5 million people are employed in Southern California, more than twice the number of workers in Northern California.
Southern California's $130.3 billion in commercial bank deposits is nearly double the $68.7 billion held in the nine counties of the Bay Area, according to the Federal Deposit Insurance Corp. Bankers generally agree that loan portfolios are similarly skewed to Southern California.
S&Ls Provide Nourishment
Finally, Los Angeles is home to many of the nation's biggest thrifts, which still have a major slice of the consumer banking market.
"Bank headquarters may have shifted, but the economic power is still in Southern California," insisted Jack Kyser, an economist with the Los Angeles Economic Development Council.
Still, officials in Los Angeles concede, the dwindling presence of major financial institutions is undermining the city's status as a seat of financial power.
"There will be a potent local impact," said Councilman Michael Woo. "And I cannot think of anything that is positive for Los Angeles."
For starters, major financial and economic decisions affecting Los Angeles residents will be made in San Francisco. Angeleno bank executives who need job instructions, for example, will increasingly find they are dialing the 415 area code from their car phones.
Then there is the diminished cachet. San Franciscans traditionally have felt that they and their city are more sophisticated than the burg to the south; their city's enhanced financial status will no doubt increase these feelings of superiority.
"There is always prestige connected to a headquarters location," said Joel Friedman, a San Francisco-based managing partner for Andersen Consulting.
The expected bank mergers will also worsen the employment picture for Los Angeles relative to San Francisco. Although post-merger layoffs will spread throughout the state, the headquarters staffs of the acquired institutions will likely take the worst hits.
Many of these headquarters jobs are high-paying, prestigious positions. Security Pacific executives are expected to suffer a disproportionate number of the 15,000 to 20,000 layoffs expected from the merger.
Another concern for many Southern Californians is the expected downturn in contributions to arts and civic organizations.
"This is always the case when you lose a headquarters," said Ray Remy, president of the Los Angeles Area Chamber of Commerce. "There is no way around it."
San Francisco's major banks may still decide to locate some top executives in Los Angeles to provide better service for the big Southern Californian market. Indeed, some key players from major San Francisco banks are already in the Southland.
The commercial lending division of Wells Fargo is based in Orange County and is overseen by Charles M. Johnson, an executive vice president.
The chairman of Union Bank, Jiro Ishizaka, is based in Los Angeles. The bank's commercial and retail lending operations, and the vice chairmen that run them, are also located there. Los Angeles also houses several other major divisions, including middle-market lending.
Union Bank was based in Los Angeles until three years ago, when San Francisco's California First Bank acquired it and adopted the Union name.
Uncertainties to Be Resolved
For BankAmerica's part, executives will not discuss which, if any, divisions will be headquartered in Southern California.
Robert H. Smith, Security's chairman and chief executive, is slated to become the merged company's president and chief operating officer and remain in Los Angeles. But Mr. Smith's future in the company is uncertain.
It also is unclear whether the other three Security Pacific executives on the managing committee, and their divisions, will remain in Los Angeles.
The Los Angeles Chamber's Mr. Remy denies that Los Angeles will suffer any loss of punch. But, he quickly adds: "Do we wish Dick Rosenberg and Carl Reichardt [chief executives of BankAmerica and Wells] lived here? Of course we do."