Let's go straight to the bottom line. Bram Goldsmith would want it that way.
Goldsmith, chairman of Beverly Hills-based City National Bank, was paid $3.1 million last year, more than any other banker in the United States.
In fact, the head of the 135th-largest U.S. bank made more than the chief executives of the nation's three biggest banks--Bank of America, Citibank and Chase Manhattan-- combined. The top bosses at those banks were paid a total of $2.35 million in 1984.
Why was Goldsmith, banker to the stars and one of Los Angeles' premier deal-makers and philanthropists, paid so much?
Aside from the fact that City National has consistently outperformed most other banks during his 10 years as chief executive, the far-sighted Goldsmith's contract pegged his compensation to appreciation of the bank's stock. When the bill came due early this year, Goldsmith's contract was worth his regular pay of $600,000 plus $2.5 million in stock gains.
As Goldsmith would say without apology, a deal is a deal.
The story of Goldsmith and City National is more than just a portrait of a successful businessman and his shop. In it is a glimpse of the tightly guarded financial secrets of Hollywood stars and their agents and a lesson in how to succeed in banking at a time when others with more assets and more experience have failed.
Goldsmith, 62, has been chairman of City National since 1975, but his involvement with the bank goes back to its birth in 1954 in the locker rooms and card rooms of Hillcrest Country Club in West Los Angeles.
The bank's founder was the late Alfred Hart, a blunt-spoken liquor wholesaler whose partner at the time was Ben Maltz, a whiskey broker from Chicago who happened to be young Bram Goldsmith's father-in-law.
Hart believed there was room in Los Angeles for a new bank catering to well-off professionals and growing small businesses, a niche that the bank has successfully exploited to this day. Hart persuaded his Hillcrest friends to switch their business to City National, where they'd receive personal attention and the utmost discretion. Maltz was the first chairman of the board.
The bank, unlike its larger, more conventional competitors, always stressed salesmanship. When Goldsmith was interviewed for this story in the Hillcrest dining room, his first comment was, "So when are you going to move your account?"
One of the bank's early customers was Frank Sinatra, still a loyal account-holder, who according to acquaintances and newspaper accounts often called Al Hart "my best friend." It was Hart who carried Sinatra through some lean years in the early 1950s and helped finance his comeback by underwriting production of the film "From Here to Eternity." Hart at the time was a director of Columbia Pictures, which produced the movie.
A decade later, City National helped Sinatra through another crisis, the kidnapping of his son Frank Jr. in 1963. The bank put together the $240,000 ransom (actually $239,985 because three $5 bills were wrecked while being photographed in a microfilm machine), charging Sinatra only the $2,000 that wasn't recovered when the kidnapers were caught.
"Hart was a brilliant man who came out of the liquor business, a rough, tough cookie who wasn't exactly couth," said Len Shane, chairman of Mercury Savings & Loan and a friend of both Hart and Goldsmith. "He was unusual, Al Hart, a sterling guy who was never polished."
Not long after the bank was established, a young builder came in to borrow money to put up some houses. His name was George Konheim, president of fledgling Buckeye Construction, now one of the city's major real estate development firms.
Konheim recalled that day 30 years ago. "We went into the bank to make our first loan, and Hart said, 'Look, builder, I've checked you out through the FBI and everybody else and you're clean. Here's your loan, now go out and make some money."'
Konheim was in charge of bricks and boards at Buckeye Construction. His partner, Bram Goldsmith, handled the finances. It proved to be a fortuitous union of builder and banker.
Los Angeles in the 1950s and 1960s was booming. Buckeye boomed along with it, graduating from building houses in Downey to office buildings downtown and along Wilshire in Beverly Hills. The firm put up several City National buildings, including the headquarters at Wilshire and Roxbury in Beverly Hills and the downtown office tower at 6th and Olive, an investment Goldsmith described as a "slot machine" because of its predictable profitability for the owner.
The buildings weren't works of art, but they were structurally sound and usually full of tenants and always profitable.
Goldsmith said his theory of financing real estate deals came from his study of commercial properties during the 1930s. He had noticed that even at the depths of the Depression, nearly all office buildings remained at least half full. He figured that if you designed the financing so that you could pay the mortgage with 50% occupancy, you'd survive the worst of times. He was right.
Goldsmith said he still subscribes to this theory of high initial equity and low leverage in any kind of business deal. He's choosy about those he lends to and wants to see borrowers putting their own money down on a project before he'll commit the bank's funds.
"Bram will look at a person and want to know, 'Are you a stand-up guy? Do you accept your responsibilities?"' said Konheim. And then he'll take a very close look at the income and expense statements on the deal.
"I've never had a guy come in here with statements showing he was going broke," Goldsmith said in explaining his conservative lending policies.
Goldsmith and Konheim made millions in real estate, allowing Goldsmith to move up the hill from West Los Angeles--his first house, a Buckeye job, was in the Cheviot Hills area--into Beverly Hills. He and his wife Elaine today live well but not ostentatiously in a large contemporary home above Sunset. They have a waterfront weekend home in Newport Beach, as well.
He and Konheim play golf and gin rummy every Saturday at Hillcrest. Goldsmith, a former president of the country club, estimates that 65% of its 535 members are City National customers.
Goldsmith's fortune allowed him to pursue his other interest, charity. He has been active in every major Los Angeles charity, Jewish and non-Jewish, and has run most of them. He is a consistent six-figure giver to the the Jewish Federation-Council of Greater Los Angeles, the organization's records show. He serves on the boards of Cedars-Sinai Medical Center and the Los Angeles Philharmonic. He is a member of the board of directors of the Los Angeles branch of the Federal Reserve Bank of San Francisco. His wife, a sculptress, is chairman of the Otis-Parsons Art Institute in Los Angeles.
Bought Into Bank
By the 1970s, Goldsmith said he began to lose his fascination for putting together real estate deals. When Hart sought a buyer in 1975 for his 19% stake in City National, Goldsmith bought him out and took over. His $3.6 million investment in 1975 is now worth more than $38 million.
"When he became the chairman of the bank, I wasn't sure how we were going to get along," said Alex Kyman, City National president. "But he owned the bat and the ball, so if I wanted to play, I had to play by his rules."
Kyman, a Harvard Law School graduate who at the time already had more than 10 years in at City National, quickly found that Goldsmith's rules easily meshed with his own. The bank continued to target wealthy--"high net worth" in bankers' jargon--individuals and successful small businesses, shying away from large corporations and ordinary small depositors. Credit was granted based on firm, conservative guidelines. The bank's loan review officer is a former federal bank examiner with a quick red pencil.
Some competing bankers disdain City National, calling it elitist and saying that any bank can make money if it bars the door to any but the most bankable customers.
"Elitist? The last time I heard, this was still a free enterprise system," Kyman said. "We have a right to choose the market that will make us money."
Two Key Decisions
When Goldsmith took over, City National was profitable but growing at a sluggish pace. He made two key decisions that have set the bank apart from its peers and contributed substantially to the bottom line. During Goldsmith's tenure, the bank's assets grew 337% while profits soared by 760%.
First, he decided to diversify, moving away from strictly deposits-and-loans banking to computerized data processing and electronic teller networks. City National provides computer services for 175 smaller financial institutions and operates an automated teller network linking 240 banks and savings and loans.
The move, envied by other banks who discovered diversification much later, enabled City National to keep making money while other banks suffered through disasters in real estate, agriculture and foreign lending. City National was ideally positioned for deregulation with 20% of its earnings base protected from cyclical fluctuations in interest rates.
Secondly, Goldsmith used his and Hart's wide contacts in Jewish circles and Hollywood to attract the business of professionals in the entertainment industry--accountants, lawyers, business managers for performers. With them came the accounts, some very substantial, of movie and rock stars and the small and mid-size studios. Today, City National has 10% of its assets in the entertainment industry, a higher percentage than any other bank, analysts said.
Among the bank's clients are Embassy Productions, the Norman Lear-Jerry Perenchio partnership; MTM Enterprises, Mary Tyler Moore's company; and Lorimar, the studio that produces "Dallas" and other hit television series. Perenchio sits on the bank's board, as does the chief operating officer of Lorimar, Russell Goldsmith, the chairman's 35-year-old Harvard-educated son.
The bank helped to finance the movies "Blade Runner" and "Purple Rain," as well as dozens of lesser-known films. It doesn't take an equity position in films and has never suffered a major loss in entertainment lending, according to Irene Romero, head of the bank's entertainment unit.
And while the bank will not reveal the names of individual customers, on the walls of the entertainment division hang photographs of Liza Minelli, Britt Ekland, Lucille Ball and many other show-biz personalities, all autographed to the bank or bank officers. Robert Redford, Paul Newman and Cher also bank there.
"Entertainment lending has certain idiosyncrasies because you're dealing with people with idiosyncrasies," Kyman said. One customer, for instance, a prominent Hollywood business agent, keeps two Visa accounts with the bank--one for daily family expenses and one for, well, private affairs, a bank officer said. Goldsmith is extremely careful to keep them separate.
Goldsmith also keeps his philanthropic impulses separate from his banking judgments.
"We're not a social service agency," he's fond of telling his lending officers. "If I want to make a contribution, I'll make a contribution."
Despite Goldsmith's record, many fellow bankers scoff at his success, saying he's more a businessman than a banker, as if the two were entirely separate species. Goldsmith doesn't endear himself to the banking community by not participating in trade groups and by making such comments as, "Who says you need 20 years experience in banking to be a 'real' banker? Most of these guys have had one year of experience 20 times."
He likes to demystify banking, which he describes as "license to steal."
"There's no big mystery about being a banker," he said, waving to another friend and customer across the dining room at Hillcrest. "I'm in the business of renting out money."