THE TIMES 100 : THE BEST PERFORMING COMPANIES IN CALIFORNIA : THE BOTTOM LINE : Bet the Banks : City National Sets Pace for Revivified Financial Industry
California’s major banks, unchained by writeoffs on foreign loans, staged a powerful comeback in 1988, but it was City National Bank, a medium-sized financial institution known as the banker to the stars, whose financial performance paced the pack last year.
Wells Fargo & Co. led the big banks, posting a return on assets of 1.13%, an impressive achievement for a bank whose assets exceed $46 billion.
Meanwhile, many of the state’s major thrifts staggered some in 1988, allowing two smaller thrifts to rise to top of the heap. Profits industrywide were squeezed by higher interest rates, a trend that continued in 1989.
The Times survey selected California’s top-performing financial institutions according to their return on average assets. The financial institutions had to be publicly traded and have at least $1 billion in assets. (The profit figures reflect operating income during 1988 that does not include one-time events and losses from discontinued operations.)
Commercial banks did particularly well, analysts say, and the future is bright. “It was a good year for the industry in general and 1989 should be a better year,” said Donald K. Crowley, analyst in San Francisco for Keefe, Bruyette & Woods.
Security Pacific Corp. is one of the big commercial banks that roared back to life in 1988 after hard times in 1987, when it established large reserves for troubled loans in Latin America. BankAmerica Corp. surged back into the black in 1988 after three years of heavy losses.
But it was City National Corp., parent firm for City National Bank, that led all financial performers with a return on average assets of 1.27%--a healthy improvement over its 1987 return of 1.07%.
City National has a clearly identified clientele of affluent professionals in a clearly defined area that runs from Los Angeles to San Diego by way of Palm Springs and Palm Desert.
California’s 10th-largest bank, City National has posted higher earnings every year since 1982, including $49.3 million in 1988. Its assets swelled 23% last year to $4.3 billion.
It gained its reputation as the banker to the stars because so many of its customers have had strong ties to the entertainment industry. In one particularly dramatic case, City National helped put together a $240,000 ransom that was demanded in the 1963 kidnaping of Frank Sinatra Jr.
On the more mundane side--and not as well known--is the bank’s extensive data processing operations that handle customer accounts for independent banks up and down the West Coast. About 15% of the bank’s profits come from that business.
Although business is usually good at City National, it has gotten even better in recent times as the financial institution has attracted customers from rivals like Bank of America and Union Bank, recently acquired by Japanese investors.
“Being a (healthy) local bank and being American-owned has helped us, frankly,” Chairman Bram Goldsmith said in a telephone interview.
City National could make a tempting takeover target when the barriers to interstate banking in California come down in 1991, but the 66-year-old Goldsmith says there’s enough stock in friendly hands to fend off any unwanted offers. Any takeover would require a 70% approval by shareholders, and Goldsmith points out that he alone owns a 17% share.
“We want to (remain independent) and we expect to, but we could be a very rich target,” said Goldsmith, who adds that he has no plans to retire any time soon.
Meanwhile, some of the state’s major thrifts found themselves down on the performance list after heading it last year. Well-known names like Columbia Savings, Downey Savings and World Savings (whose parent company is Golden West Financial) turned in lesser performances in 1988.
That put the spotlight on UnionFed Financial and FirstFed Financial, two savings and loan holding companies that are usually overshadowed by redwood-sized thrifts that dominate the skyline of the California S&L; industry.
Five years ago, UnionFed, parent firm for Union Federal Savings in Los Angeles, was struggling to survive. It was short on capital and long on assets with fixed rates of return.
Last year, UnionFed earned $17 million, giving it a return on average assets of 0.93%, behind only Golden West Financial among the state’s thrifts. As such, it qualified as a success story in an industry that is awash in losses and has not had much to brag about in recent times.
To survive long term, UnionFed raised $70 million through public securities offerings and lessened its exposure to interest rate fluctuations by emphasizing adjustable-rate real estate loans. It also retained and expanded its real estate development investments, but did not venture outside the areas it knows best.
“The secret is: We have stuck to the basics,” Roger L. Kringen, UnionFed’s president and chief operating officer, said.
FirstFed Financial, parent firm for First Federal Savings in Santa Monica, also fits that mold.
With 99% of its loans tied to real estate, FirstFed Financial is one of the few savings and loan companies whose stock is trading above book value. It made $18.6 million in 1988, giving it a 0.91% return on assets.
“Nothing flashy,” FirstFed Chairman William S. Mortensen said. “We’re just a solid company.”
TOP 25 BANKS AND S&Ls;
Institutions ranked by income as percent of average assets.
% return on average 1988 income 1988 assets Rank Company assets ($ millions) ($ billions) 1 City National Corp. 1.27 49.3 4.296 2 Wells Fargo & Co. 1.13 512.5 46.617 3 Golden West Financial 0.94 138.3 16.721 4 UnionFed Financial Corp. 0.93 17.0 2.058 5 FirstFed Financial Corp. 0.91 18.6 2.227 6 Security Pacific Corp. 0.85 638.9 77.870 7 Imperial Bancorp 0.85 17.7 2.428 8 Great Western Financial 0.81 248.4 32.815 9 Downey Savings & Loan 0.77 29.0 4.333 10 Glenfed Inc. 0.77 163.7 23.711 11 Bay View Federal Savings 0.76 18.2 2.707 12 HomeFed Corp. 0.72 111.3 17.009 13 Sumitomo 0.67 24.5 3.719 14 Pacific Western Bancshares 0.61 6.2 1.039 15 BankAmerica Corp. 0.58 547.0 94.647 16 Westcorp 0.58 12.2 2.470 17 H.F. Ahmanson & Co.** 0.57 202.8 40.258 18 Union Bank 0.57 60.2 15.010 19 Citadel Holding Corp.** 0.57 24.1 4.642 20 Columbia S&L; 0.54 65.0 12.744 21 CalFed Inc. 0.52 134.8 27.482 22 Coast S&L; 0.39 47.8 12.647 23 Westamerica Bancorp. 0.38 4.8 1.274 24 San Francisco Federal S&L; 0.34 12.8 4.499 25 Great Am. First Savings 0.32 50.3 16.084
* See company notes, page 29.
