Bankers Are Capitalizing on a Renaissance of Promise
Southern California, the region that watched forlornly as major bank headquarters departed, is suddenly the hottest area in the country for banks and financial service companies to set up or expand offices.
Mellon Bank of Pittsburgh is taking massive office space in downtown Los Angeles and putting its name on a building. “We see Southern California as an exceedingly vibrant part of the world economy,” says Keith Russell, a vice chairman of Mellon.
Russell, formerly of Security Pacific National Bank, is one of many former California bankers at Mellon, including Chairman Frank Cahouet, who headed Crocker National Bank before it was merged into Wells Fargo in 1986.
Mellon is not alone in finding the region attractive. Sophisticated investors, wielding funds totaling more than $1 billion, are buying community banks here. New Hampshire-based Dartmouth Capital’s acquisition this year of Liberty National Bank of Huntington Beach is an example of this trend.
Bank SinoPac of Taiwan is buying Los Angeles-based Far East National Bank to gain a better position in financing California-based Pacific Rim trade.
Non-bank companies are interested, too. Nomura Securities is making more than $1 billion in commercial real estate loans in Southern California this year.
And Merrill Lynch has come up with a $77-million program in alliance with community organizations to back mortgages and small-business loans in Latino, Vietnamese and African American areas of Orange and Los Angeles counties.
It’s not a charitable activity. Merrill hopes to gain footholds in what a spokesman calls “emerging markets in the USA.”
What all the activity says is that Southern California’s economy, once thought to be permanently impaired by the loss of aerospace jobs and the influx of poor people, is now seen as promising more growth than other regions of the country. “You only have to look at the demographics and the job growth,” says one banker of the area’s recovered promise.
Included in that judgment is a new appreciation by bankers for the purchasing power of the Latino market and that of other groups. “It’s sparking a banking renaissance of Southern California,” says Ken Ackbarali, senior economist of Los Angeles County’s Economic Development Corp.
To be sure, decision-making on that banking renaissance largely resides elsewhere. The region lost its last major bank headquarters less than a year ago when Wells Fargo took over First Interstate and kept the home office of the merged entity in San Francisco.
But does the absence of big bank or big brokerage command posts matter? Yes, says Nehama Jacobs, who was managing director of Bankers Trust’s West Coast office until last year. “It matters that decisions on access to capital are made in New York or San Francisco,” she says. “And it matters that the best jobs in financial services won’t be available locally for the best graduates.”
Don M. Griffith, a local banker who is backed by out-of-state investors in acquiring and running community banks, disagrees about headquarters. “The location of headquarters is an idea from a former time, when a bank had a regulated territory in a restricted market. Today competition comes from everywhere,” Griffith says.
He is currently chairman of First Coastal Bank of El Segundo, which agreed on Monday to acquire Marina Bank of Marina del Rey. The combined bank will have assets of $53 million and a business opportunity in serving local entrepreneurs, Griffith says.
Other local banks also see opportunity. City National, the prominent Beverly Hills bank with $4 billion in assets, last month acquired banks in Ventura and Orange counties and last week bought a leading bank in Riverside.
“We serve local business people,” says City National Chairman Russell Goldsmith. “If anything, the fact that big banks seem far away helps us.”
But big banks aren’t far away. Wells Fargo and Bank of America get 60% of their deposits and loan business in Southern California. And Wells’ Los Angeles office runs its international trust and cash management operations.
The real changes in modern banking have come about through technology. Wells Fargo is the country’s largest lender to small business because loans are made on the “credit card model”--statistical probabilities in various industries determine creditworthiness, and loans are made with minimum intervention from the bank staff.
Technology can bring social advantages. In commercial real estate, loans for small shopping malls are now bundled into securities, just as home mortgages are, so that life insurance companies can invest in them. “That means malls can get credit in neighborhoods that used to have difficulty attracting capital,” says Wayne Brandt, director of Nomura’s local office.
The kind of business that banks want has changed also. Mellon’s Keith Russell, for example, talks more about the bank’s investment management and mutual funds--through its Boston Co. and Dreyfus Corp. subsidiaries--than about loans. Banking sources name Mellon as a possible buyer of the investment management firm Trust Co. of the West, which is up for sale.
Mellon, like other banks, wants to attract capital management accounts from here and abroad. That’s why the Pittsburgh bank is expanding its presence in Southern California.
And that’s why 80% of the 93 foreign banks in California have based their operations in Los Angeles. Their headquarters may span the globe from Tokyo to Toronto, but Southern California is where--increasingly--there’s business to be done.
