City National Looks North With Bid for Pacific Bank : Financial services: Proposed $153-million acquisition is seen as a springboard into the lucrative Silicon Valley.
Ambitious City National Corp. made a surprise foray into Northern California on Wednesday, announcing a proposed $153-million acquisition that could signal the bank’s evolution from a regional player into a larger, statewide financial institution.
Beverly Hills-based City National said it would pay $29 a share for San Francisco-based Pacific Bank, which has 12 offices and $728 million in assets. The deal would bring City National’s total assets to $7.5 billion.
More significantly, the purchase provides City National with its first foothold in three Northern California counties, which it hopes to use as a springboard into the lucrative--and competitive--Silicon Valley.
“We believe that Pacific Bank is going to be a terrific base on which to build in Northern California,” said Russell Goldsmith, chairman of City National Corp., which is the holding company for City National Bank.
Analysts said the expansion will allow City National, currently the state’s fifth-largest bank, to better compete for business customers against the state’s financial heavyweights, such as Bank of America, Wells Fargo, Union Bank and Sanwa Bank.
“It’s a surprise to see them move out of Southern California, but they already have a critical mass there, so this makes sense,” said Erika Hill, analyst at Seattle-based Pacific Crest Securities.
A recent string of Southern California acquisitions--including last month’s $90-million purchase of San Fernando Valley-based American Pacific State Bank--has left City National with 48 offices in Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties.
By shifting its attention to a new geographic market, City National can continue to grow without losing the “small-bank” feeling and personal service that it uses to distinguish itself from the state’s larger commercial banks, Hill said.
Goldsmith, who started looking at Northern California banks two years ago, said Pacific Bank caught his attention because it has a similar focus on private and business banking.
The acquisition also makes City National--which is often rumored to be a takeover target--more attractive to potential buyers seeking a statewide branch network, analysts said. Among banks interested in expanding their California operations are U.S. Bancorp and Comerica Bank.
Last week, one analyst’s speculation that U.S. Bancorp may be preparing a bid for Los Angeles-based Imperial Bancorp, City National’s longtime rival, sent Imperial’s stock soaring more than 20%.
Goldsmith, whose family controls about 15% of City National’s stock, said the Northern California expansion was not an effort to make the bank more appealing to buyers.
“That’s a question that comes up no matter what we do,” he said.
Pacific Bank, by contrast, has been searching for a buyer for more than a year. Responding to losses caused last year by problem loans, Pacific Bank recently said it will close three branches and reduce staff by 14% to cut expenses.
Though the bulk of Pacific’s assets are in Northern California, the bank has five branches in Los Angeles, Beverly Hills, Glendale, Burbank and Encino.
City National officials said branch closures are likely, but would not speculate on which locations would be consolidated or how many layoffs might occur.
The purchase--subject to shareholder and regulatory approval--is expected to close in the first quarter next year.
City National stock closed at $30.81 a share, down 50 cents on the New York Stock Exchange. Pacific Bank shares surged 23% on Nasdaq, closing at $25, up $4.63.
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City’s Ride
Shares of City National Bank have bounced between $30 and $40 since late 1997. Quarterly closes and latest on the New York Stock Exchange:
Wednesday: $30.81
Source: Bloomberg News
