Funding of bank passes audit

An inspector general's audit has found no wrongdoing in the U.S. Treasury Department's $400-million investment of bailout funds in Los Angeles-based City National Bank, according to people familiar with the report.

The audit, which is expected to be made public as soon as today, was launched late last year by Treasury Department Inspector General Eric Thorson amid concerns over how and why banks were chosen to receive bailout money. Its focus was whether Treasury officials properly followed the rules established in October when the controversial $250-billion banking bailout was announced as the largest component of the $700-billion federal Troubled Asset Relief Program.

"This was essentially a case study," said one official who reviewed the audit. "And City National was the lucky recipient."

That official and others familiar with the findings spoke on condition of anonymity because the audit was not yet publicly released.

Cary Walker, a spokesman for City National Bank, which is a subsidiary of City National Corp., declined to comment on the unreleased report. Thorson could not be reached for comment late Wednesday.

City National has often been referred to as the "bank to the stars" because its clients include many Southern Californians with fortunes earned in the entertainment industry.

It moved its headquarters this year from Beverly Hills to an office building in downtown Los Angeles, although it continues to run its wealth-management business from Beverly Hills.

The people familiar with the audit said it concluded that the Treasury had followed the proper procedures in awarding the bailout money to City National, and there was no suggestion that the bank had done anything wrong. Additional details were not available.

Since October, the Treasury has provided more than $200 billion in capital to banking firms through its main investment program, plus an additional $40 billion in secondary investments to bolster Bank of America Corp. and Citigroup Inc.

As of this week, the banks have repaid about $70 billion of the funds, the Treasury said in an online report Wednesday.

The government's stated objective in providing capital for regional banks such as City National was to bolster already-strong institutions so they would weather the recession in good-enough shape to continue lending.

Critics have contended that banks hoarded the money to protect themselves while tightening the credit spigots to their customers, exacerbating the pinch of the recession.

City National's chief executive, Russell Goldsmith, has said that the bank is continuing to lend money to creditworthy businesses and individuals and that he believes it will be able to repay the government bailout funds by the end of this year.

With $14.5 billion in deposits as of June 30, City National is the largest commercial bank based in Los Angeles County. It has said government officials encouraged it to apply for the bailout funds, which Goldsmith said would create a "fortress balance sheet that will reassure our clients and attract new clients."

City National Corp. shares rose 83 cents Wednesday, or 2%, to $39.93. They have fallen 18% this year.


Times staff writer Ralph Vartabedian contributed to this report.

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