For Goldsmith, All Roads Lead Back to City National
Russell Goldsmith, vice chairman and chief executive of City National Corp., just smiles when asked to name names of clients associated with the "bank of the stars." Loose lips aren't how Beverly Hills-based City National carved out a niche of catering to major players in the entertainment industry over the past 50 years. A graduate of Harvard Law School, he cut his teeth in the entertainment industry, becoming chief operating officer of Lorimar Inc. and later chief executive of Republic Pictures, which merged with Spellman Entertainment Group in 1994. Though Goldsmith spent 17 years as a director of City National during his father's tenure, he is quick to point out that he was never groomed for a job at the bank. Since 1995, when Goldsmith took the reins from his father, Bram Goldsmith, assets have risen to $12 billion from less than $3 billion.
Question: City National built its reputation as Hollywood's bank. What is your market share in this niche?
Answer: It's fair to say that we have more entertainment law firms and talent agencies and business managers, and above-the-line talent and studio executives than any other bank. I think when it comes to the entertainment industry, we are the clear leader and anybody else would be a distant second.
Q: Describe your view of the economy.
A: While we're in a growing economy, it has been a teeter-totter. There's very slow growth, then a little more rapid growth, then a little slow growth, then a little more rapid growth. And that teeter-totter comes amid legitimate concerns that people have had in the past few months about terrorism and anticipating going into Iraq. A lot of people went to the sidelines. You've got an economy that is growing at a very slow rate, underperforming its potential, shedding jobs clearly we've lost over 2 million jobs in the last two years. Happily, Southern California's economy has performed rather well compared to the rest of the country.
Q. When you became a director of City National, you were just 28 years old. What was it like at a company your father was running?
A: The fact that my family had been involved with the bank from its inception made it a more logical step. The bank was a bit smaller, maybe $750 million in assets, so it was a local community bank, to a degree, a business bank and a private bank. I was able to bring candor and the perspective of somebody younger and in touch with the entertainment industry.
Q: How exposed was City National to telecom and media investments?
A: We made some loans in telecommunications and media. Some of them performed very well and some of them didn't. The good news is that we have very few loans outstanding at this point relative to our $8 billion loan portfolio. The ones that were challenging, we're working through them.
Q: How big an issue is credit quality?
A: The bank continues to perform well. After seven consecutive years of double-digit growth in net income, the softness of the economy has led to more challenges on the credit side. And uncertainty in the economy contributed to a lessening of loan demand. Running a company for the long term, you have to know when to lessen your expectations about growth in light of the real world, and that's what we're doing. We still anticipate another year of record net income.
Q: In 1999, you called Global Crossing "one of the great success stories." Looking back, would you change that?
A: It's clear in hindsight that an enormous number of smart people overestimated demand for telecommunications capacity. So you look at that big picture, whether it's Sprint or AT & T; or Global Crossing or WorldCom, a lot of factors were at play to cause what had been a great success story in 1999 to become quite the opposite.
Q: Do you still have a business relationship with Gary Winnick?
A: I'm not really allowed to comment on individuals.
Q: As a CEO, can you talk about this period where business practices are under scrutiny? How does corporate America get confidence back?
A: First, you have to keep it in perspective. For every Adelphia, there's got to be hundreds of public companies and thousands of private ones that are run with great integrity. We have a lot of hard-working, effective entrepreneurs in small and mid-sized private companies and in very successful public companies. The system has to aggressively pursue anybody who has broken the law. To some degree that's happening, and to some degree there's some question as to whether that's happening. That is an important part of the process to restore people's faith.
Q: How often is City National approached with an offer to buy the company? Would you consider selling?
A: I'm not going to answer that, but nice try. We have enjoyed great success as an independent company and we run this company on the belief that, as an independent company headquartered in Los Angeles, we can continue to build shareholder value.
Q: Did you know growing up that you would take over from your father?
A: Never. When I was growing up my father was in the real estate business. He was a director of the bank and my grandfather was a director before. My father came into the bank as CEO when I was in law school, so it was never an issue. I see my father most every day, his office is across the hall. I get to see him in a sort of normal, spontaneous way.
Q: You had a stint at Lorimar Inc. as chief operating officer. How did you go from practicing law to running an entertainment company?
A: In some ways it was a natural progression from what I'd been doing with my partners running a law firm. At Lorimar, there were three of us charged with managing the company with 400 employees and a number of people in production. I was dealing with business issues in entertainment and personnel issues and there was the chance and the need to grow. When you're a senior executive at an entertainment company you inevitably play some role in the creative process.
Q: You had a brief stint as vice chairman of the San Diego Padres. How long have you loved baseball?
A: I was 8 years old when the Brooklyn Dodgers moved to Los Angeles and it was the perfect time in my life to be captured by the excitement and thrill of Major League Baseball. I became a major baseball fan. The Padres were for sale and my friend Tom Werner (a producer of "Roseanne") came to me with the opportunity. We put a group together of 15 guys and got to own the Padres for a while.
Q: Do you think baseball teams are viable entities?
A: They're terrible for most of the clubs. Part of why our group got out is we had this commitment to not lose money and that, in 1994, became almost impossible for a club the size of the Padres. The economics of baseball needs to be fixed. It's enormously complicated. You have a confluence of so many different elements the way arbitration works, the way free agency works, the ripple effect of one owner who's willing to overpay, the fact that you don't have a sharing of revenue. It's a whole host of things that make it virtually impossible on any ongoing basis for owners of teams to have even a marginally competitive ball club and a profitable ball club.
Title: Vice Chairman and Chief Executive
Company: City National Corp.
Born: 1950, Chicago
Education: Harvard College, Harvard Law School
Career Turning Point: Becoming chief executive of City National Bank in 1995 after being an entertainment lawyer and head of Republic Pictures.
Most Admired Person: His father, Bram Goldsmith
Personal: Married, three children
Hobbies: Spending time with family, golf, skiing, boating.
Serving the Celebs
City National Corp. has never shied away from its identity as "banker to the stars." And why would it?
The company revels in a storied roster of clients that includes not only the stars themselves but entertainment lawyers and talent agents, business managers and studio executives. Often, the bank's "top line talent" as Chief Executive Russell Goldsmith likes to call his movie star customers can be spotted at the branch on Roxbury Drive in Beverly Hills.
Analysts say there is no way to quantify the entertainment market that City National serves. Bread-and-butter customers are the roughly 250 business management firms in Los Angeles and New York who handle financial affairs for their clients.
"It's kind of fun to have the reputation," said Martha Henderson, executive vice president and manager of the entertainment division, whose staff level has reached 100, up from 16 nearly 20 years ago. "It's like being asked into the right club and I don't mean this to sound arrogant but people know this is what we do and we specialize in it."
City National's relationship with Hollywood dates back to the late Alfred Hart, a blunt-talking board member at Columbia Pictures. Hart founded City National in 1954 with a group of entrepreneurs that included Russell Goldsmith's grandfather, Ben Maltz.
Hart was a close friend of Frank Sinatra and solicited business from a long list of actors that included the Marx brothers, Jack Benny and Danny Kaye. In 1963, when Sinatra's son was kidnapped, he turned to City National for a loan. The bank put up $240,000 in ransom money.
It was in the early 1970s, when Hart became ill, that Bram Goldsmith, Russell's father, bought out Hart's stake for roughly $3.6 million.
Henderson said that 95 percent of entertainment industry business managers in the United States are City National clients. That number hasn't changed much over the years.
Business managers do everything from paying bills to filing tax returns, buying houses to planning estates. Because most business managers serve a host of clients, the bank designs a slew of cash management services.
City National has been aggressively moving into new markets to attract wealthy clients outside of Hollywood. During the past five years, the company has purchased two banks in the Bay Area and opened an office in New York, on the assumption that a bi-coastal presence will serve wealthy clients.
City National can "do the home in Malibu and the private jet," said Brock Vandervliet, an analyst at Lehman Brothers. But the expansion is an indication of the relatively limited growth available in entertainment. "That's one of their challenges longer term," he said. "How they can broaden from a very narrow niche?"
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