LISA STEEN PROCTOR
Is Los Angeles destined to become completely devoid of financial institution headquarters?
In the last five years, L.A. has lost several major banking headquarters to other cities primarily through consolidation.
Bank of America took over Security Pacific National Bank, Wells Fargo & Co. grabbed up First Interstate Bank and First Nationwide Holdings acquired California Federal Bank.
Each time the entity that remained was headquartered in San Francisco and L.A. gave up another headquarters.
If Washington Mutual Inc. beats out H.F. Ahmanson & Co. in its current bid for Great Western Financial Corp., the L.A. area could lose yet another corporate base this time to Seattle.
Is there any particular reason L.A. has repeatedly suffered the loss when financial institutions are consolidated?
The answer lies more with where the chips have fallen in each individual case with a bit of history playing a role, say most experts.
“Each case has been driven by specific reasons, and it has had a cumulative effect on Los Angeles,” said Russell Goldsmith, chief executive officer of City National Bank in Beverly Hills. “It just worked out that way each involved different stories, a different set of facts.”
Louis Nevins, president of the Western League of Savings Institutions, agreed. “I wouldn’t view the fact that, for example, when CalFed was put into combination with First Nationwide and the headquarters happened to be in San Francisco, (it was) an indication that these institutions are not interested in doing business in L.A. in every sense of the word,” said Nevins. “It just happens that the surviving bank powerhouses are in San Francisco.”
The winners in the consolidation game may have more to do with where some of the bigger banks historically have been located.
“San Francisco has history it has traditionally been the center of finance on the West Coast,” said John Stafford, vice president of the California Bankers Association. “Wells Fargo has been in San Francisco since 1952, Bank of America since 1904, when it was the Bank of Italy.”
In other words, it’s the companies, not the towns, said Stafford. “It’s the strength of the corporations, combined with the structural forces pushing the consolidation trend in banking and financial services,” he said.
The result has been that L.A.’s more-digestible institutions have often been on the losing end of consolidation leaving the ever-growing institutions in San Francisco.
“Historically, a majority of the larger institutions have been in San Francisco,” said Stanley Michota, president of the L.A. Headquarters Association, a group devoted to attracting and retaining corporate headquarters in Los Angeles. “L.A. has more candidates to be eaten rather than eaters.”
This relative weakness may have been caused in part by the local economy over the last five years, said Stafford. “The Bay Area experienced a relatively mild recession that lasted a relatively short time. The business environment in L.A. was not so great for quite awhile,” he said.
Jim Bradshaw, an analyst at Pacific Crest Securities, agrees that L.A.’s extreme economic highs and lows have contributed to the area coming up at the short end of the stick in many consolidations.
“When the L.A. economy was strong, banks in L.A. were growing rapidly and they didn’t look at other markets they were too busy in their own,” said Bradshaw. “When the economy was weak, the banks saw their stock prices fall, and they became easy targets for takeovers.”
Savings and loans were hit especially hard by L.A.’s lingering recession because they have a greater percentage of their assets in real estate than do banks. In fact, several of the thrifts headquartered in the L.A. area have been cited as possible takeover targets, including Glendale Federal Bank and Coast Savings Financial Inc.
And Great Western is currently in play.
Western League’s Nevins stresses that L.A. remains the “absolute epicenter among savings institutions.”
L.A. is home to several large thrifts (Great Western, Home Savings, GlenFed and Coast) and holds $140 billion to $150 billion or 20 to 25 percent of the $700 billion in thrift assets nationwide.
Even so, the future of L.A.’s financial industry is unclear and the negative effects of losing more headquarters could be significant.
“Anytime a community loses a corporate headquarters, it not only means a loss of jobs but also a loss of corporate civic participation,” said Michota. “Companies don’t do it (elsewhere) the way they do in their own hometown.”
Michota pointed to Atlantic Richfield Co.’s recent $10 million contribution to the Walt Disney Concert Hall, a commitment he says likely would not have been made anywhere other than in Arco’s headquarters city.
L.A.’s loss of financial institutions also bolsters other cities particularly San Francisco as financial centers. And the losses typically have a ripple effect, in the form of dampening the natural growth of other businesses, such as financial consulting and accounting firms, which often look to have a larger presence in a financial center.
“The fact that the headquarters of large banks are in San Francisco does seem to create a sort of gravity,” said Stafford. “As something becomes a center, it tends to snowball and become more so.”
Officials of the remaining locally based banks emphasize the importance of having a major presence here, noting that they provide a boost to L.A.-area businesses.
By being located “right here, we can be more responsive to business,” said City National’s Goldsmith. “Having the immediacy and local connection makes a difference and helps the economy.”
Clearly, L.A. loses when a local headquarters closes its doors, but can anything be done about it?
“We are concerned about it,” said Ezunial Burts, president of the Los Angeles Area Chamber of Commerce. “But it is part of a business process. We’ll continue to see more consolidation and some elimination of jobs.”
Keeping financial headquarters in the area requires the same steps necessary to retain any corporate bases public/private partnerships and a change in public policy designed to attract these companies, business leaders said.
“We need fair taxes, minimum bureaucracies and a public policy conducive to allowing businesses to prosper,” said Goldsmith. “That is not always at the top of our local (government’s) agenda.”