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Wednesday, Aug 10, 2022

Downtown L.A. Bank Invests in Diverse Pickups

At a time when the banking industry is consolidating, City National Bank has made clear that it plans to buy a few rivals.

But the downtown L.A. bank still managed to turn a few heads last week when it announced two acquisitions – neither of which was of a bank.

In separate deals, City National announced plans to buy First American Equipment Finance, an equipment leasing company in Rochester, N.Y., and Rochdale Investment Management, a New York wealth manager.

The transactions will further bolster the rapidly growing City National, which has recently expanded its asset base to $24 billion through a combination of organic growth and acquisitions of failed banks.

While City National is looking at opportunities to purchase small banks, experts said the latest deals reflect the institution’s desire to continue growing at a time when the traditional banking business remains sluggish.

“So many in the industry are stuck in neutral and City National continues to plow ahead,” said Jeff Davis, an analyst at the Nashville, Tenn., office of Guggenheim Securities LLC. “It is in a decided expansion mode (even though) it may be that there aren’t any banks available that meet City National’s very high standards.”

Equipment finance companies in particular are looking attractive to banks in this environment, Davis said, because they provide asset-generation platforms. Buying a wealth manager, meanwhile, will enhance revenue for City National through Rochdale’s steady fee-based business.

City National already offers some equipment leasing and wealth management services to its customers, and the acquisitions will bolster its modest holdings in those lines.

First American’s assets will nearly double the bank’s equipment leasing portfolio to $743 million. Rochdale will be merged with the bank’s internal asset management unit to create a division overseeing about $18 billion in clients’ money.

The financial terms of the deals, which are expected to close this quarter, were not disclosed.

Russell Goldsmith, City National’s chief executive, said it was merely a coincidence that the bank purchased two non-bank companies in quick succession. He said City National is regularly looking at prospective bank acquisitions, but the institution will not pass up other attractive opportunities.

“We try to be that kind of one-stop shop (and) this augments what we can offer,” he said.

Looking for alternatives

Through its deal for First American, City National became the second local bank to acquire an equipment finance company this year. In January, PacWest Bancorp, Century City parent of Pacific Western Bank, announced a deal to buy Marquette Equipment Finance in Midvale, Utah.

Analysts said the moves reflect the creative ways that banks are looking to put deposits to work and grow assets at a time when traditional lending is tough. There are relatively few creditworthy companies looking for loans, Davis said, but many companies are looking to lease computers, office furniture and other equipment.

“One of the issues for the industry is asset originations because loan demand is not real strong,” he said. “Banks have really been looking for asset origination platforms to bolt onto their original franchise.”

Goldsmith said City National had set its sights on equipment finance companies in order to broaden the types of products it could offer clients. Though First American was not for sale, City National made an offer because the company looked to be a good cultural fit with the bank.

First American specializes in the leasing of technology and office equipment to law firms, hospitals and other types of businesses, typically in amounts between $250,000 and $3 million. The privately held company, which has about 100 employees, has $325 million in assets.

First American will become a subsidiary of City National and operate as a standalone unit.

Rochdale, too, will operate outside the bank. It will be combined with the internal asset management unit to create City National Rochdale Investment Management.

“Both of these deals give us greater ability to serve our clients,” Goldsmith said.

He said the bank continues to look into acquiring one or more small banks to broaden its footprint, and analysts said City National is in a good position to do so.

City National has a strong balance sheet and recently earned more than $46 million in the first quarter. Shares closed April 25 at $53.21, up 17 percent year to date.

City National is not alone in the hunt for banks to buy, which is making it difficult to find the right deals.

“There are a lot of banks, especially in City National’s footprint, that have a lot of capital,” said Gary Tenner, an analyst with D.A. Davidson & Co. in Lake Oswego, Ore. “There’s a lot of competition for the few deals that have been announced.”


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