February 4, 2015

City National sale watershed event for Southern California banks

The recent announcement that Los Angeles-based City National has agreed to be acquired by Royal Bank of Canada could be a game changer for other banks in the region, providing them with stronger opportunities to find clients or buyers.

Premium purchase price
Last month, Toronto-based RBC ironed out an agreement to purchase City National in a deal worth $5.4 billion, according to American Banker. Royal Bank's consideration is 270 percent of the local bank's tangible book value.

This price is lofty in the first place, but is even more so since the acquisition will probably encounter substantial scrutiny from both U.S. and Canadian regulators, American Banker reported.

Local banking professionals are still shocked that Russell Goldsmith, chairman and CEO of City National, would agree to sell the last remaining locally-owned bank in the city, according to American Banker. Currently, Goldsmith and his father own around 13 percent of the bank.

Deal spurs opportunity
Other bankers in Southern California will make an effort to snag clients looking to work with a local institution after the merger, and Daniel Walker, CEO of Long Beach-based Farmers and Merchants Bank, predicted that he will receive calls from high-net-worth individuals, American Banker reported.

"When there are market changes like this, it creates opportunity for both staff and clients," Frank Mercardante, the president and CEO of Chula Vista-based Vibra Bank, an organization that is in the process of being acquired by Pacific Commerce Bank, told American Banker. "Everybody will gather around and see where they find a weak spot."

These local Canadian banks are clearly not the only organizations that see the possibilities that lie in the U.S. market, as Alois Pirker, who works for independent research and consulting firm Aite Group as research director of the Wealth Management practice, emphasized that the RBC-City National deal illustrates the opportunity that Canadian banks see in the U.S. economy, according to American Banker.

Local banks in the region should keep in mind that this transaction is a major one for California, and the deal could spur greater merger and acquisition activity there. If they wish to be ready for a sale, financial institutions should be sure to groom their loan portfolios.