Last summer, Russell Goldsmith received a follow-up phone call from Dave McKay of Royal Bank of Canada (RBC). McKay wanted to know: Would Goldsmith be interested in meeting for dinner in San Francisco to resume their discussion about a possible merger? The two CEOs met previously in 2013 in Beverly Hills where McKay, then RBC’s Group Head of Personal & Commercial Banking, first pitched the concept, outlining why he thought the two institutions would coalesce nicely.
“I told him then, ‘That’s very nice, but we’re not for sale,’” Goldsmith recalls. “City National has never been for sale. But I have a very simple policy, as the CEO of a public company, that if somebody with a reputable, solid firm says they’d like to meet, I am obligated to at least have the meeting.” This open mindset and willingness to listen turned out to be a harbinger of things to come.
“They asked if we could continue to stay in touch and I said, ‘Sure, I’m happy to get to know you guys better.” Eight months later, plenty had changed, including McKay’s status: He was on the verge of becoming CEO. Goldsmith accepted the San Francisco dinner invitation and, as the conversation progressed over the next few months, it became clear that the opportunity was too good to miss. It was a rare situation in which merging would be good for not just the firms’ shareholders, but also their clients, colleagues, and the communities in which they were based.
The companies complemented each other perfectly: There was virtually no overlap between the two banks, so the deal would result in very few job eliminations, systems would not need to be consolidated, and the established brands would be able to enhance, rather than replace, each other. City National would benefit by being able to offer its private and commercial banking and mortgages to RBC’s 340,000 U.S. wealth management client households; they would also gain access to the vibrant entertainment markets of Toronto, Vancouver, and London, and they could expand their balance sheet, offering their clients greater credit capabilities. In return, RBC would gain access to City National’s wealth management, private and business banking, and entertainment industry expertise.
“This kind of opportunity just doesn’t come along very often, if at all,” Goldsmith acknowledges. “I can’t think of another potential acquirer that would have been a better combination for all four of our constituencies.” Goldsmith will remain as Chairman and CEO of City National for at least the next three years after the merger closes later this year and will then be responsible for RBC’s extensive U.S. wealth management capabilities as well. The bank will continue to remain headquartered in Los Angeles and its mission and focus will stay the same. “This merger with RBC will reinforce the momentum we have and allow us to do more of what we are already doing,” says Goldsmith. And what they’re doing is working. 2014 was City National’s most successful year in its 61-year history – an impressive feat when you consider that the company has been profitable for a remarkable 87 consecutive quarters.
“I try to create a culture where people can speak up … When I hire, I look for the character of the person and their curiosity. I want them to have questions for me. If someone says, ‘You guys are doing everything perfect,’ that’s not the person for me.”
Altogether, what had started as a simple dinner became a seven-month process – with City National code named ‘Laker’ in reference to the basketball team – culminating in the January 22, 2015, public announcement that the merger had become reality: RBC was buying City National in a $5.4B deal estimated to be completed by the fourth quarter of 2015.
“It’s not what most people think of when they imagine your typical bank merger,” Goldsmith clarifies. “City National’s shareholders will have changed, but almost everything else remains the same – except then City National will be able to provide more. At the time of the deal, City National was the 25th-largest bank in the United States with $32B in assets. It will keep its name and, to a large extent, its autonomy, but will now be powered by the 5th-largest financial firm in North America with approximately $800B in assets and a AA credit rating.
Growing With the Family Business
The fact that City National is able to maintain its brand – and the reputation it has built itself on – is a key aspect of its attraction to RBC in the first place. City National specializes in private and business banking and in wealth management, particularly for A-list celebrities, high net-worth individuals, small businesses, and key industries such as entertainment services. The company’s experience in working with such clients, and its ties to the entertainment industry, go way back.
Russell Goldsmith’s grandfather, Ben Maltz, co-founded City National with Alfred Hart in 1954 to cater to entrepreneurs, professionals, and growing small businesses in Los Angeles, where clients could receive the personal attention and utmost discretion that the bank continues to provide to this day. Hart’s Hollywood connections and celebrity relationships helped shape City National’s identity as an institution that would go to bat for friends in high places in times of dire need. In 1963, when Frank Sinatra, Jr. was kidnapped from Harrah’s Lake Tahoe, it was Hart who produced $240,000 on short notice for the cash ransom.
Russell’s father, Bram Goldsmith, took the reins as CEO from 1975 to 1995, then passed them on to Russell, who credits both Maltz and his father for instilling strong values in him, especially how to deal with people in business and how to maintain a sense of integrity. He particularly remembers his father’s maxim, “A deal is a deal,” reflecting the importance the former CEO placed on making firm commitments and living up to them.
Both his grandfather and his father worked through challenging economic times: the Great Depression, the major recession of 1974-75, and the economic challenges of the early 1990s. The financial crisis of 2008 serves as Russell’s greatest challenge to date, but even though it was a difficult period, he was able to lead the company through the recession in a way that allowed it to continue to grow. “We were able to weather the recession, stay profitable and grow significantly, largely because we didn’t make the mistakes others made going into it,” he recollects. “We had no subprime loans, no credit default swaps, no toxic securities. But, of course, we had to tighten our belts.”
And the company continued to make loans and invest, adding to its footprint, adding people, and maintaining its commitment to meeting the needs of clients. Because the company was strong going into the recession, it was able to continue to be profitable and act on opportunities to grow. City National had bought 12 banks prior to the recession, and after the crisis, acquired 4 more banks, two investment companies, and Rochdale Investments. “We came out of the recession twice as big as we were before [in terms of assets], and as a result we can do more for our clients today,” Goldsmith says.
It goes to show what perseverance, integrity, and optimism can do for a company, and how values passed down between generations can have a broad impact across time. “I was lucky to have my grandfather for many, many years. He lived well into his nineties. I remember meeting with him in Manhattan when I was going to school back East. We were walking back from dinner and he said to me, ‘It really doesn’t matter what you do, just be the best at it.’ The values I gained from him and growing up in my family are a big part of who I am today.”
Although Goldsmith has served on the CNB board since 1978, he did not initially start out working at City National. After earning his juris doctor at Harvard Law School, he got his start as an entertainment attorney. This led to a position as head of Republic Pictures, where he became exactly the kind of client City National specializes in serving. “I think my background as an entertainment lawyer, then as an executive – even my involvement as vice-chairman of the San Diego Padres in the ’90s – have helped me to see the world from our clients’ point of view. I see myself as an entrepreneur, and most of our clients are entrepreneurs in one way or another.”
TV Producer Tom Werner, who serves as chairman for the Boston Red Sox, first met Goldsmith when both were students at Harvard College. Goldsmith was having a hamburger with a girl Werner wanted to meet. Although things never worked out with the girl, Goldsmith and Werner became college roommates. One spring break, Goldsmith invited Werner, an East Coast native, to his home in Beverly Hills. Even then, Goldsmith’s staunch advocacy for Los Angeles was compelling. The two have remained close friends and business associates ever since.
“It’s not what most people think of when they imagine your typical bank merger. City National’s shareholders will have changed, but almost everything else remains the same – except then City National will be able to provide more.”
Goldsmith was Werner’s attorney when he started Carsey-Werner Company (responsible for The Cosby Show, Roseanne, That ’70s Show, and many others) and helped Werner put together the bid to acquire the San Diego Padres in 1990. “Russell and I are avid baseball fans,” says Werner. “Aside from bringing the parties together, he was quite helpful in managing the asset.” Aside from being “incredibly bright,” Werner says Goldsmith is an incredibly warm and engaging leader. “I’ve talked with a number of people who have worked for him at City National. He’s clear on what his goals are, and he’s a very good motivator.”
Having firsthand experience in law and entertainment, in addition to being raised in a real estate family, Goldsmith learned to understand how to run his company wisely, particularly grasping the importance of having the right people and the right culture in that company.
“I try to create a culture where people can speak up,” he says. “I love taking a fresh look at the company with people who are new. When I hire, I look for the character of the person and their curiosity. I want them to have questions for me. If someone says, ‘You guys are doing everything perfect,’ that’s not the person for me.”
Despite having just closed a $5.4B deal, City National is not what Goldsmith sees as his greatest accomplishment. “My family is first, followed by the success of City National, but neither of these accomplishments is mine alone,” he clarifies. Goldsmith credits his wife, Karen, for much of his family’s success, and his colleagues and Board of Directors for helping him build City National into what it is today.
Community Ties Translate Into Corporate Wins
Goldsmith’s attitude toward teamwork and building relationships extends to the community as well. The RBC deal allows him to extend the bank’s network in California, Nevada, and New York into other parts of North America – and the world – particularly with regard to the firm’s entertainment services.
“Entertainment is a global business and we want to be able to provide for all of our entertainment clients’ financial needs, wherever our clients are,” he says. City National has already focused its services in cities like Nashville, Atlanta, and New York for this very reason; the partnership with RBC will give them capabilities in Vancouver and Toronto as well.
“Once this merger is complete, we’ll be able to seamlessly serve our clients with their productions in Canada, and we’re looking at RBC’s bank charter in London as an opportunity to bring wealth management and banking services to people on the ground there as well,” he adds. “It would be an important step, making City National the go-to platform for financial services for the entertainment industry across the English-speaking world.”
RBC’s partnership with City National is likely to have an impact on Los Angeles too, not just in a business capacity, but in indirect ways as well. “Back in 2006, Mayor Antonio Villaraigosa and I were discussing the fact that there’s something like a million more people in Los Angeles than there were 30 years ago, but no more jobs had been created to meet that need,” Goldsmith points out. The two leaders began discussing ways to create more jobs and grow the economy without straining the city’s budget. They ended up forming an ad hoc blue-ribbon committee to figure out what their options were. “I think it is a great question government at every level should be asking themselves and they often don’t,” Goldsmith observes. “Antonio, to his credit, wanted to ask that question.”
The committee spent approximately 18 months coming up with a hundred ideas. They identified the Port of Los Angeles and LAX as the two biggest job generators in Southern California, both directly and indirectly. Both entities are controlled by the City of Los Angeles, and together, they generate more jobs than any other single entity. As of 2006, LAX had not been renovated since the 1984 Olympics and was ripe for an upgrade. The committee submitted its recommendations at the beginning of 2008. Twelve months later, nothing had happened.
Rather than let their recommendations expire, Goldsmith and several others involved in the committee decided to form a group to keep progress moving forward. “We didn’t want to be just another
pro-business group; there is already a Chamber of Commerce, and a Business Federation, and other business groups,” Goldsmith recalls. Instead, they formed the Los Angeles Coalition for the Economy and Jobs, a group focused on highlighting initiatives that would benefit from the attention of policy makers. “We wanted a group that’s bipartisan, that brings together business, labor, nonprofits, educational institutions, and government to rally around issues and solutions that are good for all the constituents in Southern California.”
Its 62 members comprise a Who’s Who of influencers across industries, including Wallis Annenberg, Ted Craver, Maria Elena Durazo, and Ed Roski. While the group is making progress, it has not all been smooth sailing. The Coalition’s support for moving the North Runway at LAX further north to meet safety standards has met with resistance from the residents of Westchester. But the group doesn’t shy away from controversial issues and has stood tall in support of issues such as federal funding for LA’s growing subway system, immigration reform, and railway expansion at the Ports of Los Angeles and Long Beach. Progress is being made. “Virtually all the terminals at LAX are going to be remodeled and one terminal’s going to be torn down. The Bradley International West Terminal opened about a year ago, and they’re now planning to do a further west, so-called ‘midfield’ terminal.”
Why is this important? Economists have estimated that a single international flight coming into LAX every day, 365 days a year, generates approximately 3,000 jobs in the region directly or indirectly. An attractive international terminal is important, but so too is having the infrastructure to accommodate increased air traffic, as well as keeping up with technology; for example, expanded runways and gates that can accommodate the double-decker “superjumbo” Airbus A380, Boeing’s 747-8, and the 787s that many international carriers are beginning to favor.
While this may all seem far from the goals and mission of City National and RBC, Goldsmith sees it differently. “The Coalition’s role is to support and help policymakers, to push for responsible constructive economic policies that foster quality job growth, and prod a little bit,” he emphasizes. “So what we also do is articulate why certain policies do or don’t make sense, help them make connections, reach out to people that matter, make introductions, and be a voice for them.” You can imagine just how powerful the voices of those connections are, when you consider the level of clientele City National serves, and what it can add to that network once it has partnered with RBC.
This idea of reaching out, of working together to build wealth and community, is at the heart of City National’s mentality. It is reflected in its motto, “The way up,” symbolized by a stylized ladder icon, which Goldsmith sports as a small pin on the lapel of his jacket. It’s a motto that Goldsmith gladly wears on his sleeve as well.
“I feel very committed to Los Angeles,” he states. “I’ve just joined the board [of directors] of Cedars Sinai, so I’m actually going to be doing more for the community. I’m going to continue to live here, our business is going to be headquartered here, my offices will be [in Beverly Hills] and in Downtown LA.” Knowing full well that change is a part of growth, Goldsmith leads the upward trajectory of his institution with integrity, adherence to his values, and the considerable clout of a new partnership.