City National Shares Fall 8% on Credit Worries

Highlighting Wall Street’s skittishness about credit quality at U.S. banks, investors drove down shares of City National Corp. nearly 8% on Thursday, even as the Beverly Hills-based bank reported higher-than-expected quarterly profit.

Investors seemed to be focusing instead on City National’s $4-million provision for bad loans in its second quarter.

Credit problems at other banks, including UnionBanCal Corp. and Wachovia Corp., have been blamed for falling earnings this year. Inglewood-based Imperial Bank also predicted its loan losses would rise significantly in its second quarter.

City National shares fell $3.06 to close at $35.56 in New York Stock Exchange trading.

Chief Executive Russell Goldsmith said he was disappointed by the “knee-jerk” reaction, but predicted investors would settle down once they focused on the bank’s underlying financial figures.

“Because of the climate, [the credit quality] point is getting more attention than is really warranted,” Goldsmith said. “A $4-million addition to loan-loss reserves is a relatively modest number in light of the fact that we’re almost a $9-billion bank.”

City National reported second-quarter net income of $33.4 million, or 68 cents a share, up from $26.1 million, or 55 cents, a year ago. It beat analysts’ expectations of 63 cents a share, according to a survey by First Call/Thomson Financial.

Total assets were $8.7 billion, up 38% from a year ago, thanks largely to several recent acquisitions.

“I didn’t hear a good argument all day as to why the stock dropped,” said Joe Morford, analyst at Dain Rauscher Wessels in San Francisco. “Across the board, they were stronger than we expected this quarter. And they have a low level of problem loans.”

Separately, East-West Bancorp, the San Marino-based community bank, on Thursday said second-quarter net income rose 18% to $8.4 million, or 37 cents a share, from $7.1 million, or 31 cents. Total assets rose nearly 10% to nearly $2.4 billion.

East-West shares hit a 52-week high Thursday of $16.13, up 69 cents, in Nasdaq trading.