Trying to Catch a Falling Star : Finance: A Hollywood favorite, City National Bank is forced to boost its capital by $65 million against potential losses.

For years, City National Bank has been known as the bank to the stars.

Frank Sinatra went there in 1963 for the $240,000 ransom demanded by his son’s kidnapers. Business managers deposit the earnings of some of Hollywood’s biggest names there. Its customers have included Steven Spielberg, Kirk Douglas and the Marx Brothers. The chief executive’s son even runs a production company, Republic Pictures.

Lately, however, City National has been a falling star.

Pummeled by the soft California economy and real estate market, its parent, City National Corp., lost $60.2 million in the nine months ended Sept. 30. City National’s stock closed Friday at $7.875 on the New York Stock Exchange, down from $16 a share earlier this year. And this week, City National disclosed that it is being forced to bolster its capital by $65 million to build a fatter cushion against potential losses.

The news is especially sobering given that City National until recently was considered one of California’s most profitable and strongest banks. Even with its recent problems, the Beverly Hills-based bank remains financially strong enough to meet all federal capital standards. But the pressure is now on to meet by June its capital targets, or risk a severe regulatory crackdown from the Office of the Comptroller of the Currency.

City National’s problems have spawned endless rumors within the gossipy entertainment business. The most vicious ones suggest that the bank is on the verge of being closed by regulators, or the subject of some kind of investigation. Chief Executive Bram Goldsmith insists that neither is true.

“People start talking. Someone repeats it, and they add a little more to it,� Goldsmith said.

Nonetheless, Goldsmith and other City National executives have been busy meeting with nervous business managers and other major customers to ease their fears. Laura Lizer, a Studio City business manager, said she met with bank executives last week, and left assured the bank is stable.

“My feeling is that almost all banks are having problems. The rumors are going around like crazy on many banks,� Lizer said.

Agents, lawyers and managers interviewed expressed similar support. “I still have all of my clients there. We have no fear at all about this bank,� said Beverly Hills lawyer and agent Ed Hookstratten, whose clients include retired “Tonight Show� host Johnny Carson.

City National’s glitzy image has often overshadowed its main business, which is making business loans and real estate lending. Goldsmith himself is an ex-developer.

It’s those real estate loans that are causing so much of the bank’s misery now. Goldsmith said that regulators want the new capital infusion because they are worried that California’s sick economy could cause even more losses.

Goldsmith hopes that this week’s public disclosure will put to rest some of the rumors. As an added show of confidence, bank directors are committing $10 million toward the $65 million the bank needs to attract.

As for the rest of the money, that will be up to the New York investment bank First Boston, which has been hired by City National to come up with the money.