Silicon Valley in Calif. Is Rated 'Buy' As Alex. Brown Begins to Look

Silicon Valley Bancshares received an initial rating of "buy" from Alex. Brown & Sons Inc. analyst Joseph Morford, who also initiated coverage of eight other western banks and thrifts with "neutral" ratings.

The new coverage is part of the Baltimore firm's bid for advisory work in the California and western markets, where consolidation is expected to create investment banking opportunities. Known in banking circles for its East Coast focus, the firm last fall hired a former Merrill Lynch & Co. investment banker, Jean-Luc Servat, to staff a financial institutions group based in San Francisco.

Mr. Morford, who plans to move to California from New York in June, pointed to a favorable business climate for western banks.

"Over the next two years, revenue momentum at the western banks should be superior to that of the average regional bank," he said. "Investors have been quick to recognize these positive trends, and recent stock performance for the western banks has been superior to that of the rest of the industry"

Despite his enthusiasm for the western banks' prospects, Mr. Morford followed standard procedure for analysts adding to their lists by initiating all but one of the western banks with "neutral" ratings.

He made an exception for Silicon Valley, of San Jose, Calif., because of its unique client base of emerging growth companies.

The banks Mr. Morford rated "neutral" are: Bancorp Hawaii Inc. and First Hawaiian Inc. of Honolulu; California Bancshares of San Ramon, Calif.; First Security Corp. and Zions Bancorp Salt Lake City; Union Bank of San Francisco; Washington Mutual Savings Bank of Seattle; and West One Bancorp of Boise, Idaho.

Mr. Morford, who moved to Alex. Brown from Keefe, Bruyette & Woods Inc. two months ago, reiterated the firm's existing "neutral" rating on Westamerica Bancorp of San Rafael, Calif. He will assume coverage of the bank from Mark Alpert.

While optimistic about western banks, Mr. Morford noted that consolidation has been slow in materializing.

Observers have been predicting a mergers and acquisitions wave to sweep the region for some time, particularly California with more than 450 community banks.

But "high expectations among potential sellers and weak stock valuations among potential buyers are likely to limit the incidence of larger deal activity," Mr. Morford said. "Instead, we anticipate several combinations of middle market or community institutions, continuing the trend of the past two years."

Also Thursday, Interstate/Johnson Lane upgraded BankSouth Corp. to "buy" from "hold," saying the bank would be sold soon, possibly at $30 a share. The company's stock rose $1.75 to $21.75, a 52-week high.

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