In the high-tech El Dorado known as Silicon Valley, John Dean has learned not to be too dazzled by all the gold.
The CEO of Silicon Valley Bank has gone to great lengths to refocus his executives on what they know best: Serving the technology and venture capital community here and around the country.
Keeping that focus - in a valley of many temptations for a banker - is a constant challenge.
"If you don't know what you're doing, this can be a very high-risk business," said Mr. Dean, a former Seattle banker who turned around Silicon Valley Bank since arriving here three years ago.
"A lot of people have become wealthy in the Valley, but a lot of people have failed, too," he said. "If you understand the risks, you can manage the risks. We do a very good job, but we work very hard at it."
"It's all the risks that normal bankers have, plus you have to be able to evaluate technology," agreed Edgie Scott, senior vice president of special markets at Imperial Bank, Los Angeles. "There's always the question of where all the money is going to come from to make the company successful."
No institution better illustrates the experience of banking in the Valley than the one that bears its name.
When Mr. Dean came to Silicon Valley Bank in April 1993, he found a once-proud and booming niche bank brought to its knees by the temptations of the Valley.
Founded in 1983, the fast-growing high-tech lender had expanded to almost $1 billion in assets in its first 10 years, and by 1993 had made a name for itself in technology-oriented finance.
But it was also saddled with low-tech, bad real estate loans and properties equaling about 7.9% of total assets. And it had just lost $2.2 million in 1992, prompting state and federal regulators to crack down.
Brought in by the board to rebuild the broken bank, Mr. Dean immediately saw the secret of the niche bank's success: a return to its roots.
"You need to understand what you do and do it well," Mr. Dean said. "Do fewer things, but be the best at what you do."
Now the bank is booming again, as the Valley bustles with new activity and real estate opportunities.
The bank is now being mimicked by banks such as Los Angeles-based General Bank and Imperial, eager to cash in on a market that Silicon Valley Bank has otherwise dominated. And all have hired former Silicon Valley Bank lenders to head up their own efforts.
"Silicon Valley Bank is the kingpin and we all learned our lessons from them," said Eric Hardgrave, senior vice president for high-tech lending at General Bank's Silicon Valley office, and a former lender at Silicon Valley Bank. "They still control the lion's share of the marketplace. They are the leader, no doubt about it."
The high-flying bank soared with the fortunes of the California economy in the 1980s, particularly the technology sector. It specialized in loans to emerging growth high-technology and life science companies that were too new to turn a profit and too untested to qualify for attention from other banks.
The high-tech lenders at Silicon Valley developed close ties to the region's vital venture capitalists. And they regularly milked those ties, providing banking services to the firms and seeking new business among the eager entrepreneurs desperate for funding.
"Silicon Valley Bank has created a very clear focus and the personnel and the network system that allows them to take a higher risk on the surface than another bank - but with their expertise, it's actually lower," said Roger Smith, founder and former chief executive of the bank, who resigned in late 1992.
With larger banks such as Citicorp, BankAmerica Corp., and Wells Fargo & Co. focused on larger and well-established companies, the upstart high-tech business in the '80s was virtually an exclusive niche for Silicon Valley Bank.
But its management wasn't content to rest on its laurels in the late '80s while other banks were reaping the benefits of California's real estate boom.
Following the lead of countless other banks and thrifts, Silicon Valley Bank strayed into speculative real estate, allowing such loans to eventually take up half of its portfolio. And like many in California, the bank was burned when the floor dropped out of the market.
Nonperforming assets soared and, in 1993, regulators ordered the bank to tighten its procedures, build its infrastructure, and deal with its bad assets. The San Francisco Federal Reserve Bank and the state only recently lifted their cease-and-desist orders.
"We got into things we didn't know well, and shouldn't have gotten into," Mr. Dean said. "We made mistakes. We don't do that anymore, and we're not tempted to get back in."
The bank has restored its stress on high-tech lending, now accounting for more than 60% of its portfolio. Geographic expansion has also continued across the country, most recently with an office in Bellevue, Wash., in the shadow of Microsoft Corp.'s headquarters.
And officials have sought out new niches to explore, particularly premium California wineries, church lending, and even independent movie production.
Net income has soared from just $124,000 in the second quarter of 1993 to $5.6 million in the second quarter of 1996. Likewise, returns on equity have improved in the same period to 19.6%, from just 0.7%.
With the explosive rise of the Internet and continued economic boom, Mr. Dean and other high-tech lenders aren't worried about any slowdown in the Valley. And they remain unfazed by the inherent risks of banking on the unpredictable futures of their high-tech customers.
"Everybody thinks it's rocket science. It's not," Mr. Hardgrave said. "A lot of us tend to follow management teams. We're betting on a horse that's already run in other races."
"Is the PC here to stay? Is the Internet a passing interest or the thing of the future? Are biotechnology products, medical devices that could save lives, a passing fad?" Mr. Dean asked. "Markets may heat up and slow down, but this is the most exciting place to be for the future."
