A California bank's sharply reduced earnings forecast has raised concerns about a slowdown in the high-technology economy and its effects on lenders.

Silicon Valley Bancshares, which is as closely identified with the Northern California high-tech sector as its name implies, said its fourth- quarter earnings could be as much as 50% below analysts' estimates.

The Santa Clara-based banking company said it will charge off $7 million and take a loan-loss provision of $16 million to $20 million.

As a result, net income should come in at $4 million to $6 million or 20 to 25 cents a share-a far cry from the analyst consensus estimate of 42 cents.

In heavy stock trading Tuesday-the announcement was made after the market closed Monday-shares of the $3.1 billion-asset company fell by $6.75, to $17.75.

"We believe this is the right decision and a prudent one," said John C. Dean, president and chief executive officer of $3.1 billion-asset Silicon Valley. "It will better position us for 1999."

In a conference call with analysts and reporters, Silicon Valley executives said the chargeoffs are connected mainly to a bridge loan product and the Quick Start lending program, which have a combined portfolio of $130 million.

The company said that bridge loan underwriting standards have slipped as the market has become more competitive, "which suggests that default rates are likely to be higher."

The Quick Start program consists of more speculative, unsecured investments of about $250,000 in companies at early stages of product development. With technology companies facing shortened product life cycles, Internet companies' business models quickly becoming obsolete and needing retooling, and venture capitalists showing less willingness to participate in later financing rounds, such lending has become increasingly risky, company officials said.

A general economic slowdown in Northern California (see related article on page 4) and the decline in initial public offerings by technology companies may also be contributing to the bank's woes.

A recent forecast of the California economy from the University of California at Los Angeles found that the boom in the Golden State "is over." It projected 1999 job growth of 2.4%, down from 3.2% this year, with most of the gains in Southern California.

Analysts were shocked and disappointed by Silicon Valley's announcement. But they were encouraged to see that the bank was attempting to stay ahead of the curve.

"Although Silicon has succeeded in technology lending, the sector has weakened," said Louis J. Feldman, a bank analyst at Red Chip Review in Portland, Ore. "Sometimes these things come back to bite you."

"I was surprised by the magnitude of the provision," said Steve Didion, a bank analyst at Hoefer and Arnett in San Francisco. "But they reacted aggressively."

For the full year, Silicon said it anticipates its allowance for loan losses to total more than $45 million, with nonperforming loans of $20 million to $25 million. Its loss reserve amounts to 3% of loans outstanding.

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