Silicon Valley Bankshares, the Santa Clara, Calif., company whose lending is closely tied to the technology sector, saw its shares fall 10.9% Friday after it had issued a profit warning for the year.
Late Thursday, John H. Dean, the banks president and chief executive, cut his earnings estimate for the year to a range of $2.60 to $2.80 per share, from $3, and well below the First Call/Thomson Financial consensus of $2.84. The share price fell to $23 Friday, down $2.8125. Though Mr. Dean said that the company expects earnings of 65 cents to 68 cents per share this quarter (68 cents would match the consensus), some on Wall Street expressed concern, and one analyst downgraded the stock.
Silicon Valleys announcement came during one of the worst weeks in the stock market in some time as the selloff in technology stocks spread throughout the market.
Citing a slowdown in cash flow from the venture capital sector, coupled with the expiration of certificates of deposit, Silicon Valley reported a 6% decline in average deposits during the first two months of the year.
The company also said it has identified three loans with a combined value of $8.8 million that could become nonperformers, and it said nonperforming assets could rise to 1.5% of total loans in the first quarter, from 1.07% in the preceding quarter.
However, Mr. Dean said that average loans grew 5% in the first two months and earnings should increase 6% to 14% this year.
Other aspects of our financial performance remain quite strong, Mr. Dean said in the statement Thursday, in particular our net interest margin and efficiency ratio.
But though Mr. Deans statement calmed some analysts, Jordan Hymowitz of Robertson Stephens in San Francisco was less convinced and cut his rating to long-term attractive, from buy.
Individually, we do not feel that these two issues would justify a downgrade at this point, he wrote in his research note about credit quality and deposit deterioration. However, these factors, combined with Silicon Valleys lending franchise being so closely tied to the technology and life sciences industries, leads us to conclude that downside risk to Silicon Valleys earnings outweighs the upside potential throughout 2001.
Rosalind Looby of Credit Suisse First Boston expressed disappointment at the banks performance but said she was surprised that margins had improved to 7.2% for January and February. She had expected 6.8% and subsequently kept her rating at buy, and Joseph K. Morford of Dain Rauscher Wessels in Minneapolis saw no reason to back off his strong buy.
Also bullish on the stock is Frank J. Barkocy, director of research at Keefe Managers, who said that concerns about the dot-com situation and the technology industry are overblown. I had a close look at the bank for several weeks and anticipated the announcement, he said. The remarks are not nearly as bad as suggested by some investors.
Keefe Managers increased its position in Silicon Valley on Friday. The company did not want to disclose how many shares it bought, but according to Bloomberg the firm had owned 63,500 shares as of Thursday.
Meanwhile, in another messy day for the broad market, the American Banker index of 225 banks fell 2.33%, and its index of top 50 banks 1.71%. The Standard & Poors 500 index lost 1.96%, and the Nasdaq composite index 2.57%.