Tech Sector Downturn Takes Toll on Bank

Silicon Valley Bancshares has ridden the tech sector’s boom--and now may have to deal with the bust.

The Santa Clara-based bank’s stock tumbled Tuesday after the firm warned that a recent pullback by venture capital firms has left some formerly cash-rich clients high and dry--slashing the bank’s deposit growth rate.

The stock (ticker symbol: SIVB) plunged $9.75, or 22%, to $34.75. That just returned it to where it was two weeks ago, however, when the price began to rebound after sliding for most of the last three months with the tech sector.

The bank’s management disclosed in a conference call with analysts that the growing liquidity squeeze in the tech sector was hitting more start-up companies and executives who have powered the bank’s rapid growth for several years.

Silicon Valley Bancshares, with $5.5 billion in assets, is a unique player in financial services, targeting tiny companies that often fall below the radar screens of most banks. The bank until recently has been a Wall Street darling, reaping gains on stock warrants and direct investments while raking in deposits from newly minted millionaires in its namesake valley and from tech centers around the United States.

“They’ve always been a deposit growth story,” said Prudential Securities analyst Eva Radtke.

But as venture capitalists cut off funding to faltering companies, and as tech-company executives see their stock-option riches evaporate, the bank’s deposit flows are waning. The company on Tuesday estimated that average deposits would grow by about 15% next year, down from the more than 20% it had anticipated, said Radtke, who slashed her “strong buy” rating down to “hold” on the news.

The bank, however, hopes to convince Wall Street it can continue to exceed industry growth rates by bolstering its lending programs.

Aiming to allay worries that more tech-company borrowers may be having trouble paying their bills, Chief Executive John C. Dean said that “despite the recent volatility in the markets, we have seen no deterioration in our loan portfolio.”

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Guilt by Association

Shares of Silicon Valley Bancshares, a lender to many fledgling businesses in that region, were hammered on Tuesday after the firm said deposit growth was slowing as the tech industry struggles. The stock has been sliding with the tech sector since late summer.

Silicon Valley Bancshares, monthly closes and latest on Nasdaq

Tuesday: $34.75, down $9.75

Source: Bloomberg News