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Silicon Valley Bank in Santa Clara, California.
Andrei Stanescu / Dreamstime.com
SVB Financial
has already had one of the most impressive recent journeys in the banking sector, thanks to its links with the so-called innovation economy. But one
JP Morgan
analyst says the good times are just beginning.
SVB (ticker: SIVB), which operates Silicon Valley Bank, had its strongest quarter on record in first three months of the year, with customer inflows up $ 45 billion from the quarter previous, while the bank added 1,600 new customers. While analysts are not sure this will continue at the same rapid pace, growth prospects remain “very solid”, according to Steven Alexopoulos of JP Morgan. Shares are up 57% this year, beating the 32% jump in the
SPDR S&P Bank
exchange-traded fund (KBE).
Following a meeting with SVB management, Alexopoulos noted that the bank is uniquely positioned to take advantage of companies that are increasingly turning to digital products in the wake of the pandemic. SVB was historically the benchmark for start-ups, offering early stage finance for businesses and private banking services to founders. While many larger peers offer such end-to-end services to businesses, not all are willing to take the risk of a start-up.
“To this end, with no other competitor offering all of the end-to-end capabilities of SIVB, the company’s ‘gap’ as a bank of the innovation economy continues to widen,” wrote Alexopoulos. And while SVB once had to fear that its customers would be ripped off by bigger rivals when they are no longer start-ups, the bank, with $ 300 billion in customer funds, now has the size to compete. In fact, by working with so many start-ups as it grew, SVB was able to see what kinds of products and services its customers demanded as they mature, and it developed those capabilities.
Alexopoulos maintains its overweight rating in equities and sees the stock rise to $ 725 over the next 18 months. SVB shares rose 0.9%, to $ 607.50, on recent trading, while the
S&P 500
was flat.
Barron recently wrote that SVB is well positioned to benefit from loan growth, with management saying earlier this year that it expects loan growth to increase by over 30%. Alexopoulos also sees other levels of growth: namely, an increase in interest rates.
For every 100 basis point increase in the federal funds rate, SVB could see its income increase by 10%, which would increase the earnings per share by 19% and the tangible book value of the bank by 5%, based on first quarter numbers, he said. wrote.
Write to Carleton English at carleton.english@dowjones.com
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