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Silicon Valley Bancshares (SIVB) Message Board

  • deceptive_blends deceptive_blends Apr 25, 2002 2:49 AM Flag

    Rodeno & Morford

    The company recently added Ms. Michaela Rodeno to its audit committee. Ms. Rodeno is the CEO of St. Supery Winery, a company which also happens to have received a $4 million credit line from Silicon Valley Bank. "Beyond a lack of any formal accounting background," Apogee Research observes, "Rodeno's addition raises concerns because of the loans that SIVB has extended to the winery. It is not illegal to lend money to a company controlled by or closely associated with a member of the audit committee. "But, ideally, from the minority shareholders' perspective, a member of the audit committee is an individual who has some sort of accounting background and who has not received a sizeable loan and credit line from the company itself."

    Last Thursday, SIVB released a first-quarter earnings report that reflected deteriorating profitability from ALMOST every angle imaginable. But RBC analyst, Joe Morford, seemed to let his imagination run wild when interpreting the results. For example, Joe writes, "Both deposit levels and the margin stabilized and showed signs of improving in the quarter."

    But in fact, "deposits in the March quarter tumbled 6% from year-end 2001," Apogee Research calculates. Net interest margin also fell markedly. "On a year-over-year basis, net interest income dropped 40%, non-interest
    income slid 29% and net income plummeted 60%," says Apogee. "About the only line items showing any growth whatsoever were the compensation and benefit lines. Compensation and benefit expenses jumped 7% year-over-year..."

    "RBC Dain Rauscher Inc. managed or co-managed a public offering of the securities of Silicon Valley Bancshares within the past three years." Presumably, therefore, RBC would like to conduct investment-banking business for SIVB in the future as well.

    "The author(s) of the report hold(s) a long position in the common shares of Silicon ValleyBancshares." What other conclusion could he possibly reach than to recommend buying it?

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    • You don't say whether you are talking about deteriorating profitability from 1st quarter 2001 or 4th quarter 2001. No one is arguing 1st quarter 2001, but that is moot, considering that what we're interested in is whether things are beginning to turn around from the downward quarterly trend. When you consider that many profitability statistics (including of course net income) are up from the fourth quarter, there is some evidence that a turn around is in progress. Also if you look at average deposits from the fourth quarter 2001 to 1st quarter 2002 (probably a better measure than end of quarter, since companies do end of year window dressing on their balance sheets) those are up also.

      As far as Ms. Rodeno is concerned, I would guess that SVB felt they needed someone with industry expertise on the audit committee. At any rate, a $4 million line of credit is hardly material to SVB's overall loan position.

      Don't know much about Apogee Research, but they seem to be looking for reasons to take a negative position on the company. Wonder if they have some kind of axe to grind?

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