On Oct 9, 2013, we downgraded our long-term recommendation on SVB Financial Group (SIVB) to Neutral from Outperform due to a persistent increase in operating expenses. Though the company’s second-quarter results were impressive, we remain concerned about the still low interest rate environment, sluggish economic recovery and regulatory pressure.
Why the Downgrade?
Rising operating expenses remains a headwind for SVB Financial. We believe that expenses will mount further due to higher regulatory compliance costs and continuous recruitment of staff.
Moreover, SVB Financial’s profitability will likely suffer owing to increase in costs and fee restrictions due to various financial reform laws. Additionally, stringent regulatory requirements are expected to adversely affect the bank’s lending as well as the investment abilities.
SVB Financial is slated to release third-quarter earnings results on Oct 21. The Earnings ESP for the company is 0.00% and it currently holds a Zacks Rank #2 (Buy). As a result, we are not so confident about a positive earnings surprise this quarter. However, the company’s second-quarter earnings substantially surpassed the Zacks Consensus Estimate.
The Zacks Consensus Estimate for 2013 advanced 3.3% to $4.13 per share over the last 60 days. Further, for 2014, the Zacks Consensus Estimate increased marginally to $4.17 per share over the same time period.
Further, SVB Financial has been continuously lowering its long-term debt level. Reduction in long-term debt will lead to lower interest expenses, which in turn would result in an improved bottom line.
Other Stocks Worth Considering
Some better-performing banks include Glacier Bancorp Inc. (GBCI), BofI Holding, Inc. (BOFI) and CoBiz Financial Inc. (COBZ). While Glacier Bancorp carries a Zacks Rank #1 (Strong Buy), BofI Holding and CoBiz Financial carry the same Zacks Rank as SVB Financial.