SVB Financial (SIVB) Ratings & Outlook Affirmed by Moody's

Ratings of SVB Financial Group SIVB have been reiterated by Moody's Investors Service, an arm of Moody's Corporation MCO. The company’s long-term issuer rating and senior debt rating of A3 has been affirmed. Also, the rating agency kept the outlook stable.

Further, its main bank subsidiary — Silicon Valley Bank — has been rated Aa3/Prime-1 for deposits with an issuer rating of A3. Also, its standalone baseline credit assessment (BCA) remained at a2 and its counterparty risk assessments at A1(cr)/Prime-1(cr).

Reasons for the Ratings Affirmation

The ratings are based on SVB Financial’s earnings strength and impressive asset quality. Also, the company’s robust liquidity and capital position as well as sustainability of its business model supported growth.

Per Moody’s, SVB Financial has a “niche business model banking venture capital, private equity, and technology, life science companies.” These provide the company with low-cost funding sources, thus supporting its strong liquidity position.

Further, per the rating agency, the company’s credit quality is better than the similarly rated peers, although “its business focus has led to an above-average growth rate, sector concentrations and appetite for sizable single credits”. Though the company witnesses asset quality volatility owing to business model, these are “near the median of similarly-rated peers.”

Also, this business model is sustainable as SVB Financial continues to display “expertise and knowledge of the sectors it serves, as well as its long-standing relationships with venture capital and private equity firms.”

Moreover, the bank’s strong internal capital generation and absence of shareholder payout help it maintain a solid capital position. The rating agency assesses SVB Financial’s robust liquidity and high capital ratios as buffers to credit volatility and risks related to above-average loan growth.

What Could Make Moody's Change the Ratings

SVB Financial’s BCA ratings could be revised upward by the rating agency if the company witnesses meaningfully slower pace of loan growth as well as “reduced sector and borrower concentrations” on assumption that other financial metrics are stable.

On the flip side, in case SVB Financial’s liquidity position and underwriting standards weakens, the rating agency may downgrade its ratings.

Shares of SVB Financial have jumped 58% in the past six months, outperforming 21.2% rally of the industry.

 

SVB Financial carries a Zacks Rank #3 (Hold).

Stocks Worth a Look

A couple of stocks in the same space worth a look are Cathay General Bancorp CATY and Columbia Banking System, Inc. COLB. Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Cathay General Bancorp moved 10.1% upward for the current year, in the last 60 days. The company’s share price has jumped 19.5% in the past six months.

Columbia Banking System witnessed 12% upward earnings estimate revision for the current year, in the last 60 days. Its share price has increased 15.7% in the past year.

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Moody's Corporation (MCO) : Free Stock Analysis Report
 
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