Silicon Valley Bank (NASDAQ:SIVB) has operated for the better part of 30 years as the bank of choice for its namesake region's famous industry. It's catered exclusively to tech start-ups, a strategy that has been wildly -- and consistently -- successful during that stretch of time.
However, it's critical to note that operating in a niche market -- without a diversified product portfolio -- can also work to a company's detriment. Should the tech industry falter, or worse, collapse, Silicon Valley Bank could land in a pile of trouble. So far, the company has managed to avoid this fate, but will it be prepared if the house of cards collapses?
A full transcript follows the video.
This podcast was recorded on Dec. 7, 2015.
Gaby Lapera: Actually, I was just thinking, do you want to comment on -- because we were just talking about how it's really important to have a company that has diverse business interests. And we were just harping on Medallion for being a niche lender. So what do you think about that in terms of Silicon Valley Bank?
John Maxfield: That's a really good point, Gaby. Well, I mean, the benefit of being heavily concentrated in Silicon Valley are all the things I've talked about. The detriment, obviously, is that if something happens where all your venture capital financing, or something impacts the tech sector, like say, the tech bubble when that burst in 1999 or 2000, that is going to hit Silicon Valley Bank.
So it's not as diversified as, say, your Wells Fargo or US Bancorp is; so that is a risk you're going to take. But so far, it has offset that risk with higher returns.