Silvergate Capital investors rush for the exits as crypto bank reassesses its future
Proactive Investors – fell sharply today after fourth-quarter results showed the extent to which the New York-listed digital currency bank suffered in the wake of the FTX scandal.
The company’s total deposits from digital asset customers declined to US$3.8bn at the end of December, a reduction of 68% throughout the quarter.
In response, Silvergate used wholesale funding to satisfy outflows and sold US$5.2bn worth of debt securities for cash.
Silvergate was intrinsically linked to the formation of Sam Bankman-Fried’s FTX, formerly the second-largest cryptocurrency exchange before imploding in a whirlpool of criminal fraud and severe professional misconduct allegations.
“Life as a crypto firm can be divided up into before Silvergate and after Silvergate,” Bankman-Fried once said of Silvergate. “It’s hard to overstate how much it revolutionised banking for blockchain companies.”
At one point, that would have been a stunning endorsement. Today it’s a curse.
Market turmoil has caused Silvergate to drastically reconsider its hiring strategy.
Throughout 2022, Silvergate hired a large number of employees to keep up with the growth of its business, but is now having to reduce its headcount by approximately 200 employees, or 40%.
Employees made redundant were notified on Wednesday, January 4. Redundancy packages are expected to incur an US$8mln profit hit in the first quarter of 2023.
Silvergate also capitulated its mortgage warehouse lending product at the end of 2022, incurring another US$4mln restructuring charge.
These numbers are peanuts compared to Silvergate’s US$196mln impairment charge on intangible assets relating to its acquisition of the former Facebook-linked stablecoin project Diem Group.
“Given the significant changes in the digital asset industry landscape, this charge reflects the company’s belief that the launch of a blockchain-based payment solution by Silvergate is no longer imminent,” said Silvergate.
Following the debt securities fire sale, Silvergate holds approximately US$4.6bn in cash and cash equivalents, ringfenced from deposits from digital asset customers.
In response to the melange of worrying news, SI shares fell 43% to US$12.57 in Friday’s pre-market trade, or 90.5% on a year-on-year basis.
