Silvergate Surges on Earnings Showing Business Is “Intact”

Silvergate Capital Corp. rose after posting fourth-quarter results that further outlined steps the bank is taking to weather the FTX meltdown, after the crypto exchange’s collapse forced it to fire staff and sell assets.

(Bloomberg) — Silvergate Capital Corp. rose after posting fourth-quarter results that further outlined steps the bank is taking to weather the FTX meltdown, after the crypto exchange’s collapse forced it to fire staff and sell assets. 

Silvergate reported a $1 billion loss for the period and said it will shed some non-core, digital-asset customers, eliminate a portion of its digital-asset product portfolio and assess its pipeline of prospective customers. The bank will also discontinue offering its crypto custody service, according to its Chief Executive Officer Alan Lane. 

The news hit investors who’d already digested preliminary results from Silvergate earlier this month which revealed a dramatic draw down in deposits and plans to fire 40% of the bank’s staff. That may have left them less phased by Tuesday’s earnings. 

“Things have kind of troughed out a little bit, and I don’t really think there were any surprises,” KBW analyst Michael Perito said in a phone interview. He pointed to Silvergate’s $4.6 billion of cash on hand as well as its $12.93 in book value per common share — a key gauge of bank health that was better than Perito expected. 

“The business is intact, and has battled through a historic shock to its system, with still plenty of capital and liquidity at hand,” Perito wrote in an earlier note.

Still, Silvergate’s results showed how the FTX collapse sent depositors fleeing, with its total average deposits for digital-asset customers at $7.3 billion in the fourth quarter, compared to an average of $12 billion in the preceding period. Signature Bank, which also reported results on Tuesday, said deposits from cryptocurrency clients fell $7.35 billion.

La Jolla, California-based Silvergate’s shares soared as much as 28.5% on Tuesday before paring those gains to trade at $13.91 at 13:30 p.m. in New York. Signature Bank rose as much as 11% earlier in the day before similarly giving up most of those gains.

‘Decisive Actions’

“While we are taking decisive actions to navigate the current environment, our mission has not changed,” Lane said in a statement Tuesday. “We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers.”

During a conference call with analysts, Lane said the bank would stop offering certain cash management services and discontinue crypto custody services as they no longer offered profitability. Silvergate’s shedding of certain “non-core” customers would likely not exceed more than 10% of digital-asset deposits, Lane said.

Silvergate’s $1 billion loss stemmed mainly from asset sales it was forced to make following the unraveling of FTX. It also recorded a $134.5 million impairment charge tied to about $1.7 billion of securities it expects to sell in the first quarter of 2023 to reduce borrowings.

The bank disclosed in its preliminary results earlier this month that customers withdrew roughly $8.1 billion in deposits in the last three months of 2022 as FTX unraveled.

“The only thing positive to say about this report is that people were already fearing the worst, so the stock might see a better-than-feared knee-jerk move higher,” Vital Knowledge founder Adam Crisafulli wrote in a note. “Beyond that, there’s very little to be enthused about.”

Both Silvergate and Signature modeled themselves as go-to banks for crypto companies and as early providers of services catering to the industry. They built systems to allow real-time fiat currency transactions between cryptocurrency customers with deposits at the bank. Silvergate made crypto a far more central aspect of its business, intensifying the impact of the implosion of FTX. Signature, with more diversified business lines, embarked on a widespread pull back from the crypto industry following the collapse.

(Updates with latest on shares in sixth paragraph and details from the conference call from ninth paragraph.)

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